momentum - kpmg's auto executive survey 2009

8/14/2019 Momentum - KPMG's Auto Executive Survey 2009

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Automotive

Momentum: KPMGs GlobalAuto Executive Survey 2009Industry concerns and expectations 2009-2013

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KPMG Global Auto Executive Survey 2009

2008 KPMG International. KPMG International provides no client services and is a Swiss cooperative with which the independentmember firms of the KPMG network are affiliated.

Contents

Foreword 01Survey methodology 02Executive summary 04

Introduction 06Oil prices and the KPMG Global Auto Executive Survey 07

1/ Auto-making in crisis 082/ New markets 223/ Technology and innovation 264/ Beyond crisis: challenges and opportunities 34

Conclusion 40


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Foreword KPMGs Global Auto Executive Survey2009 coincided with the unfolding of an

unprecedented global economic crisis withprofound implications for the automotiveindustry. The expectations recorded inthis survey reflect the depth of the crisis.

The cautious optimism evident among

automotive decision-makers in 2007 is

gone. In the last quarter of 2008, companies

expect lower revenues, lower profits,

more bankruptcies, and a long cycle of

restructuring to come. They see more

overcapacity emerging, and they believe

investment will slow.

These lowered expectations are not confined

to the mature automotive economies. In China

and India too economies where growth is

still high companies believe that production

and sales in the coming five years will be

considerably lower than previously anticipated.

A sharp lowering of expectations is hardly

surprising, given the extent of the current

downturn and its impact on auto sales. What

is surprising can be found in the detail. For

example, the KPMG Survey shows that many

automotive companies saw todays crisis

coming: our historical comparisons showthat concerns over the global economy have

actually been rising for the last three years.

It is clear that the near future is going to be

very tough for the automotive industry. Yet

the KPMG Survey also shows that long-term

concerns have not greatly changed. When

asked about long-term trends, opportunities

and challenges, companies continue to say

they retain a long-term focus on innovation

and technology particularly fuel technologies.

The 2009 Survey suggests that innovation

and technology are likely to be at the heart

of industry efforts to recapture profitability in

the coming months and years. For example,

innovation especially process innovation

is still seen by companies as the best way

to cut costs, rather than attacking direct

overheads. Companies also believe that

product innovation will be key to rebuilding

sales: it is notable that despite the fall in

energy costs during the last few months,

expectations of sales of hybrid and other

fuel-efficient vehicles continue to rise

sharply compared with previous years.

And in the midst of pessimism, companies

also tell us about success. They say that

effective management will be the key to

success. They do not believe that it is

marketing or brand power that will pull them

out of recession, but the leveraging of

technology and meeting customer needs.

These are difficult times. Yet the KPMG

Global Auto Executive Survey shows that

many companies are well aware of the

challenges they face and that many are

ready to build on their strengths as they

face those challenges.

Uwe Achterholt

Global Chair, Automotive

KPMG in Germany

Foreword 1


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Survey methodology The KPMG Global Auto Executive Survey2009 is the tenth consecutive annual survey

of senior global auto executives carried outby KPMG firms. This year the survey is moreextensive than in previous years: 200respondents took part in the survey betweenSeptember 22 and October 31 2008, includingcompanies in the Americas, Asia Pacific,

Europe, Africa and the Middle East.

2 KPMG Global Auto Executive Survey 2009


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41%

46%

14%

39%

5%

26%

2%

6%

17%

7%

Survey methodology 3

Source:


Key

Vehicle manufacturers

Tier 1 supplier

Tier 2 supplier

Survey participantsby job title

Survey participantsby company type

Each year we ask executives to describe A small number of questions in the survey

themselves and their companies. Although were asked of companies in the U.S. but not

we look for a balanced mix of auto-makers of companies in other countries (these were

and suppliers, this year* no respondents questions relating to U.S. restructuring planschose to describe themselves as Tier 3 and progress). Where these results are cited

suppliers, although in previous years the in the survey, they are also flagged as U.S.

survey did include responses from Tier 3 only results.

suppliers. In order to present results that are

comparable with previous years, we have

therefore grouped Tier 2 and Tier 3 suppliers

together. This years results from Tier 2

suppliers are therefore compared with the

previous two-year results from a

combination of Tier 2 and Tier 3 suppliers.

