Auto Executives More Optimistic About Industry Future
Sentiment among auto executives has risen significantly recently, according to a new survey by KPMG.
“This change in mindset appears to indicate that the industry has seen the bottom of the market and is regrouping with new technology – geared towards production efficiencies and meeting continuing consumer and regulator demands for fuel efficiency and clean energy – and with the promise of vast numbers of new buyers in developing markets.”
Indeed, as corporate responses to decreasing profits has shifted in focus from cost-cutting messages to the creation of long-term solutions to new challenges, optimism among executives seems to have responded accordingly.
“The top four issues challenging executives continue to be product quality, reducing costs, effectively exploiting new technologies, and the state of the global economy. Environmental issues, while not the most important concern overall, have grown by 11%, far more than any other issue.
Key trends from KPMG’s 2008 Global Auto Executive Survey:
- Rising profitability
- Cost-saving opportunities in manufacturing, material innovation, and Low-Cost Country sourcing
- Private equity firms’ recognition of value
- Post-restructuring competitiveness of North American companies
- Diminished threat of bankruptcy
- Supplier consolidations in Asia
- Growing and still untapped Asian markets
- Focus on fuel efficiency and environmental concerns
While M&A activity is expected to decline over the next five years among manufacturers, it is expected to rise among suppliers and dealers. Executives continue to see alliances and mergers as significant vehicles for industry restructuring and new market entry. Continued high levels of activity are predicted in Asia, Eastern Europe and other developing markets.
Executives from Asian firms are the most likely to be of the opinion that their company’s market share will increase in the next five years. Similarly, it is a near consensus that Asia will be the region that sees the most growth in manufacturing capacity.
China is seen as the most important emerging market, with many executives believing that the number of units sold in China will rival the number sold in the US within five years.
Similarly, roughly seven in ten executives believe China will be exporting a significant number of cars into the US within ten years.
Looking ahead, executives’ opinions of “[c]onsumers’ interest in alternative fuel sources is higher by 12 percentage points than in 2006, and as an issue is neck and neck with the core consumer issue of affordability.”
More than a quarter of those surveyed expect sales of hybrids to exceed 800,000 this year, up from around 500,000 in 2007.
In conclusion, KPMG says the “positive mood [among executives] characterizes what can be called Phase II of the restructuring and suggests a modicum of financial stability as a result of the efforts in Phase I. In this new phase, markets in China and India are expected to dominate, but the effect is truly global as the beneficiaries include North American and European as well as Asian companies.”
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