KPMG: Industry Is Past Rockiest Part Of Road

General Motors' 2008 centennial ad campaign asks the rhetorical question, "What's next?" Auditing firm KPMG LLP's new annual survey of automotive executives suggests GM isn't the only one asking--and answering--its own question.

In the firm's annual global survey, executives say the way forward will be global vehicle platforms and alternative fuel sources. The firm, which has been asking automotive industry leaders to prognosticate since 1999, posed questions to some 113 senior manufacturer and supplier executives in Canada, the U.S., Europe, India, Australia and East Asia.

The firm says the auto industry is embarking on what might be the second phase of a "massive restructuring." The first was the rash--over the past several years--of downsizing, cost-cutting, a shift to flexible manufacturing, and shifting of production to emerging markets and other countries with favorable production economics.

The next phase, says KPMG, will be a revolution in technology and vehicle design, with a focus on environment and sustainability. The firm predicts greater profitability in coming years, a stabilization of bankruptcy rates and growth-oriented investment in R&D and plants.



Daron Gifford, national automotive industry leader for the firm, says the general mood of respondents is more optimistic than in recent years. "After a lot of restructuring, there are good fundamentals in place.

"I think that the biggest change has been this idea that it's not all doom and gloom." He says in prior editions of the survey, the tone had been more negative--among domestics--and uncertain among others. "There was uncertainly about Asian markets, in particular. This seems to be a period of clarity, of vision."

When asked what consumers will be most concerned with when shopping for new vehicles over the next five years, 86% of the execs said quality; 84% said fuel efficiency; 70% said safety; and 69% said affordability. Sixty-five percent of the executives said consumers would look for alternative-fuel powertrains in vehicles, versus 53% last year.

Entry-level cars, hybrids and crossovers will grab a larger share of the auto market at the expense of traditional SUVs and pickups, per study respondents. Eighty-one percent of the executives expect major increases in low-cost/introduction cars and hybrids over the next five years; 67% said the car category will expand, and over half said there will be big increases in crossovers. Forty-seven percent expect a decrease in SUVs and 50% see a decrease in large pickups.

Gifford says the shift to smaller cars and crossovers and away from SUVs and trucks isn't just a reflection of fuel concerns but of a transition to global vehicles. "Everyone is global now. You see General Motors saying that they will see more growth overseas than in the U.S. They are going to take advantage of global platforms."

Most of the executives--79%--also said that hybrid systems would be the most important innovation in the next half-decade, followed by fuel-cell technology and safety.

Most of the executives looked to China for the fastest growth, saying the number of cars sold in China will equal that of the United States in the next five years, and China will sell a significant number of cars in the U.S. in 6-10 years.

Ford Motor, in fact, reported this week that in 2007, its retail sales in China were up 30% to 216,324 units. The company says its Ford Focus is the fastest-growing mid-size car in the market, and one of the Top 10-selling vehicles in the Chinese market.

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