Auto industry executives are expected to see a rise in investment in new powertrain technology, new plants, alternative fuel technologies and high growth markets, merger and acquisition activity over the next five years, according to the 12th annual global automotive survey conducted by KPMG LLP.
Following years of economic uncertainty and industry restructuring, global auto executives expect U.S. auto brands to increase market share over the next five years, spurred by product innovation, restructuring activities and continued improvement in product quality. The outlook marks a dramatic turnaround in their expectations from a year ago, according to the 12 annual global automotive survey by KPMG LLP, the U.S. audit, tax and advisory firm, said the report.
The report also found that found that industry executives also remain focused on investing in alternative fuel vehicles, will also increase investment in new plants and products, and will continue to invest in emerging markets for growth.
When asked to predict global market share winners over the next five years, Ford jumped to 43 percent seeing market share gains compared with 29 percent in 2010 and 13 percent in 2009.
General Motors saw the most significant climb among the respondents in this year's survey, as 40 percent of executives expect its market share to increase over the next five years, up considerably from 13 percent in 2010 and 15 percent in 2009. Chrysler also saw a double-digit increase in the number of executives predicting improvement - finishing at 24 percent this year versus just seven and a half percent in 2010.
Although U.S. automakers saw the most significant improvement compared with 2010 survey data, executives identified Chinese brands, as well as existing global players Volkswagen (#4 in 2010), Hyundai/Kia (#2 in 2010), Indian brands (#3 in 2010) and BMW (#9 in 2010) as the top five market share winners this year. Honda ranked seventh, ahead of Ford, and Toyota ranked ninth just ahead of General Motors.
This year's survey results clearly demonstrate that the restructuring efforts of the past several years have helped U.S. auto manufacturers emerge more efficient and more competitive, said Gary Silberg, National Automotive Industry leader for KPMG LLP. Moreover, despite the economic challenges they continued to invest in new product innovation. The efforts have paid immense dividends for the industry and today we see a completely different landscape for U.S. automakers. As a result, competition today among global automakers is intense and that's a trend that will certainly continue.
In fact, Silberg notes, global executives surveyed in 2007 expected the U.S. auto turnaround. When asked about when they expect the restructuring to be completed by U.S. OEMs, 64 percent of the execs surveyed said before 2011. And when asked if the restructuring will allow the OEMs to be more efficient and competitive, 59 percent felt that would be the case, with only 10 percent disagreeing.
What's remarkable is that no one could have predicted the economic crisis, yet auto companies stayed the course and managed to come out of it healthier, despite incredibly significant challenges, said Silberg. We also can't ignore the unprecedented role the government played in supporting the U.S. auto industry.
The 2011 KPMG survey also finds the auto industry heavily investing in future technology, new products and safety improvements. In fact, when asked where manufacturers would increase investment over the next two years, new products (97%), new powertrain technology (93%), and improvements to safety performance (87%) were the top selections.
Another indication that the industry is getting healthier is that these execs are telling us that investment is back on the table this year, said Silberg. Vehicle manufacturers understand there is pent-up demand for new cars, especially in the United States, and we're seeing some significant investment in new products and technology. In addition, more than half the execs expect increased spending on new plants, as we've recently seen with several automakers bringing new, state-of-the art facilities online to replace older capacity that has been phased out.
Alternative Fuel Technologies
In addition to these production-related investments, auto executives also say they will be increasing their focus on alternative fuel technologies, specifically hybrid fuel systems, battery electric power and fuel cell electric power. Despite the apparent focus on electric power, seven in ten respondents to the KPMG survey say that the auto industry won't be able to offer an electric vehicle that is as affordable as traditional fuel vehicles for mainstream buyers for at least four years.
When asked what the most effective ways of making electric vehicles affordable for mainstream buyers are, the most popular responses were government subsidies (38%), automakers partnering with energy providers to generate after-sales revenues on e-components (20%), and consolidation among e-car technology partners (13%). With regard to what would happen to government subsidies for the automotive industry in their respective countries, executive were mixed. Twenty-four percent expect subsidies to increase, 34 percent say they will remain the same, and 43 percent predict a decline.
Ultimately the automakers will not be successful with these models until the vehicles become competitive without subsidies, added Silberg.
With regard to investment in global growth markets, respondents predict increased investment in China (58%), India (50%), Brazil (41%) and Russia (33%).
Forecast for Mergers and Acquisitions
Nearly two-thirds (64%) of the KPMG survey respondents believe the number of alliances, mergers and acquisitions during the next five years will increase for vehicle manufacturers. According to executives, the specific global drivers of the M&A activity include access to new technologies and products (88%), access to new markets and customers (88%), product portfolio diversification (79%) and potential for product synergies (77%).
Sixty-two percent also think M&A will increase for tier-one suppliers versus 71 percent in 2010, tier-two suppliers (47%) and dealers (46%).