From Detroit Free Press
DETROIT — Automotive executives think their companies will make even less money in the next five years as competitive pressures intensify worldwide, and they predict more consolidation and bankruptcies in the industry, according to the seventh annual Auto Executive Survey by KPMG LLC, to be released to the public today.
“Expectations for future profits are clearly falling almost everywhere in the car business,” a report summarizing the survey findings says.
From Detroit to Tokyo and Seoul, earnings are being squeezed — so much, in fact, that 63 percent of respondents in the survey of 140 senior-level executives said profits in the next five years would be volatile or decline.
The largest number of respondents, 35 percent, thought profits would be “volatile and unpredictable,” while 28 percent predicted they would decline. Another 21 percent predicted profits would remain flat, with the smallest percentage, 16 percent, predicting they would increase.
KPMG, an international audit, tax and advisory firm, bases the results on a wide-ranging survey of executives at auto companies and their suppliers in October and November 2005. About 50 of those executives surveyed were based in North America, while the rest were in Europe and Asia.
“Clearly, the highly charged competitive atmosphere and the pressure to cut costs are having an impact,” the KPMG report says.
Europeans were the most optimistic auto executives, with 29 percent predicting profits would rise slightly. And despite their big gains in the United States automotive market, Asians were the most pessimistic. Almost half — 49 percent — expect that profits would decline.
North American auto executives, meanwhile, were the most moderate of the group, with 46 percent predicting profits would remain flat during the next five years.
Generally, the outlook is negative. In fact, 76 percent of respondents in the survey believe an automaker or another big supplier like Delphi Corp. will go bankrupt in the next few years.
“That large a group said ‘yes’ is somewhat telling,” said Betsy Meter, an audit partner in KPMG’s automotive practice.
Among the other survey findings:
Auto executives are losing hope that North American brands will increase their competitiveness, with 32 percent saying they think it will happen. That’s down from 56 percent four years ago.
About 41 percent of executives think future cost savings will come from “benefits and health care.”
Eighty-six percent strongly agree that even more automotive business will be conducted across country borders during the next five years.
Fears of overcapacity in China are growing. Last year, 52 percent of respondents thought there were too many plants and auto companies. This year, that figure rose to 62 percent.
The time to design, engineer and build a new vehicle might not decline much more from its current level, which is about three years. The number of executives who think that time will shrink in the next five years has dropped from 63 percent in 2004 to 48 percent in this year’s survey.
Most auto executives still think consolidation will occur among Tier 1 and Tier 2 part suppliers, but the number who think there will some consolidation among vehicle manufacturers shot up to 51 percent in the latest survey from 35 percent last year. Only 35 percent predict no change in consolidation activities.
The days of robust sales growth for SUVs and pickups are over. Auto executives think crossovers, small cars, family sedans and alternative fuel vehicles such as hybrids will soon populate the world. That’s largely because of the growing importance of fuel efficiency. More than 80 percent of executives feel that consumers want efficient vehicles, compared with 58 percent in 2002.
Copyright 2006 Detroit Free Press. Distributed by Knight Ridder/Tribune News Service. All Rights Reserved.
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