Automotive executives are less confident about the overall industry’s return to the profitability levels of 2000 compared with survey results of a year ago, pushing a recovery back at least two years, according to the results of professional services firm KPMG LLP’s fourth annual survey of the automotive industry.
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In the global study of automotive manufacturers and suppliers, 30% of the 100 executives surveyed said they expected industry profitability levels of 2000 to return by 2005 at the earliest. In the survey last year, 36% forecasted better profits in 2003, while 24% thought greater levels of profit would come in 2004. Only 7% felt that profitability would be at its greatest level in 2005.
“It’s obvious from the survey findings that the executives no longer see profitability rebounding any time soon — both as a result of the economic downturn and of consumers’ expectations for rebates, special pricing and other financial arrangements,” said national industry director of KPMG’s Automotive practice Brian Ambrose.
“Right now, North American manufacturers are in a transition phase and, over the next few years, plan to roll out dozens of models with exciting styling and new technology. They are banking that these new vehicles will recapture the eye of the consumer, returning them to profitability and making zero-percent financing a thing of the past.”
The survey also shows motor industry executives continue to be pessimistic about market share for US brands. A majority of respondents (52%) said they expected global market share for US car makers to decrease over the next five years, while only 11% felt market share would grow. Last year, 51% expected US brands to lose market share, while 22% felt market share would grow.
Asian brands were almost universally seen as prospering, with 79% of respondents saying they expected them to gain market share. Meanwhile, 47% of respondents felt European brands would increase market share, with 42% saying they expected market share to remain the same.
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By GlobalData“It’s not at all surprising to see executives cite a continuing decline in market share,” said Ambrose. “Asian and European brands have been successful at bringing the right product to the market quickly while being flexible in their manufacturing processes to respond to changes in demand.”
With profitability continuing to be a challenge, vehicle makers are seeking new ways to cut costs. In this year’s survey, significantly more respondents see assembly innovations and outsourcing as opportunities for cost savings than in last year’s survey, while about the same number of respondents saw computer modelling as an opportunity. Reduced sales initiatives, distribution, marketing and communications were all seen as offering less opportunity for cost savings than a year ago.
Another factor affecting car makers’ profitability has been the recent and extensive use of zero-percent financing and other sales incentives by US brands. But only 48% of respondents expected an increase over the next five years in the use of sales incentives for car buyers. This is down significantly from 63% in 2001.
“Over the past 12 months the industry has been focusing much of its attention on zero-percent financing and discounts,” Ambrose said. “The American consumer has become very fickle and interested in affordability but, at the same time, demands quality products. I truly believe that the message the US car makers have been delivering is one of pricing and not new product innovation.”
As far as what style of vehicle consumers want most, expectations for the increase in popularity of “crossover” vehicles rose significantly compared with last year. Seventy-three percent of the respondents said crossovers will increase in market share over the next five years, compared with 58% in last year’s survey. Market-share expectations for cars, SUVs and minivans all eased from last year; the number of respondents who thought pickup trucks would gain market share, however, fell to 27% this year from 39% a year ago.
“Consumers continue to refine their driving preferences,” Ambrose said. “A lot of people have been driving sport-utility vehicles, but prefer the ride of a car. It appears that vehicle makers are listening to consumers and in the future we will see more vehicles that provide the functionality of SUVs based on a universal car platform.”
When it comes to consumer tastes, motor industry executives felt that quality, affordability and safety are the three most important factors their customers consider in making a purchase decision. These results were essentially in line with last year’s survey, although 76% indicated safety as an important issue compared with 88% last year. Fuel efficiency and luxury were viewed as important by slightly more executives this year than a year ago.
Safety was seen as the most important area for product innovations over the next five years, as it was in 2001. But fuel cells and drive-by-wire technology fell sharply from last year. Only 55% said fuels cells were an important product innovation, compared with 64% last year. Similarly, drive-by-wire was cited by only 39% versus 50% a year ago. Meanwhile, engine management systems made significant gains, with 57% of respondents calling it an important innovation, compared with just 30% last year.
Other consumer trends motor industry executives see taking shape over the next five years:
* 63% expected an increase in the number of new car purchases negotiated and completed over the internet. This is up from 57% in 2001.
* Only 42% expected an increase in the amount of time consumers would keep a new vehicle. This is down from 48% in 2001.
Additional survey findings:
* 29% agreed that over the next five years California’s new emissions standards will be adopted nationwide.
* 51% agreed that over the next five years there will be a major increase in vehicle recycling.
* 58% expected participation in B2B digital exchanges, such as Covisint, to increase. This is down significantly from 82% in 2001.
* 74% agreed that over the next five years suppliers would continue to consolidate.
