But profitability still a concern
TORONTO, Jan. 7 /CNW/ - Senior global automotive industry executives see their industry stabilizing over the next 5 years, with growth and new investment on the horizon, according to KPMG's Global Auto Executive Survey 2010.
However, the survey indicates that there are still challenges to be faced as companies in the sector emerge from a severe economic downturn few had anticipated.
The 200 senior executives representing vehicle manufacturers and suppliers worldwide say they still face ongoing challenges, including high unemployment rates, particularly in the US, better but still constrained credit markets, and a lack of clarity with regard to the impact of new government regulations and stimulus programs. Accordingly, executives still see profitability as a significant issue this year; although, over one-quarter of them expect vehicle manufacturer profits to increase, while 42 percent expect profits to be stable and 36 percent expect a decline.
Of the 200 respondents, 30 percent were based in the Americas. Of those, 28 percent were based in the United States, 15 percent were based in Canada, 10 percent were based in Mexico, and 7 percent were based in Brazil.
"The survey results give us cause for cautious optimism," said Doug Dawdy, Partner in KPMG in Canada's Transaction Advisory Services practice. "The respondents indicate that the winners will be those companies able to gain market share in an uncertain economic environment while also leveraging global products and supply chains."
Nearly three-quarters of survey respondents believe the number of alliances, mergers, and acquisitions during the next 5 years will increase for vehicle manufacturers. Substantial majorities also think they will increase for tier-one suppliers (just over 70 percent), tier-two suppliers (56 percent), and dealers (52 percent). These numbers are consistent with last year's results.
"Distress M&A transactions in the auto sector have been prevalent over the past year and are seen by the survey respondents to continue through 2010 as debt levels and profitability remain an issue for many," said Dawdy. According to the survey, the specific global drivers of alliances, mergers, and acquisitions include too much debt and risk of bankruptcy (89 percent), access to new technologies and products (84 percent), potential for product synergies (83 percent), and access to new markets and customers (82 percent).
When asked about the most important issues affecting the global auto industry over the next 12 months, 85 percent of the respondents said developing new technologies, while 84 percent pointed to developing new products, and another 80 percent said reducing costs.
In a related question, nine of 10 executives expect vehicle manufacturers to increase their investment over the next 2 years in new technologies and new models/products, while just fewer than 30 percent expect investment in new plants. Asked the same question about an increase in investment by suppliers, the execs said they expected 91 percent increased investment in new technologies, 78 percent in new models/products, and only 28 percent in new plants.
Despite the deep cuts in capacity during the past few years, almost nine in 10 executives are still concerned about overcapacity - just over one-third say there is 11-20 percent overcapacity in the US, and another one-third say it is in the 21-30 percent range. Similar numbers exist for both Western Europe and Japan, where respondents see overcapacity as an issue by nearly 81 percent and 75 percent respectively. And while only seven percent of the execs see overcapacity as a serious issue right now in China, 33 percent have concerns in 3-5 years and 31 percent in the next 6-10 years.
"The execs 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," said Dawdy. "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."
KPMG's Global Auto Executive Survey 2010 was conducted during late September through early November 2009. The 200 executives interviewed represented vehicle manufacturers and suppliers in the United States, Canada, Mexico, United Kingdom, France, Germany, Sweden, India, China, South Korea, Japan, Thailand, Brazil, Spain, Poland, Slovakia, Russia, the Czech Republic, Italy, Switzerland, South Africa, and Australia. KPMG has released an annual survey of automotive executives expressing their views on the state of the industry since 1999. This is the 11th annual survey of its kind.
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SOURCE KPMG LLP
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