* Research took place in the last quarter of 2008.

Report published in early 2009.

Source:


Key

Managers and senior managers

Directors

Head of department

C level executives

Others

Vice President

President


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Executive summary The mood has changed, and thechange has been very rapid


Only 12 months ago, companies were

beginning to express a cautious optimism

after several years of challenge. Companies

saw a world where growth was strong,

and emerging market growth was

unprecedented. They saw margins and

profits beginning to be rebuilt, as a result

of long-term restructuring and globalization

of manufacturing.

Today, much of that optimism has been

deferred, if not abandoned. In established

markets, sales are falling, investments are

being reviewed, and some very large auto

companies are close to insolvency.

In emerging markets, prospects are being

scaled back far and fast, as consumer

markets are hit by rapid credit contraction and

a sudden slowdown in overall growth rates.

But auto-making is a long-term business with

a long-term horizon, and long-term concerns

have not changed. Automotive companies

remain concerned with innovation and theleveraging of technology into products that

will enter the market long after the current

downturn has worked through.

1/Auto-making in crisis

The 2009 KPMG Auto Executive Survey

makes it clear that the fundamental issues

concerning auto-makers have been

rebalanced, but the pattern of concern

remains unchanged.

Key issues

Product quality remains the most cited issue.

The deterioration of the global economy

has continued to rise as a concern.

Labor relations continue to fall in importance.

Margins and profitability are expected

to fall

The great majority of companies surveyed

think there will either be no growth in

profits or that profits cannot be predicted

over the coming five years and almost a

quarter think profits will actually decline.

Captive finance company profits are

expected to decline sharply.

The rate of bankruptcies is expected

to increase (in 2007 the rate was

expected to decline).

Tier 1 suppliers are by far the most likely

to consider that bankruptcies will increase.

Market share expectations continue

to shift in favor of emerging Asian and

mature Japanese and Korean brands

Chinese brands have moved from

second to first place in market share

expectations, and Indian brands from

fourth to second place.

Expectations for U.S. auto-makers have

declined further from a low level.

Europe, Middle East and Africa (EMA)

companies are markedly more optimistic

on market share expectation than

companies in the Americas or Asia

Pacific (ASPAC).

Auto industry assessments of levels of

overcapacity have shifted for the worse

ASPAC companies are most likely to consider

that the industry has overcapacity, while

companies in the Americas are least likely.

Cost saving is a rising concern

Innovation (in manufacturing processes and

materials technology) is more importantthan direct overhead cost reductions.

The importance of low-cost country

sourcing is falling.

More M&A and alliances are expected

High costs and declining economies

will drive restructuring.

Vehicle makers and dealers expected

to restructure most.

Investment will grow more slowly but

innovation investment will be resilient.


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Executive summary 5

2/ New markets

New-market growth expectations

outside China have been rebalanced

Central and South America

expectations are resilient.

Africa and the Middle East will

also grow.

Chinese growth seen as significantly

lower

Vehicle sales to grow more slowly

over five years.

More than half of companies see

overcapacity emerging in the near term.

Export expectations are sharply reduced.

3/ Technology andinnovation

Technology and innovation remain

key industry trends

Fuel efficiency improvements,

alternative fuel technologies and

environmental pressures are considered

the three most influential trends.

Cost concerns are greatest among suppliers.

Fuel efficiency and alternative propulsion

will drive product innovation

Hybrid systems continue to be the most

important product innovations.

Electric and battery technologies are

growing in importance.

Overall, there is increasing strategic

focus on technology.

ASPAC companies are most

innovation-focused.

Consumer purchases to become

more cost-driven

For the consumer fuel efficiency now

more important than product quality.

Affordability is increasing in importance.

Consumers to become more discriminating.

4/ Beyond crisis:challenges andopportunities

Opportunities to find growth remain

Potential for growth seen in alternative

fuels, fuel efficiency and emerging

markets.

ASPAC companies are more focused on

environment-related opportunities.

Only limited opportunities seen in relation

to cost-cutting strategies.

