Stagnation in American and European markets, rising tariffs, and rapid technological changes have thrust the automotive industry into deal-making mode. Automakers and suppliers are grappling with an unprecedented period of soaring costs and margin pressure—all while needing to invest heavily in new capabilities. As companies reassess where they can compete, two things are clear: A leadership position is essential, and consolidation is the route forward. Mergers and acquisitions will enable companies to spread R&D costs, reduce overhead, and secure a stronger position in the contracting global supply chain.

After two years of muted M&A activity, global deal value rebounded, hitting more than $35 billion during the first nine months of 2025 (see Figure 1). Strategic acquirers paired scale investments with bets on software, electronics, and artificial intelligence. OEMs and suppliers returned to the table with confidence, reigniting large-scale transactions not seen since the pre-pandemic era. Average deal value rose to $1.2 billion during the first three quarters of 2025, more than double the level for 2023. Scope deals remained dominant at about 80% of volume in 2025, but scale deals rebounded (see Figure 2).

Figure 1

Figure 2

Amid the upheaval, winners are strategically using M&A as an engine to transform the business. That’s a huge shift for an industry that didn’t do a lot of dealmaking in the past.

We see three key trends to watch: consolidation for scale and relevance; a focus on software, AI, and advanced driver assistance systems (ADAS); and tie-ups in automotive and defense.

Consolidation for scale and to maintain relevance: Consolidation will continue as automotive and mobility companies reorganize their portfolios to achieve leadership positions. High, ongoing margin pressure will force companies to rank among the top three in terms of relative market share or else divest those businesses that cannot clear that hurdle. Scale is particularly imperative for auto suppliers as they manage the transition from the internal combustion engine to electric vehicles, new electrical/electronic architectures, and software-defined vehicles (SDVs)—all while coping with stagnant growth and intense pressure on margins. One example of the trend is American Axle’s $1.44 billion bid to acquire Dowlais Group to reinforce its competitiveness in driveline and powertrain components.

Auto dealers also face pressure to consolidate—in this case, to strengthen bargaining power and leverage scale advantages in an evolving distribution ecosystem. Asbury Automotive, an automotive retailer and services company, acquired Herb Chambers for $1.3 billion to expand its geographic footprint. The move will help diversify Asbury’s portfolio with more high-margin cost-efficient luxury stores; it will also continue to build scale to amortize fixed investments, though significant action will be needed to integrate the portfolio and achieve improved financial outcomes. Additionally, Eagers Automotive agreed to acquire a 65% stake in CanadaOne Auto Group for around $700 million to expand further into Canada.

Meanwhile, with European and North American markets stagnant, India has become the only global market apart from Greater China offering substantial growth, and that is generating a rush for partnerships and joint ventures. Global OEMs and suppliers will need partners in India to obtain access to the market, localize offerings, capture cost advantages, and serve a rapidly expanding domestic market.

Increased focus on software, AI, and advanced driver assistance systems: Technology continued to reshape automotive M&A in 2025, with more than half of all deals involving semiconductors, electronics, sensors, and software engineering capabilities. Automakers and suppliers accelerated acquisitions that strengthen the digital and electronic foundations of next-generation vehicle architectures. Key transactions included NXP’s $625 million acquisition of TTTech Auto for SDV architecture and ADAS platforms as well as Infineon’s $2.5 billion purchase of Marvell’s Automotive Ethernet unit, strengthening its connectivity and microcontroller portfolio.

These and other acquisitions illustrate a fundamental realignment. Traditional hardware companies are integrating digital capabilities to control the software layer that will define future vehicle functionality. Some companies will hedge their bets by pursuing partnerships for these capabilities.

We expect alliances between automotive and software companies to grow in the years ahead. Consider how advanced driver assistance systems require software, AI, and hardware capabilities. Developing cockpit user interfaces and smart cabins will call for teams that understand consumer demands for connectivity features and seamless integration between driver devices and applications.

Tie-ups in automotive and defense: A few recent transactions, such as Leonardo’s $2 billion acquisition of Iveco’s military business, highlight how defense players are selectively tapping into the automotive industry to enter or enhance their land defense systems. At the same time, some automotive OEMs are exploring adjacent opportunities in defense as a potential growth path to counter flat global vehicle sales.

Regional adaptation is also becoming increasingly important for automotive companies as product requirements diverge across markets. Leading OEMs are reconfiguring products and supply chains for regional needs to ensure resilience and competitiveness. The challenge is not only achieving scale but also determining where along the value chain scale creates significant competitive advantage. Key strategic decisions include the pursuit of regional vs. global scale and partnerships vs. acquisitions.

These trends will reshape the industry beyond 2026 as geopolitical flux, supply chain realignment, and technological disruption make M&A a vital tool to keep pace.

To ensure success, winning companies are investing to boost their capabilities in strategic planning, corporate venturing, and post-merger integration. As the pace of change intensifies, they’re using AI-enhanced analytics and scenario planning to assess regionalization, technology markets, and geopolitical risks in real time.