While still emerging from a period of historical crisis few had anticipated, senior global automotive executives see their industry stabilizing over the next five years with new investment and growth on the horizon.
However, the 200 senior executives representing vehicle manufacturers and suppliers worldwide, say they continue to face certain economic headwinds including high unemployment rates, better but still constrained credit markets and lack of clarity with regard to the impact of new government regulations and stimulus programs. Accordingly, executives still see profitability as a significant issue this year; although just over one-quarter of them expect vehicle manufacturer profits to increase, while almost 40 percent expected profits to be stable and 33 percent expect a decline.
"While this year's survey results are considerably more optimistic than last year, global executives will remain cautious, continuing to keep a close eye on cash flow and cost control, which is not a surprise given the tumult in the industry," said Christoph Schenk, Head of Automotive, KPMG in Russia and the CIS. "The respondents believe the winners will be those companies able to gain market share in an uncertain economic environment while also leveraging global products and supply chains."
When asked to predict global market share winners over the next five years, the auto executives identified various new Chinese and Indian vehicle manufacturers, as well as existing global players Kia/Hyundai, Toyota, Honda and Volkswagen as leaders again this year. Ford climbed more than two-fold among the respondents in this year's survey, as 29 percent of executives expect its market share to increase this year versus 13 percent of the respondents last year. General Motors and Chrysler remained on the low rung of market share expectations.
Nearly three-quarters of the KPMG survey respondents believe the number of alliances, mergers and acquisitions during the next five years will increase for vehicle manufacturers. Substantial majorities also think they will increase for tier one suppliers (just over 70 percent), tier two suppliers (56 percent) and dealers (52 percent). These numbers are consistent with last year's results.
According to the survey, the specific global drivers of alliances, mergers and acquisitions include too much debt and risk of bankruptcy (89 percent), access to new technologies and products (84 percent), potential for product synergies (83 percent), and access to new markets and customers (82 percent).
Despite the deep cuts in capacity during the past few years, almost nine in ten executives are still concerned about overcapacity – of those, just over one-third say there is 11-20 percent overcapacity in the U.S. and another one-third say it is in the 21-30 percent range. Similar numbers exist for both Western Europe and Japan, where respondents see overcapacity as an issue by nearly 81 percent and 75 percent respectively. The executives are saying that while they've come a long way in the past year, they still have further to go in "right-sizing" the supply-and-demand equation," Schenk added.
"The executives are saying that despite a year of closures and bankruptcies, overcapacity on a global basis remains an issue- which is one of the key reasons that restructuring in the industry will continue and M&A activity will likely increase."
When asked about the most important issues affecting the global auto industry over the next 12 months, 85 percent of the respondents said developing new technologies, while just over 84 percent pointed to developing new products and another 80 percent said reducing costs.
In a related question, nine of ten executives in the KPMG survey expect vehicle manufacturers to increase their investment over the next two years in new technologies and new models/products while just fewer than 30 percent expect investment in new plants. Asked the same question about an increase in investment by suppliers, 91 percent of the execs said they expected increased investment in new technologies, 78 percent in new models/products and only 28 percent in new plants.
"With the execs telling us that investment is back on the table this year, the vehicle manufacturers understand there is pent-up demand for new cars, especially in the United States, which still has one of the highest per capita car ownership rate in the world," said Schenk. "With a growing population, a steady scrappage rate of old vehicles, and Americans' love for the open road, the U.S. auto industry could be in for a better year ahead, particularly if unemployment numbers fall."
Sales of Hybrids, Alternative Fuel Vehicles to Increase
The KPMG survey respondents overwhelmingly agreed that the sale of hybrid fuel vehicles could help the auto industry get back on its feet is the sale of hybrid fuel vehicles. A full 93 percent think unit sales of hybrids will increase the most in the next five years, followed by other alternative fuel vehicles (83 percent) and low cost or introduction cars (82 percent).
The consensus views of companies on sales in Brazil, India and Russia are also strikingly strong. Expectations of sales volumes in India are equivalent to a consensus that growth of 17 percent will be achieved annually. The consensus is for growth of around 30 percent over five years in Brazil, and of around 40 percent over five years in Russia (although it should be noted that a significant minority think Russian sales will be flat or even fall).
Expectations for the achievement of export sales of over one million rank in order India, Brazil and Russia. Over 50 percent of companies think that level will be achieved by India within five years, and over 45 percent of companies think it will be achieved by Brazil within the five-year horizon. However companies do not believe that Russia is in that league: almost two thirds of companies believe Russia will not sell more than one million cars outside its borders within five years.
Click here to view the survey on the KPMG International website