Sixty-four percent of global executives say their companies will increase investment in new plants over the next five years, up from 55 percent in KPMG’s 2012 survey. U.S. automotive executives are even more bullish about bringing new plants online, with 70 percent predicting increased investment.
These executives intend to bring new plants online despite the fact that more than half say there are overcapacity risks in many mature markets, including Japan (66 percent), Germany (60 percent), France (58 percent), Spain (54 percent) and the U.S. (53 percent).
In fact, nearly a third of global executives (29 percent) estimate more than 21 percent overcapacity, down from 36 percent of executives with the same estimate last year. U.S. respondents are less concerned, with 95 percent of execs estimating overcapacity under 20 percent.
“Capacity remains an issue globally, but the U.S., back to selling 15 million cars a year, is seeing increased investment interest from global automakers who continue to bring new plants online despite any capacity concerns,” said Gary Silberg, national automotive industry leader for KPMG LLP. “Companies in Europe and Japan may be struggling to ‘right-size’ the supply-and-demand equation, but the trend in automotive right now is to bring the supply closer to where the customers are. Just look at the number of foreign automakers and suppliers who’ve announced plans to build new plants here.”
Silberg adds that he sees “a continued shift in decision making authority toward local executives because companies recognize each market is unique with highly variable dynamics.”
Globally, 25 percent of executives indicate that the most effective solution to the issue of overcapacity is consolidation and joint ventures amongst automakers, followed by 19 percent who say increased exports. Conversely, 25 percent of U.S. executives say exports are the most effective solution, followed by cutbacks in production and increased sales incentives.
Distribution channels key investment area
Logistics and distribution was the second most frequently cited area for increased investment, indicated by 65 percent of global executives. Specifically, 72 percent of executives indicate that an OEM captive sales and distribution network is very important to future success in mature markets. Additionally, 71 percent say captive financial services arms are very important for future success. In fact, 55 percent of executives say that OEM captive financial services activities will generate the most growth over the next five years.
“Captive finance is becoming an increasingly important part of the value proposition for consumers and OEMs alike,” said Silberg. “We continue to see significant investment in this area, including some very recent acquisitions, which will provide these automakers with more competitive finance options for customers and dealers and create an additional revenue stream for the OEMs. Captive finance options will continue to be an avenue many automakers explore and expand.”
M&A/Joint Ventures seen enhancing profitability
For decades, mergers and acquisitions and joint ventures (JV) have been an important investment strategy in the automotive industry; and, according to the annual KPMG survey, that trend will continue over the next five years. In fact, when asked which strategies were most important to the future success of their companies, 53 percent of executives indicated mergers and acquisitions, and 72 percent said joint ventures and strategic alliances.
According to executives, the top global drivers of the M&A/JV activity include access to new technologies and products, access to new markets and customers, and access to scales and synergies.
According to KPMG’s Silberg, “The resurgence of the industry and improved cash position allow auto manufacturers to be more aggressive in driving growth and product innovation, setting the stage for an active M&A environment. The proliferation of technology and the critical role it plays in a vehicle’s operation is also forcing automakers to form alliances with new suppliers and systems integrators to ensure the successful launch of new features.”
For the KPMG Global Automotive Executive Survey 2013, KPMG interviewed 200 C-class global automotive executives, including 22 from North America, representing vehicle manufacturers and suppliers, in November 2012. KPMG has released an annual survey of automotive executives expressing their views on the state of the industry since 1999.
About KPMG LLP
KPMG LLP, the audit, tax and advisory firm (www.kpmg.com/us), is the U.S. member firm of KPMG International Cooperative (“KPMG International”). KPMG International’s member firms have 152,000 professionals, including more than 8,600 partners, in 156 countries.
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