As concerns deepen for the future of the US automotive sector, European automotive manufacturers may be well advised to learn from the challenges facing their American counterparts, says a survey out today from KPMG International.
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According to the latest annual KPMG survey of industry leaders, the US automotive industry faces a ‘time-critical challenge to address its legacy issues and improve its competitiveness and product efficiency as the competitive threat from the Asian brands grows stronger’.
When asked whether the US manufacturers could become more efficient and competitive in the next five years, only a mere 32 percent of respondents agreed – down from 56 percent in a previous KPMG International survey just four years ago.
It is the sixth time that KPMG has run its annual survey, questioning 140 senior auto executives across the world on the issues affecting the industry.
Commenting on the results, Mike Steventon, Head of Automotive at KPMG in the UK, said: “The challenges facing the American manufacturers should serve as a wake-up call to the European manufacturers. The irresistible rise of the Asian brands has been bolstered by South Korean and Chinese manufacturers adding to the impetus which the Japanese brands created. Europe is a highly attractive market for the existing and emerging Asian brands and European brands therefore need to ensure that they are better positioned to deal with the challenges this brings than their American counterparts have been.
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By GlobalData“If the Chinese – and South Korean – brands do make their expected play for Europe, the established European OEMs (Original Equipment Manufacturers, vehicle makers) will need to be ready. They must invest in new technologies, be at the forefront of innovation, be flexible and efficient. Simply having a strong brand is not enough to operate successfully in a global industry.”
“For several years, this survey has highlighted the trend of Asian brands gaining market share, predominantly at the expense of American brands. This year, we are also seeing a real concern – even from North American respondents – over whether American brands can manage to reverse this trend. There now appears to be a greater realisation of the dangers facing the sector and the substantial restructuring needed to address its legacy issues. Realistically, these manufacturers have a window of four to five years in which to turn this around.”
When asked about profitability over the next five years, the largest single response (35 percent) was that it would be “volatile and unpredictable”, ahead of “generally declining” at 28 percent. The concerns over profitability are linked to growing recognition of overcapacity within the industry. The resultant over-production has led to a culture of sales incentives, particularly within North America, resulting in ever-decreasing margins.
This year’s survey again points to the growth of the Asian brands with 88 percent of respondents expecting them to gain further market share. Confidence in the European brands is middling at best with only 34 percent expecting an increase, compared to 28 percent expecting a decline. North American brands seem set to suffer though, with only 19 percent expecting an increase and 58 percent expecting a decrease.
When asked which brands would most likely increase their market share, South Korean and Chinese brands both registered near-80 percent response rates.
KPMG said it feels that the next five years may well see a sustained assault on the European markets by these emerging brands in particular. They will have to overcome barriers of branding, dealer support, image and quality but if they manage to do this, they may well initially target the relatively lower-priced Eastern European markets, where price sensitivity may outweigh brand loyalty and the playing field may be more level in terms of distribution networks, KPMG said.
Mike Steventon continued: “When evaluating the core factors that have contributed to the decline in US brands’ market share, European OEMs would be well advised to consider two key points. Firstly, for many years, American OEMs developed products specifically for the U.S.A. and Canada, meaning that there were very few natural exports markets. At some point though, U.S. customers went global, showing more of an interest in the types of models which the non-American manufacturers were producing, leaving their indigenous manufacturers behind. Secondly, rising oil prices have meant that American OEMs were hit right where it hurt the most – in the profitable SUV sector. That sector declined, taking away the industry’s most profitable mainstay and exposing the problems of relying so heavily on a single sector in terms of profitability.”
“Elsewhere in the survey, there was plenty of further pessimism to emerge over future business prospects. Perhaps with the high profile bankruptcies of Delphi and Collins & Aikman still fresh in the mind, 76 percent of respondents felt that a major OEM or supplier would file for bankruptcy in the coming years; a number that rises to 82 percent among North American respondents – suggesting that any run of business failures still has some way to go.”