External challenges dominate

Global economy and financing costs are

seen as the key challenges.

Vehicle manufacturers most likely

to see environmental pressure

as a challenge.


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Introduction Seldom has a year madesuch difference

Last years KPMG Global Auto Executive

Survey reported on an industry that saw

itself emerging from a long round of cost

cutting and restructuring. It saw itself

emerging into a world where overall growth

seemed assured, and where both sales and

profits would be higher for companies that

were, in most cases, leaner and fitter.

In 2008, all that has changed.

The momentum of optimism has been

checked: companies are now confronted

with a world gone into reverse, where

growth is highly uncertain and where prices

and financial conditions are highly volatile.

This change is visible in many areas. It is

visible in lower expectations for revenues

and profitability, higher expectations of

bankruptcy, and more pessimism on the

speed at which the industry can adapt to

challenging conditions. More companies

expect overcapacity to emerge in key

regions, and that sales and production

growth will fall in emerging markets in

particular. Investment is expected

to grow at a slower pace.

Meanwhile, the market share winners of

previous years are expected to continue to

advance while the losers will do even worse,

say companies. The strong will get stronger,

and the weak weaker.

Yet what is also striking is that amid

immediate concerns over downturn and

volatility, the auto industry maintains along-term focus on basic issues, and

especially on technology, fuel efficiency and

the environment. On a five-year horizon, say

companies, these issues continue to

dominate their thinking.

Times have grown much harder but the

fundamental drivers of automotive success

have not greatly changed.


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Oil prices and the KPMG Global Auto Executive Survey 7

Oil prices and the KPMG Global AutoExecutive Survey This years Global Auto Executive

Survey took place against a backgroundof financial instability and great volatilityin oil prices.

The survey was conducted from the end of

September 2008, and through the following

month. During that period, the spot price of

West Texas Intermediate (WTI) crude oil fell

from US$96.29 a barrel (on September 29)

to US$61.92 a barrel (on October 27). At the

same time an unprecedented global financial

crisis unfolded, and governments around the

world committed large sums to bailing out

banks and stimulating their faltering economies.

This was in stark contrast to the background

of the previous four years of the survey,

when prices rose consistently the spot

price of WTI rose from US$33.01 a barrel on

January 1, 2004, to US$99.64 on January 1,

2008, spiking at US$141.06 a barrel on

July 1, 2008. Growth was high in the

Organisation for Economic Co-operation

and Development (OECD) countries and

at unprecedented levels in the four BRIC*

emerging economies.

What does this background of instability and

price fall mean for this years survey results

given that expectations built up over the

previous four years were being challenged

by very rapid changes in external conditions?

It is clear from the results that most, if not all,

companies answered the survey questions

fully aware of the extent of the downturn:

they report revenues and profitability falling,

overcapacity rising, and bankruptcy more likely.

Perhaps more surprisingly, they also say that

they expect the importance of hybrid and

fuel-efficient vehicles to grow very strongly.

We believe this reflects the fact that oil

prices remain historically high. At the time of

publication, the oil price was around US$50

a barrel lower in inflation-adjusted terms

than any of the previous three years.

But this is markedly higher than the

inflation-adjusted average over the past

two decades, when from 1988 to 2007 oil

averaged US$33.36 a barrel in inflation-

adjusted terms (2007 dollars).

(Price sources: U.S. Energy Information Administration;

inflationdata.com)

*Brazil, Russia, India and China


10/44

2008 KPMG International. KPMG International provides no client services and is a Swiss cooperative with which the independentember firms of the KPMG network are affiliated.m

Labor relations

Product/pricing incentives

Environmental issues

Affordability No data for 2006 and 2007

New products

New technologies

Reducing costs

The global economy

Product quality

40

% rating important 4-5 on a scale of 1-5, where 1 means Not at all important and 5 means Extremely important

50 60 70 80 90 100

96%90%

94%

81%87%

76%

86%85%

89%

83%82%

81%

79%81%

73%

72%

63%69%

52%

65%72%

70%

59%49%

52%

52%


1/Auto-making in crisis

Global economyconcerns rising

The mood of the worlds auto industry has

reversed: after the relative optimism of 2007

with its expectations of a gradual return to

stability and prosperity, expectations in 2008

have changed for the worse.

