Non-Chinese Asian Car Makers Seen as Having Most Success in Growing Chinese Market, KPMG Survey Finds

More Auto Executives Eye Potential to Sell Cars to Chinese Customers, Not to Export

DETROIT, Jan. 4 -- Automotive executives expect that non-Chinese Asian car companies will have the greatest success in China in the future, according to the results of an annual global survey of automotive leaders by KPMG LLP, the U.S. audit, tax and advisory firm.

The auto execs also see China continuing to be a major region for foreign investment. They continue to see a growing domestic market to sell cars to a population that is becoming more affluent.

"Asian consumers, particularly those in China, are viewed as the most important source of industry growth," said Betsy Meter, a partner in KPMG's automotive practice. "The demand in Asian countries will go up significantly in coming years, with a burgeoning economy and increasing consumer wealth. Automotive companies recognize the opportunity that awaits."

The KPMG survey is based on interviews with 140 senior executives at vehicle manufacturers and automotive suppliers from around the globe. Companies based in North America, Great Britain, France, Germany, Sweden, India, China, Korea and Japan are represented in the study. KPMG has released an annual survey of automotive executives expressing their views on the state of the industry since 1999.

What manufacturers will succeed in China? Forty-two percent of the Auto execs felt that other Asian companies (non-Chinese firms) were seen as most likely to succeed, followed by Chinese companies (23 percent), European companies (16 percent) and North American companies (15 percent).

Although lower production and manufacturing costs are still seen as one motive to invest in China, the main reason voiced by respondents for making such investment has undergone a significant shift. This year, 52 percent of respondents now say that the main incentive to invest in the country's auto industry is to sell to Chinese consumers, who are becoming wealthier. That's up sharply from last year when 45 percent held that view. Similarly, only 30 percent of respondents this year said the main reason to invest was to export out of China, down from 35 percent a year ago.

The KPMG survey also found that fears of overcapacity in China are rising. Last year 52 percent of the executives thought there was some overcapacity and this year 62 percent feel so. Those who believe there is more than 10 percent overcapacity rose from 24 percent last year to 38 percent in 2005. A majority of respondents still expect the total number of foreign vehicle manufacturers in China to shrink within five years, but they believe more companies are expected to survive the shakeout than respondents in last year's survey.

When asked about whether they expect the levels of profitability in the Chinese auto industry, 59 percent expect levels to increase over the next five years, but a considerable number, 26 percent, are still suspect of potential profits.

KPMG LLP, the audit, tax and advisory firm (http://www.us.kpmg.com/), is the U.S. member firm of KPMG International. KPMG International's member firms have nearly 94,000 professionals, including 6,800 partners, in 148 countries.