Car Industry to Increase Spending on New Technology as Consumer Attitudes Continue to Shift, says KPMG Survey 11 January 2010

In response to consumer demand, senior global automotive executives are expected to increase their investment in new technologies to produce more environmentally-friendly, fuel-efficient vehicles, according to the latest annual global automotive survey conducted by KPMG.

Key Findings

• Global automotive executives cite fuel efficiency as extremely important to new car buyers
• Manufacturers and suppliers forecast that profitability will be lower than before and investment growth will decline
• Market share for some of the biggest manufacturers will continue to shrink.
  

Of the 200 senior automotive executives surveyed, nine in ten expect manufacturers and suppliers to focus on new technologies, while 88 percent predict manufacturers will increase investment on new models/products and 78 percent say suppliers will do the same. According to John McGlone, Indirect Tax Partner with KPMG in Ireland, “In the context of scrappage schemes in Ireland, the UK and many other markets, the industry believes that consumers will continue to move towards more fuel-efficient and environmentally-friendly products and that these products will see the biggest gains in market share over the next five years.”

Hybrid Seen As Most Important Fuel Technology
In line with consumer expectations, when asked to rate the importance of alternative fuel technologies to the industry over the next five years, hybrid fuel systems came out on top (almost 85 percent), followed by battery electric power (68 percent), fuel cell electric power (63 percent), and biodiesel (42 percent).

“There’s no doubt that automaker focus on technology will result in great leaps in alternative and hybrid fuel vehicles, with consumers and the environment reaping the benefits in the long run,” said Gary Silberg, National Automotive Industry leader for KPMG in the US. “The consumer mindset on fuel efficiency is forcing automakers to build more fuel efficient cars and to create new products that satisfy demand.”

Scrappage Schemes Helping Change Behaviour
As governments worldwide look to boost consumer demand in the face of recession, many countries including Ireland, the UK, Germany and the US have introduced scrappage schemes. According to John McGlone, ‘’The Irish scrappage scheme appears to have stimulated some demand already in the midst of extremely difficult trading conditions. In many markets, including Ireland, Government tax policy is designed to encourage lower emissions, and the car industry has responded to this by offering ever more fuel-efficient models. With reduced Vehicle Registration Tax, lower annual road tax, and other tax benefits, it now really pays the Irish motorist to switch to a more fuel-efficient car.”

Fuel Efficiency Cited As Key Purchase Factor
When asked what would influence consumer purchase decisions over the next five years, fuel efficiency was most frequently cited (94 percent), followed by environmental friendliness (just over 80 percent), safety innovation (71 percent) and vehicle styling (61 percent).

Not surprisingly, when asked which vehicles the executives expect will see sales increases over the next five years, hybrid fuel vehicles (almost 93 percent) were most frequently named, followed by other alternative fuel vehicles (83 percent), low cost or introduction cars (82 percent), cars (66 percent), cross-overs (46 percent) and small pick-up trucks (just under 45 percent).

“Automotive manufacturers are in the challenging position of being asked to compete on both technology and cost,” added Gary Silberg. “With global consumers still feeling the pinch of the recession, those who can deliver on this equation will be in the driver’s seat.”

Overcapacity Remains a Threat
Car companies say that manufacturing overcapacity remains very high – it is seen as highest in North America, but not much lower in Europe or in Japan. Consequently, the growth in mergers and acquisitions activity is likely to be high, and forecasts for the next four years suggest that the biggest changes in terms of automotive restructuring may be yet to come.

Revenue Growth to Continue
However, companies do expect revenue growth. Most of that growth will be found in emerging markets, they say, and particularly in China. Forecasts of domestic sales in China have grown, as well as forecasts of Chinese exports. Brazil, Russia, and India are expected to grow strongly as well – although companies add that emerging markets will soon face their own problems of overcapacity, implying that less efficient segments of the emerging market industry will also have to be rationalised.

Companies also believe that it is growing harder to find cost savings, but that costs will have to be cut if the industry is to be able to finance new product developments, particularly in fuel efficiency.

In the KPMG survey, conducted in early November 2009, the 200 executives interviewed represented vehicle manufacturers and suppliers in the United States, Canada, Mexico, United Kingdom, France, Germany, Sweden, India, China, South Korea, Japan, Thailand, Brazil, Spain, Poland, Slovakia, Russia, Czech Republic, Italy, Switzerland, South Africa and Australia. KPMG has released an annual survey of automotive executives expressing their views on the state of the industry since 1999.

Download a copy of KPMG’s Global Auto Executive Survey 2010

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Notes to Editors

• KPMG in Ireland has 80 partners and 1900 people in offices in Dublin, Belfast, Cork and Galway.
• KPMG is a global network of professional firms providing Audit, Tax and Advisory services. We operate in 144 countries and have 137,000 people working in member firms around the world.

For further information, please contact:
Dave Deighan
Head of Communications
KPMG
Tel: +353 (1) 410 2371
Mobile: +353 (0) 87 744 2371
e-Mail: david.deighan@kpmg.ie