More bankruptcies predicted in auto industry
KPMG | April 14
 Nearly half of senior global automotive executives believe that declining revenue growth will plague the automotive industry for the next five years, according to KPMG’s Momentum: Global Auto Executive Survey 2009.
The survey shows that the optimism senior executives reported a year ago has now been deferred, if not abandoned, explains Doug Dawdy, partner in KPMG in Canada's Transaction Advisory Services practice. In established markets, sales expectations continue to fall, investments are being reviewed and some very large auto companies are close to insolvency.
“In prior years the KPMG surveys saw modest improvements in optimism for the future; however, the 2008 survey saw a change for the worse as global economic instability intensified during the second half of 2008," said Dawdy. “The short-term impact of this instability on the global auto sector is declining revenues and profitability, which can result in increased insolvencies. As such, distressed M&A activity in the sector is inevitable."
According to survey results, 77% of respondents expect a dramatic increase in insolvencies, up from 36% last year. Given this reality, executives are anticipating more restructurings and M&A activity in the industry overall.
Although the global economic crisis has had an adverse impact on all markets, emerging markets continue to be perceived as the growth markets of today, and the development of alternative and new fuel technologies for the future are considered to be the most relevant industry trends anticipated over the next five years.
In response to KPMG's survey, which asked the executives to identify the chief opportunities for the auto industry now and for the next three years, 21% said alternative fuel cars, 19% said the exploration of new markets, 17% said fuel efficient cars and 16% said developing new technologies.
"The economic slowdown we are experiencing is also having an impact on the consumer. As such, respondents are expecting cost to be one of the most important factors in consumer purchasing decisions this year," said Dawdy.
"Ninety six percent of the respondents are convinced that lower fuel consumption will be the most important criterion in the next five years. This is a consumer trend we have already witnessed in 2008, and clearly the industry is going to shift its focus to respond to it."
Other key findings include:
- One in four auto executives believing that the profitability of their business will decrease between 2009 and 2013;
- The numbers of executives who highlighted the risk of company insolvencies or bankruptcies has more than doubled (77%). Major producers are the most pessimistic, with 87% of executives predicting increasing number of business failures;
- High costs and declining economies will drive restructuring—including more mergers and acquisitions and alliances;
- In emerging markets, prospects are being scaled back fast, as consumer markets are hit by rapid credit contraction;
- Technology and innovation remain key to the future of the industry—with fuel efficiency, advanced fuel technologies and environmental pressures considered the most important trends.
“The current economic climate is having an unprecedented impact on the automotive industry,” said Mike Steventon, automotive partner at KPMG in the UK.
“The combination of evaporating consumer confidence combined with significant restrictions on available finance, uncertainties over residual values and inherited overcapacity have created the automotive industry's “perfect storm.”
"Although there are turbulent times ahead and the level of restructuring globally will be unprecedented, I believe we will look back on 2009 as the year the automotive industry addressed its legacy issues of overcapacity, productivity and inherent duplication.”
Uwe Achterholt, global head of Automotive for KPMG, said, “It is clear that the near future is going to be very tough for the automotive industry.”
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