Industry Downturn Nearing an End, Report Says

From Detroit Free Press

DETROIT — The global automotive industry is nearing the end of a massive restructuring period and now will become more focused on growth, profits and environmentally friendly vehicles, according to the annual Auto Executive Survey by KPMG LLC, to be released Tuesday.

This year’s survey, based on interviews late last year with 113 senior executives at vehicle manufacturers and suppliers worldwide, found executives much more confident than in the recent past about the outlook for the near term.

"Many executives in our survey are seeing the light at the end of the tunnel," said Daron Gifford, national automotive industry leader for KPMG, an international audit, tax and advisory firm.

While not everyone is upbeat, he said the results are clear: "Optimism is on the rise."

While many of the executives surveyed said profits would remain volatile and unpredictable, 26 percent anticipated that global automotive profits would rise in the next five years, with just 14 percent predicting a decline.

That is much more optimistic than two years ago, when only 16 percent expected a rise in profits, and 19 percent predicted a decline.

Another optimistic sign: The number of executives anticipating major auto companies would go bankrupt fell to 36 percent in 2007. That compared with 56 percent, in 2006.

Fueling much of the optimism was the general perception among survey participants that manufacturing capacity has been reduced globally.

In fact, 30 percent of the executives surveyed said there was no overcapacity in the industry, compared with just 6 percent last year. Most respondents said overcapacity was now less than 30 percent industry wide. And no respondents said there was more than 30 percent overcapacity in the industry, compared with 10 percent a year ago.

Those findings "support the notion that maybe that restructuring has progressed sufficiently," said Hans Flick, KPMG’s automotive technology sector leader.

Gifford noted that the survey results represent views from around the world at both large and small companies, and are not Detroit-based.

"It’s not completely rose-colored," he said of the survey findings. "There’s still a lot of concern that there could be some large fluctuations."

Another trend identified in the survey is that environmental and sustainability issues remain top priorities for car buyers.

According to the survey, automotive executives continued to say that quality (86 percent) and fuel efficiency (84 percent) are the two key factors for consumers in making a purchase in the next five years. Last year, 88 percent said quality was an important purchase decision, with 89 percent ranking fuel-efficiency high.

Because of that, most executives said there would be a major investment in low-cost, introductory cars, as well as hybrids and other technology.

Nearly half of the respondents, meanwhile, expected to see a decrease in sales of SUVs and large pickups.

When it comes to continued automotive growth in Asia, the executives also predicted that auto sales in China would be equivalent to those in the United States within five years. They also said Chinese vehicles would be sold in the United States before the decade was out.