KPMG Automotive Industry Analysis (2001-2006)

In November, KPMG LLP interviewed 103 automotive executives with respect to the economy and technology. The following are some findings, along with analysis and quotes from Brian Ambrose, national industry director of KPMG’s Automotive practice. (1/11/2002)

North American Brand Decline: 51 percent see market share decline (22 percent increase) for North American brands over the next five years; 74 percent see increase (9 percent decrease) for Asian brands and 51 percent an increase (13 percent decrease) for European brands.

Ambrose quote: “It’s not surprising to see executives cite a decline, but the extent of it is troubling. Clearly, the next five years are going to be the most competitive the industry has seen in a long time. For American manufacturers, new product introductions and the technology boom offer an opportunity to end the slide in market share. The demand for quotas has given way to strong global competition. The current phase is all about market advantage through exciting new products that are affordable. It will be interesting five years from now to look back and see who seized the opportunities that exist today.”

Zero percent financing. 63 percent of respondents agree that the use of sales incentives for car buyers would increase over the next five years.

Ambrose quote: “Sales incentives are way out of control in the auto industry. Consumers have come to expect hefty dividends, and the industry is in a quandary of how to put an end to this. The technology boom offers an opportunity to package things differently, to make the consumer feel that they are getting value. Zero percent financing is very painful to the industry in terms of profitability.”

Customer Data: Only 48 percent of respondents agreed that auto companies would learn how to take advantage of their extensive databases of customer information.

Ambrose quote: “This doesn’t speak to a lot of confidence in the use of CRM information. One-to-one marketing can be driven from that data, and long term relationship building and brand building awaits the manufacturer who takes that data and leverages it effectively. How you follow up on a sale, with direct marketing, consumer education and service is paramount to building a strong relationship over time. Effective use of customer databases present a serious challenge for the industry. The only caution is to not go too far and upset customers with respect to privacy.”

Consumer Purchases and Leasing. 49 percent of respondents expect the percentage of vehicles acquired through leasing as opposed to financing to increase; 48 percent report that the amount of time consumers would keep a new vehicle to increase.

Ambrose quote: “With the availability of quality vehicles, consumers may opt to hold on to them for longer periods of time. With respect to leasing, many consumers feel locked out because they put too much mileage on their cars. However, with vehicle quality improving, OEMs may be able to increase the mileage requirements, beyond the standard 12,000 to 15,000 miles per year to longer time-frames, without hurting residual values to a significant degree. This would bring many consumers into the leasing game and assure more vehicle turnover.”

Overcapacity. 83 percent of OEMs predicted that overcapacity would either increase or remain the same. Only 60 percent of Tier 1 and Tier 2 suppliers predicted that overcapacity would either increase or remain the same.

Ambrose quote: “This will put more pressure on the vehicle manufacturers who will be forced to cover the high overhead costs in keeping their plants running. Increasing sales masks many inefficiencies within the industry. If sales decrease in the next two years, capacity will have to be reduced either through plant closings or consolidation.

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