"This industry has seen the bottom of the market and is focused on the future, investing in new technologies and production efficiencies, with a continued focus on product quality," said Daron Gifford, National Automotive Industry leader for KPMG LLP. "Increased competition is fueling higher levels of optimism. Many execs in our survey are seeing the light at end of the tunnel with respect to the turnaround prospects for North American OEMs."
When asked about when they expect the restructuring to be completed by U.S. OEMs, 64 percent of the execs surveyed said before 2011. And when asked if the restructuring will allow the OEMs to be more efficient and competitive, 58 percent felt that would be the case, with only 10 percent disagreeing.
Furthermore, in looking at market share of North American brands over the next five years, though the majority of executives, 54 percent, still expect it to decrease, 22 percent felt that market share would increase. This is a much more optimistic response than in the KPMG survey last year when 62 percent foresaw a decrease and only 14 percent expected an increase. By comparison, however, 38 percent of execs foresee a market share increase for European brands, versus 17 percent who believe it will decline, and 48 percent expect an increase in market share for Japanese brands, with only 19 percent seeing a decline.
Fueling some of the optimism is the fact that execs see a decrease in overcapacity. This year 14 percent of the execs felt overcapacity was greater than 20 percent, down from 25 percent a year ago and 34 percent in the 2005 survey. "Overcapacity will continue to be an issue, especially when the investments in Asian manufacturing facilities come on line," said Gifford. In fact, 45 percent of the execs in the KPMG survey said that overcapacity will become a serious problem in China in the next five years.
For the second year in succession in the KPMG survey, the executives are anticipating considerable activity on the merger and acquisitions and alliance front. Forty-seven percent expect increasing activity with OEMs, and 72 percent increasing with Tier 1 suppliers and 64 percent with Tier 2 and 3 suppliers. "The execs realize the importance and significance of getting access to new markets and customers," said KPMG's Gifford. "Merger and acquisition activity is also being driven by a need for product synergies and to reduce costs, especially in the areas of buying raw materials and in direct labor cost pressures."
What are the key issues facing the industry? The execs pointed to product quality, at 96 percent, and reducing costs, at 86 percent. They also cited new technologies as the third leading issue, which has jumped considerably in importance, from 68 percent in 2005 to 83 percent in 2007.
Additional key findings include:
- The most profitable companies in the industry will be captive finance companies, noted by 82 percent, followed by the OEMs (54 percent), dealers (53 percent) Tier 1s (43 percent), Tier 2s and 3s (29 percent).
- In what they think consumers will be basing their car buying decisions on, the execs ranked quality (86 percent) and fuel efficiency (84 percent) very high, followed by safety (70 percent), and affordability (69 percent). Moving up higher on the list was 'ability to use alternative fuel sources', up from 53 percent in 2006 to 65 percent in 2007.
- Future cost savings are likely to come from manufacturing and technology innovations (67 percent), low cost country sourcing (65 percent) and product materials innovation (57 percent), though the biggest increases year to year were from direct labor (increasing from 32 percent to 46 percent) and health care, benefits and pension costs (increasing from 34 percent to 46 percent).
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.
