Auto Execs See a Continued Market Share Decline for North American OEMs

Over Next Five Years, KPMG Study Reveals

Strong Profits Not Seen Until 2003 and 2004; Large Demand for Cross-Over Vehicles Predicted; Sales Incentives Expected to Increase

DETROIT, Jan. 8 -- According to the results of a study by KPMG LLP, the professional services firm, automotive executives see a continued decline in market share for North American auto brands over the next five years.

In a major global study of automotive manufacturers and suppliers, only 22 percent of the 103 executives surveyed felt that global market share for North American brands would increase over the next five years, while 51 percent expected market share to decrease. On the other hand, 74 percent said that Asian brands would experience increased global market share over the next five years, and 51 percent expect to see an increase for European brands in the next five years.

``What it boils down to is exciting and affordable product, and executives feel better product is coming from Asian and European brands,'' said Brian Ambrose, national industry director of KPMG's Industrial and Automotive practice. ``American manufacturers are at a crossroads right now, and decisions currently being considered have a direct bearing on future market share.''

According to the KPMG study, auto executives foresee a huge rise in market share over the next five years for cross-over vehicles (58 percent increase, 18 percent decrease). On the other hand, they see significant decline in market share for minivans (21 percent increase, 42 percent decrease). Market share is expected to grow similarly for cars (41 percent increase, 22 percent decrease) and SUVs (40 percent increase, 21 percent decrease), but execs forecast a moderate decrease for pick-up trucks (39 percent increase, 47 percent decrease).

Industry profitability should return in 2003 and 2004. Thirty-six percent of the executives forecast better profits in 2003, while 24 percent see the greatest levels of profits in 2004. Fifty-six percent of the respondents believed the OEMs will be the most profitable over the next five years, followed by Tier 1s, at 28 percent, Tier 2 and Tier 3 suppliers, at 27 percent, and dealers, at 24 percent.

And even though sales incentives significantly erode profits, 63 percent of the executives expect the use of sales incentives to increase over the next five years. ``Incentives become necessary when your product is viewed as a commodity,'' said Ambrose. ``Delivering quality product that meet consumer tastes is the highest priority. The fact that executives in the study ranked consumer tastes behind new technologies and economic issues is very revealing.''

In fact, the survey found that 72 percent of the respondents regarded 'new technologies' as extremely important right now, second to economic issues (88 percent) but higher than consumer tastes (64 percent), and labor relations (57 percent). And 80 percent strongly agree that the percentage of a cars' value coming from its electronic components will increase dramatically in the next five years.

    The following are some consumer trends that auto execs see taking shape
over the next five years:
     * 49 percent expect the percentage of vehicles acquired through leasing,
       as opposed to financing, to increase.
     * 48 percent see an increase in the amount of time consumers will keep a
       new vehicle.
     * 60 percent expect a decrease in pooled ownership of vehicles.

As far as what influences a consumer's purchase decision, the auto execs ranked quality (96 percent), affordability (88 percent) and safety (88 percent) very high. Not as high on the list but also viewed as extremely important were new technology (58 percent), financing options (56 percent), fuel efficiency (55 percent), and serviceability (52 percent). Ranked lower in terms of importance were luxury (38 percent), wireless communications services (35 percent) and ability to utilize alternative fuel sources (32 percent).

    In other survey findings:
     * 42 percent of respondents agreed (34 percent disagreed) that
       manufacturers would evolve into strategic marketing-focused
       organizations, with less emphasis on R&D and manufacturing.
     * 63 percent strongly agree (15 percent disagreed) that auto companies
       will try to cut costs by producing fewer models and more standardized
       global vehicles.
     * 83 percent strongly agree (5 percent disagreed) that cooperative
       ventures will be more important than mergers and acquisitions.

    KPMG conducted its automotive survey in October and November, 2001.

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