China to Rival US Car Sales in Five Years; India Follows Closely Behind As Next Major Growth Market
KPMG's 2008 Global Auto Executive Survey
TORONTO, Jan. 9 /CNW/ - Eighty percent of global auto executives
suggested that Chinese car sales will reach more than 12 million cars per year
by 2011. One-third of respondents said they anticipate that China will be
selling a significant number of their low-cost cars to US consumers within the
next 3 to 5 years, according to Momentum:2008 KPMG's Global Auto Executive
Survey.
Following closely behind the China automotive market is India, as this
year's findings indicate that 73 percent of executives believe that India will
gain significant market share growth in Asia, up 18 percent from last year's
survey results. Moreover, when asked what emerging country outside of China
will have the most consumer demand, the choice of India far exceeded all
others.
"The landscape of the industry has changed significantly over the past
decade, with more than a dozen car makers now circling the global auto
industry's new battleground to make cheap, small cars for the world's big
emerging economies," said Doug Dawdy, Senior VP of KPMG's Corporate Finance
Practice.
"The perception of China as the industry juggernaut in the Asian world is
consistent with our findings in previous years. If credit continues to be made
readily available and the country maintains its current rate of growth, then
these findings are credible," says Dawdy. "India is also a major player in
this race, with some analysts predicting that by 2010 the car market will
double to over two million."
The forecast is 'cautiously' optimistic
---------------------------------------
Although the industry has been hampered by overcapacity issues and some
volatility in the global markets, automotive executives appear more confident
overall that the industry is poised for an upswing. KPMG's survey, which is
based on interviews with 113 senior executives, vehicle manufacturers and
suppliers worldwide, found that 26 percent agree that global profits will rise
in the next 5 years, while only 14 percent anticipate a decline.
"Given the industry has undergone such transition and volatility over the
past few years, we are optimistic that we have seen the bottom of the industry
for global suppliers," said Frank Klemenchuk, Audit Partner with KPMG's
Industrial and Automotive Practice. "In part, some of this optimism is being
fueled by the restructuring that has occurred and the increased opportunity
and competition for market share in the new and emerging markets, for those
who are playing in this sphere."
In Canada, however, the impact of the rising Canadian dollar has had some
negative implications for the manufacturing sector. Companies in the
automotive sector, more specifically car parts manufacturers, have had to find
ways to offset their losses.
"For Canadian parts manufacturers, the weakening US dollar has been a
huge challenge, and many companies have had to come up with creative ways to
mitigate this loss, while still remaining competitive," said Klemenchuk.
With regard to North America, 54 percent of those surveyed anticipate a
decrease in market share for North American brands over the next 5 years, only
22 percent expect an increase. In contrast, this is much more optimistic than
survey findings from last year, where 62 percent anticipated a significant
decrease, and only 14 percent expected an increase.
"Driving some of this optimism is the fact that executives sense a
decrease in overcapacity from last year's findings as 20 percent of executives
felt overcapacity was greater than 20 percent, down from 25 percent last year
and 34 percent the previous year," said Klemenchuk. "That being said, the
survey also indicates that 71 percent of respondents suspect overcapacity will
become a major issue in China over the next 3 to 10 years."
M&A Activity
------------
For the second year in succession, the survey indicates that executives
are anticipating considerable activity on the merger and acquisitions and
alliance front. Forty-seven percent expect an increase in activity with OEMs,
and 72 percent anticipate an increase with Tier 1 suppliers, and 64 percent
with Tier 2 and 3 suppliers.
"Given the expected growth of the Asian market, evidently automotive
executives recognize the importance and significance of gaining access to new
markets and customers, and consolidation is the logical next step," said Doug
Dawdy. "Moreover, the increased competition globally is driving this need for
product synergies and to reduce costs."
"The role of private equity in this sector will not diminish in 2008,"
said Dawdy. Respondents indicated that the most important private equity
criteria were EBITDA (Earnings before Interest Taxes Depreciation and
Amortization), potential operating synergies and potential product synergies."
<<
Other survey highlights include:
--------------------------------
- Among the top 3 issues facing the industry were product quality
(96 percent), reducing costs (86 percent), and new technologies
(83 percent).
- In what they think consumers will be basing their car buying
decisions on executive's ranked quality (86 percent) and fuel
efficiency (83 percent) very high, followed by safety (70 percent),
and affordability (69 percent). Moving up higher on the list was
'ability to use alternative fuel sources', up from 53 percent in 2006
to 65 percent in 2007.
- Future cost savings are likely to come from manufacturing and
technology innovations (67 percent), low cost country sourcing
(65 percent), and product materials innovation (57 percent), though
the biggest increases year to year were from direct labour
(increasing from 32 percent to 46 percent) and health care, benefits,
and pension costs (increasing from 34 percent to 46 percent).
>>
About the Survey
In the survey, Momentum:2008 KPMG's Global Auto Executive Survey, the
executives interviewed represented vehicle manufacturers and suppliers in
Canada, the United States, England, France, Germany, Sweden, India, China,
South Korea, Japan, and Australia. KPMG has released an annual survey of
automotive executives expressing their views on the state of the industry
since 1999.
About KPMG in Canada
KPMG LLP, a Canadian limited liability partnership established under the
laws of Ontario, is the Canadian member firm affiliated with KPMG
International, a global network of professional firms providing Audit, Tax,
and Advisory services. Member firms operate in 145 countries and have more
than 123,000 professionals working around the world.
The independent member firms of the KPMG network are affiliated with KPMG
International, a Swiss cooperative. Each KPMG firm is a legally distinct and
separate entity, and describes itself as such.
