LOS ANGELES – In contrast to their previously upbeat views about the recovering economy, automotive industry executives have tempered their optimism and plans for hiring and capital spending next year, according to a recent survey conducted by KPMG LLP, the audit, tax and advisory firm.
Conducted in advance of the Los Angeles Auto Show, the KPMG survey found that although automotive executives remain bullish on 2012 revenue projections, they indicate that cost-management and restructuring initiatives remain priority areas on corporate agendas.
In the KPMG Automotive Executive Survey conducted in October, 42 percent of respondents said they expect the economy to improve in the year ahead and 73 percent don’t foresee a full economic recovery until the end of 2013 or later. These are noted shifts from KPMG’s previous executive survey, conducted in July, when 58 percent of executives expected an improved economy in 2012 and 71 percent predicted a full recovery before the end of 2013.
Regression in Hiring, Capital Spending Plans
In addition to tempered perceptions on the economy, from Q3 to Q4, the KPMG survey also found similar regression regarding plans for hiring and capital spending next year. Fifty percent of executives surveyed in Q4 expect to add employees next year (compared to 62 percent in Q3), and 62 percent expect to increase capital spending – a decline of nine percentage points compared with 71 percent in Q3.
"One major finding of our most recent survey are the concerns that executives have over the macro economy, in particular the potential contagion with a European slowdown and the implications for the U.S. economy," said Gary Silberg, national automotive industry leader for KPMG LLP. "In addition to the uncertainty regarding the global economic environment, auto execs are challenged with intensified competition, pricing pressures and volatile commodity prices."
Despite the economic environment and significant macro-economic factors, 77 percent of executives surveyed in Q4 expect their companies’ revenue to increase next year – up from 72 percent in Q3.
"Auto executives remain bullish, building on the momentum of the past two years, and continue to invest heavily in new product development and product innovation," added Silberg.
In fact, when asked what the biggest drivers of revenue growth would be over the next three years, executives most frequently cited "new models/products" and "expansion into new geographic markets."
According to Silberg, while they remain focused on new products, auto execs also indicate a renewed concern about costs and improving efficiencies. In fact, when asked what actions would have the most positive impact on profitability over the next three years, improving manufacturing efficiencies, reducing overhead costs and restructuring existing operations were more frequently selected, up significantly compared to the Q3 survey, according to KPMG.
"Auto companies have become much more efficient and can adjust accordingly," said Silberg. "Cost-management and operational efficiency have risen back to the forefront, and the most intense scrutiny will likely be on the supply chain."
According to KPMG’s Q4 auto survey, the most significant challenges in the automotive supply chain, as indicated by automotive executives, are rising commodity costs, capacity and transparency – all of which saw a significant increase in responses Q3 over Q4. Additionally, execs say the most significant opportunities for improvement in supply chain are better communication/supplier relationships, increased transparency throughout the supply chain and accelerated innovation from suppliers.
"Companies are looking for suppliers they can trust and suppliers with the ability to ‘grow as we grow’," added Silberg. "The recent events we’ve witnessed with supply chain disruptions have opened everyone’s eyes and have placed supply chain management initiatives squarely in the spotlight."
The KPMG survey conducted in October 2011 reflects the responses of 89 senior executives in the auto industry. Based on revenue in the most recent fiscal year, 51 percent of respondents work for institutions with annual revenues exceeding $10 billion, 27 percent with annual revenues in the $1 billion to $10 billion range, and 22 percent with revenues in the $100 million to $1 billion range.
