Automotive industry executives have identified finding alternative fuel sources as the number one trend facing the industry and are focused on producing low cost cars and hybrids to meet consumer demand, according to an annual global survey by KPMG LLP, the U.S. audit, tax and advisory firm.

In the KPMG survey, based on interviews with 113 senior executives at vehicle manufacturers and suppliers worldwide, auto execs said quality (86 percent) and fuel efficiency (84 percent) are the two key factors for consumers in making a purchase in the next five years. Other top consumer criteria are safety (70 percent) and affordability (69 percent). The execs also feel that car buyers will want vehicles using alternative fuel sources, which has jumped considerably in importance from KPMG's survey a year ago (65 percent versus 53 percent).

"The industry knows where it is and knows where it needs to be," said Daron Gifford, National Automotive Leader for KPMG LLP. "It needs to produce quality vehicles that are fuel efficient, especially in this economic cycle, and it needs to invest heavily in developing alternative sources of power. We found the execs in our survey more optimistic than past years, and that's largely because the landscape before them is clearer on the direction they need to go."

To meet demand, auto execs in the KPMG survey said that in the next five years, in terms of global market share and units sold, 81 percent expect major increases in low cost/introduction cars and an equal percentage expect increases in hybrids. This was followed by cars, at 67 percent, and crossovers at 58 percent. Categories of vehicles expected to fall are SUVs and large pick-ups, with 47 percent projecting a decrease in SUVs and 50 percent projecting a decrease in large pickups.

Asked to rate the importance of automotive product innovations over the next five years, 79 percent cited hybrid systems and 78 percent fuel cell technology, with safety innovations trailing at 67 percent.

The auto industry projected alternative fuel/hybrid vehicles sales to be in the 500,000 to 600,000 range by the end of 2007. Thirty-two percent of execs in the KPMG survey felt that we will see an equal number sold in 2008, while 25 percent saw a modest increase to 600,000 to 700,000 vehicles. Sixteen percent expect sales in the 700,000 to 800,000 range, with 27 percent expecting sales to top 800,000. The execs surveyed last year under projected sales of alternative/hybrid vehicles for 2007; only 17 percent expected sales to top 500,000.

"The auto execs expect heavy investment in new models/products and new technologies in the next two years as well as building capacity in Asia," said KPMG's Gifford. "Not investing puts manufacturers at risk in terms of market and product differentiation, resulting in market share decline."

Investment in China has been so strong that the number of cars sold in China could equal that of the United States in the next five years, the execs said. In addition, they feel that China will sell a significant number of cars in the U.S. in 6-10 years. What also may result, however, are problems with overcapacity, with 45 percent of the execs saying that overcapacity in China will become an issue in the next five years.

In the KPMG survey, the executives interviewed represented vehicle manufacturers and suppliers in Canada, United States, England, France, Germany, Sweden, India, China, South Korea, Japan and Australia. KPMG has released an annual survey of automotive executives expressing their views on the state of the industry since 1999.