“Global automotive executives 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 … with winners [in the global automotive market] those companies able to gain market share in an uncertain economic environment while also leveraging global products and supply chains.” –Gary Silberg, national automotive industry leader at KPMG LLP
U.S. audit, tax and advisory firm KPMG LLP just released the results of its 11th annual global automotive survey and it offers some interesting insight into a industry that impacts trucking in a myriad of different ways – in terms of freight volumes and technological research and development, to name just two.
The 200 senior automotive executives polled by KPMG represent vehicle manufacturers and suppliers worldwide, and they say automakers will continue to face certain economic headwinds in the coming year – especially high unemployment rates, particularly in the U.S., alongside constrained credit markets and 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, KPMG reports; although just over one-quarter of them expect vehicle manufacturer profits to increase, while almost 40% expect profits to be stable and 33% expect a decline.
So what are the most important issues on the minds of these global auto industry executives in the year ahead? Well, 85% of them said developing new technologies is their top issue, with 84% saying it’s the development of new products (read as: new cars and light trucks), while 80% pointed to the reduction of costs.
In a related question, nine out of ten executives in the KPMG survey expect vehicle manufacturers to increase their investment over the next two years in new technologies and new models/products while just fewer than 30% expect investment in new plants. Asked the same question about an increase in investment by suppliers, 91% of the execs said they expected increased investment in new technologies, 78% in new models/products and only 28% in new plants.
“With the executives 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 U.S., which still has one of the highest per capita car ownership rate in the world,” said Gary Silberg, KPMG’s national automotive industry leader.
“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 added. Such a boom, of course, we be a boon to many truckers as auto sales and by extension production to meet demand generates a lot of freight.
But it’s not all peaches and cream. A lot of consolidation is still predicted to occur within the global automotive industry, with a corresponding reduction in plant capacity envisioned. Furthermore – and this is disheartening, to say the least – most of the executives polled by KPMG believe Chinese and India-based OEMs are going to be among the big winners in the market over the next five years, followed by the Koreans (Kia and Hyundai), the Japanese (Toyota and Honda), and Germany’s Volkswagen. The dearth of belief in the capability of, GM, and Chrysler is at the very least disquieting.
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 also think they will increase for tier one suppliers (just over 70%), tier two suppliers (56%) and dealers (52%) – results that are consistent with last year's trends, KPMG reported.
According to the survey, the specific global drivers of alliances, mergers and acquisitions include too much debt and risk of bankruptcy (89%), access to new technologies and products (84%), potential for product synergies (83%), and access to new markets and customers (82%).
And, despite the deep cuts in capacity during the past few years, almost nine in ten global auto executives are still concerned about overcapacity. Of those, just over one-third say there is 11% to 20% overcapacity in the U.S. and another one-third say it is in the 21% to 30% range. Similar numbers exist for both Western Europe and Japan, where respondents see overcapacity as an issue by nearly 81% and 75% respectively. And while only 7% of the execs see overcapacity as a serious issue right now in China, 33% have concerns in the 3 to 5 year range and 31% in the next 6 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," KPMG's Silberg said "They 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.”
[Well now, that just burst the potential bubble of hope for an uptick in freight from the automotive sector, I think.]
On another front, KPMG’s uncovered this interesting tidbit: the polled global auto executives overwhelmingly agreed that the sale of hybrid and alternatively fuel vehicles could help the industry get back on its feet. A full 93% think unit sales of hybrids will increase the most in the next five years, followed by other alternative fuel vehicles (83%) and low cost or introduction cars (82%).
In line with consumer expectations, when asked to rate the importance of alternative fuel technologies to the industry over the next five years, hybrid fuel systems came out on top (almost 85%), followed by battery electric power (68%), fuel cell electric power (63%), and biodiesel (42%).
“There's no doubt that automaker focus on technology will result in great leaps in alternative and hybrid fuel vehicles, with consumers and the environment reaping the benefits in the long run,” said KPMG’s Silberg. “The consumer mindset on fuel efficiency is forcing automakers to build more fuel efficient cars and to create new product that satisfies demand.”
An interesting mix of insight, if you ask me, so it will interesting to see which projections pan out in the coming year and what end up being proverbial dry holes.