|CUVs, such as Chrysler’s Pacifica, are expected to continue to grow market share, but at a slower rate.|
Some 36% of this year’s respondents chose 2003 as the worst year of profitability, says KPMG, and just 13% expect 2004 to be down. In KPMG’s 2002 survey, 27% said 2002 was the worst year for profitability and 30% expected 2003 to be bad.
“We are seeing the convergence of improved economic conditions, the leveling off of sales incentives and the huge amount of new vehicle launches scheduled over the next few years all playing a factor,” says Brian Ambrose, national industry director of KPMG’s automotive practice.
“During the past few years we saw the executives pointing off into the future in the hopes that profits lay there,” he continues. “Today, the profitability picture is much more clearly coming into focus.”
However, 29% of 100 North American, Asian and European executives surveyed say overall industry profitability will be at its highest level in 2006, followed by 2008 (16%), 2005 (15%), 2007 (12%) and 2004 (9%).
Other findings of the survey:
- Mergers and acquisitions are expected to grow, particularly in Asia, as “automotive executives are losing their taste for strategic alliances,” says KPMG. Some 73% expect an increase in consolidation in Asia, 60% forecast similar action in Europe and 50% expect M&A activity to increase in North America. “Pretty soon the partners realize the arrangement isn’t providing the benefits they originally expected,” says Gary Silberg, partner in charge of KPMG’s automotive transaction services group of strategic alliances. “Partnerships require an inordinate amount of communication and there is always a struggle of who is in charge.”
- Many believe global market share for U.S. brands will continue to fall, as 53% of executives surveyed say they expect a drop over the next five years. That is the same response rate as in KPMG surveys the past three years.
- Only 38% of those surveyed expect the use of incentives to increase in the near future, which is a significant falloff from 2001 (63%) and 2002 (48%).
- Cross/utility vehicles will gain market share over the next five years, but the number of executives expecting growth in the segment is declining (54% this year vs. 73% in 2002).