Senior executives at OEMs and suppliers expect revenues to decrease over the next 5 years. From 2009 to 2013 they predict more insolvencies and as a result more restructurings and M&A. In addition they believe global overcapacity will become even more of an issue. They do however see growth potential in emerging markets and through the development of alternative fuels and new technologies. These are the results of a KPMG survey involving 200 execs in the auto industry.
Uwe Achterholt, Global Chair of Automotive at KPMG says “Almost half of the respondents expect fluctuations in revenues or cannot estimate with confidence the profitability of their business. This is an unusually high result and not a good sign for the industry which is dependant on long term planning to a great extent.” one in four believe that the profitability of their business to decrease and only one in six respondents expect it to increase for the period from 2009 to 2013.
The risk of insolvencies is expected to be much higher than in previous years. More than twice the number of respondents compared to last year’s study believe there is a risk of insolvencies in the industry; this year 77 percent compared to 36 percent the previous year. Tier 1 suppliers are the most pessimistic. 87 percent of these believe increasing number of insolvencies whilst among the OEMs it is three out of four respondents who make this prediction. The key reason for their prediction of insolvencies is loss in sales according to 9 out of 10 managers. Other potential causes that were mentioned were a cost structure that is not competitive and debt and pension requirements.
The impending threat of insolvencies is a driver for M&A in the industry according to many respondents. Approximately three quarters see this factor as important in the current survey while a year ago it was 55 percent and two years ago it was 33 percent. Respondents believe there is a particular likelihood of restructurings amongst OEMs and dealers. 71 percent of the sector believes that there will be M&A and alliances amongst OEMs in the next 5 years. A year ago it was only half of the respondents who expected this result. In this year’s survey 6 in 10 experts expect restructuring at dealers.
Fear of overcapacity has increased significantly – Last year 70 percent of the auto mangers believed that too many cars were produced. Now all respondents believe that overcapacity is a problem. The proportion of respondents that expect over capacity of 11-20% in the next 5 years has almost doubled in comparison with the previous year’s results increasing from 32-59 percent and one in five respondents even expect overcapacity of at least 21%.
Hope for the future: alternative fuels, new technologies and emerging markets – Irrespective of the current crisis respondents are hopeful for the future of the automotive industry. This is based on the development of alternative fuels, new technologies and the potential in the emerging markets. Respondents expect the auto industry in emerging markets to grow faster than in all other regions. Outside China and India, the biggest potential growth is expected in Central and Eastern Europe as well as central and south America especially in Brazil. Uwe Achterholt says “It is interesting to see that businesses don’t see an opportunity to improving their situation through a better or stronger cost control as was the case in previous years. Instead they are looking to new products and markets.”
Consumers are becoming increasingly price sensitive – Respondents are expecting cost to be an increasingly important factor in consumer purchase decisions, more so that the quality of the vehicle. Nearly all respondents (96 percent) are convinced that lower fuel consumption will be the most important criteria in the next 5 years and affordability of vehicles is likely to be more important than quality in Europe.
Chinese brands are catching up – Chinese and Indian auto brands are expected to significantly expand their market share according to respondents. 81 percent of respondents believe that Chinese manufacturers will increase their market share between 2009 and 2013. Similarly 78 percent expect a positive development for Indian auto brands. There is also quite a positive outlook in Germany 60 percent of the experts interviewed expect VW to increase its market share. 40 percent of respondents expect BMW’s market share to rise and 32 percent predict a market share rise for Mercedes. US manufacturers on the other hand are losing out. Two thirds of respondents believe that GM, Ford and Chrysler will lose market share.