Coming out of the deepest recession in 60 years, senior automotive executives have a more positive outlook about the industry than last year. They, however, remain vigilant as they continue to face certain economic headwinds – including high unemployment rates, better but still constrained credit markets and lack of clarity with regard to the impact of new government regulations and stimulus programmes. The situation in South Africa is no different except that the local consumer has been under financial pressure since 2007.
Therefore, for executives, profitability is still a significant issue. Over one-quarter of executives expect vehicle manufacturer profits to increase, while almost 40 per cent expect profits to be stable and 33 per cent expect a decline.
“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,” says Gavin Maile, Africa Automotive Industry leader for KPMG.
Predicting market share winners
When asked to predict global market share winners over the next five years, the auto executives identified various new Chinese and Indian vehicle manufacturers, as well as existing global players Kia/Hyundai, Toyota, Honda and Volkswagen as leaders again this year. Ford climbed more than two-fold among the respondents in this year’s survey, as 29 per cent of executives expect its market share to increase this year versus 13 per cent of the respondents last year. The quality issues currently being exposed by various manufacturers could affect their market share in the short term.
Expecting Mergers and Acquisitions increase
Nearly three-quarters of the KPMG survey respondents believe the number of alliances, mergers and acquisitions during the next five years will increase for vehicle manufacturers. Substantial majorities think they will increase for tier one suppliers (just over 70 per cent), tier two suppliers (56 per cent) and dealers (52 per cent).
According to the survey, the specific global drivers of alliances, mergers and acquisitions will be driven by crisis factors such as too much debt and risk of bankruptcy (89 per cent), access to new technologies and products (84 per cent), potential for product synergies (83 per cent) and access to new markets and customers (82 per cent).
Overcapacity remains a worry
Almost nine in ten executives are still concerned about overcapacity in the US, 81 per cent in Western Europe and 75 per cent in Japan. While only 7 per cent of the executives see overcapacity as a serious issue right now in China, 33 per cent have concerns in three to five years and 31 per cent in the next six to 10 years.
The executives are saying that despite a year of closures and bankruptcies, overcapacity on a global scale remains an issue – which is one of the key reasons that restructuring in the industry will continue and merger and acquisition activity is likely to increase.
Most important issues
When asked about the most important issues affecting the global automotive industry over the next 12 months, 85 per cent of the respondents said it was developing new technologies, while just over 84 per cent pointed to developing new products and another 80 per cent said reducing costs.
In a related question, nine of ten executives expect vehicle manufacturers to increase their investment over the next two years in new technologies and new models/products while just fewer than 30 per cent expect investment in new plants. Asked about an increase in investment by suppliers, 91 per cent said they expected increased investment in new technologies, 78 per cent in new models/products and only 28 per cent in new plants.
Investment is back on the table this year and vehicle manufacturers understand there is pent-up demand for new cars. For this to translate into actual sales requires unemployment numbers to fall, consumer confidence and disposable income to increase and financial institutions to make credit more available.
Sales of hybrids, alternative fuel vehicles to increase
The KPMG survey respondents overwhelmingly agreed that the sale of hybrid fuel vehicles could help the auto industry get back on its feet. A staggering 93 per cent think unit sales of hybrids will increase the most in the next five years, followed by other alternative fuel vehicles (83 per cent) and low cost or introduction cars (82 per cent).
More than 37 per cent of the executives believe the fastest growth in sales over the next five years will occur in South East Asia while just over 30 per cent believe that growth will occur in Eastern Europe.
About the survey
The KPMG survey was conducted during late September through to early November 2009. The 200 executives interviewed represented vehicle manufacturers and suppliers in South Africa, the United States, Canada, Mexico, United Kingdom, France, Germany, Sweden, India, China, South Korea, Japan, Thailand, Brazil, Spain, Poland, Slovakia, Russia, Czech Republic, Italy, Switzerland and Australia.