DETROIT — Senior global auto industry executives appear to be cautiously optimistic about the next five years, as many expect auto market stability, investment and growth, but are still concerned with a number of issues impacting the industry, according to KMPG, which recently released its 11th annual global automotive survey.
The study, which gathered insight from 200 senior executives at OEMs and suppliers throughout the world, found that many respondents feel they have continued to improve the way they tackle specific economic challenges, such as high unemployment, especially in the U.S.
However, credit markets and the uncertainty of the impact of new government regulations and stimulus program remains a challenge.
As such, profitability remains a major issue for auto execs in 2010, the study noted. Specifically, 40 percent of those surveyed believe their automaker's profits will be stable, while a third are projecting their profits to fall. Only a little more than a quarter are anticipating a rise in their OEM's profits.
"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," explained Gary Silberg, national automotive industry leader for KPMG.
"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," he added.
Who Will Command Most Market Share?
Continuing on, the study also asked the executives to name which automakers they believe will be "winners" in terms of market in the course of the next five years.
Among those cited as leaders were various new Chinese and Indian OEMs and existing automakers such Kia/Hyundai, Toyota Honda and Volkswagen.
Among the Big 3, Ford seemed to have made a big impression this year, as 29 percent of respondents believe it will boost market share. A year ago, only 13 percent said the same.
Meanwhile, respondents, once again, placed General Motors and Chrysler on the "low rung" in terms of market-share projections.
Executives Anticipate Mergers, Acquisitions
Next, KPMG found that close to three-fourths of respondents expect growth in the number of alliances, mergers and acquisitions for automakers. Looking at these figures in more detail, a little more than 70 percent see these increasing for tier-one suppliers, while 56 percent said the same for tier-two suppliers.
And 52 percent believe these figures will increase for dealers.
Last year's results were similar, officials noted.
What are the specific factors leading to these alliances, mergers and acquisitions? According to the study, 89 percent cited too much debt and risk of bankruptcy as major drivers while 84 percent pointed access to new technologies and products as a major reason.
Potential for product synergies (83 percent) and access to new markets and customers (82 percent) were also pivotal factors.
Concerns of Overcapacity
Moving along, the study indicated that close to nine-tenths of respondents expressed concern regarding overcapacity, even though manufacturers have made strong efforts to cut capacity as of late.
Among those concerned, a little more than a third felt that the U.S. market has 11-20 percent overcapacity. Meanwhile, close to the same percentage of respondents believe, instead, that overcapacity is more likely in the area of 21 to 30 percent.
Western European and Japanese markets had roughly the same figures, officials shared. Eighty-one percent see overcapacity in Western Europe, while 75 percent see the same in Japan.
The study also pointed that overcapacity is not seen as a "serious issue" in China right now (only 7 percent feel it is), but a third expect this to be a problem is the next three to five years. Thirty-one percent foresee it to be an issue within six to 10 years.
"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," Silberg shared.
"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," he added.
Executives Share Pressing Concerns
Next up, KPMG asked auto execs to identify the most important issues impacting the global auto industry during the next year. Eighty-five percent of respondents cited the importance of new technologies development and a little more than 84 percent stressed the importance of developing new products.
Meanwhile, 80 percent noted cost reduction.
Furthermore, KPMG asked a related questioned and found that 90 percent of respondents anticipate a boosted investment from OEMs in new technologies and models/products in the next two years.
However, less than 30 percent said the same of new plants.
As far as the same question regarding suppliers, the numbers were similar.
Ninety-one percent are projecting stronger investments in new technologies and 78 percent are expected more focus on new models/products. Just over a quarter (28 percent) said they foresee added investments in 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," Silberg stated.
"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," he noted.
State of Hybrid, Alternative-Fuel Models
Moving on, KPMG found that a large portion of auto executives believe hybrid sales can potentially aid in the industry's recovery. Specifically, 93 percent of respondents predict that over the next five years, hybrid sales will show the most growth. Eighty-three percent said the same of alternative fuel vehicles and low cost or introductions were next (82 percent).
Finally, survey respondents shared their thoughts on which regions (outside of the BRIC countries of Brazil, Russia India and China) in the next five years they feel will show the strongest increase in auto demand.
Interestingly enough, Southeast Asia was the choice of 37 percent of respondents, while Eastern Europe was cited by 30 percent.