Yet in retrospect, it is clear that some of the

industrys most fundamental concerns have

been on a rising track for some time. When

companies were asked what were the most

important issues for the industry overall

the question that reveals the relative weight

of long-term concerns in 2008, the

deterioration of the global economy rose to

second place (from fourth place in 2007).

While traditional long-term concerns hold

their place in the rankings of overall issues

(product quality remains the most cited

issue, for example) companies have been

consistently forecasting a deterioration of

overall global growth for the last four years,

with concerns about the global economy

rising year on year from 2005.

How important is each of the following

issues to the current state

of the auto industry?

Source:


Key

2006

2007

2008

However, the number of companies citing

labor relations as important has fallen in

2008: just under half of companies rate labor

relations as important in 2008, compared

with 59 percent in 2007. The number of

companies rating labor relations as

unimportant has also risen sharply from

9 percent in 2007 to 16 percent in 2008.

This is consistent with the deterioration of

confidence in other areas in 2008: while last

year companies remained concerned about

labor shortages especially in the fastest

expanding markets in 2008, they appear to

expect their key labor markets to loosen.


11/44


0

10

20

30

40

50

38%37%

46%

26%

23%

15%15%16%

26%

19%

14%

24%

The profitability of theindustry will be volatileand unpredictable

The profitability ofthe industry willgenerally rise

The profitability ofthe industry willbasically be flat

The profitabilityof the industry willgenerally decline

0

20

40

60

8076%

54%

36%

45%

27%

49%

40%40%

50%50%

56%

Vehiclemanufacturer

Captivefinancecompanies

*In previous years Tier 2 and 3 suppliers were combined in the questionnaire

Dealers Tier 2 suppliers Tier 3 suppliers*Tier 1 suppliers

Profits forecast to belower and more volatile

As financial costs rise and raw material

costs remain volatile, expectations that

profitability over the next five years will

also remain volatile have risen very sharply.

An increase of expectations of volatile

or unpredictable profits from 37 percent

of respondents in 2007 to 46 percent of

respondents in 2008 represents a sharp

rise in uncertainty and one that is all the

more striking in that the automotive industry

relies to an unusual degree on long-range

forecasting. The minority of companies

predicting rising profits in 2007 (26 percent)

has also fallen sharply in 2008, to only

15 percent. The great majority of companies

(85 percent) think there will be either no

growth in profits, or that profits cannot

be predicted over the coming five years.

And almost a quarter (24 percent) think

profits will actually decline.

Suppliers seen asleast profitable

Who will suffer most from the expected

decline in profitability? Companies believe

that the pain will be distributed

approximately according to a respective

position in the automotive value chain: Tier 3

suppliers, where profitability is in any case

lowest, will suffer most (only 36 percent of

respondents see Tier 3 companies as

profitability leaders). This pattern is the same

as 2007, with one very significant exception:

the sharp decline in expectations for captive

finance companies. Expectations of their

profitability have collapsed from 76 percent

of respondents to only 54 percent,

reflecting the liquidity squeeze and the

recent unprecedented rise in the cost of

wholesale funding.

1/ Auto-making in crisis 9

Of the following types of automotive

companies, which do you expect to beamong the most profitable over the

next five years?

(Multiple responses allowed)

Source:


Key

2007

2008

Do you think the number of

bankruptcies will increase, remain

the same, or decrease in the next

few years?

Source:


Key

2006

2007

2008


12/44




13/44


14/44


0

20

40

60

80

100

70%

90%87%

73%

65%68%68%

62%59%

Healthcarebenefit cost

Pension liabilityExcess debtNon-competitivecost structure

Decliningrevenue base

87%

0

20

40

60

80

31%

48%

20%

56%

36%

77%

10%

13%

3%

Increase Remain the same Decrease

Bankruptcies to rise

Companies say they expect that the rate of

bankruptcies will increase. The deterioration

in expectations is both very steep and

represents a reversal of trend. Only 12

months ago, companies reported increasing

optimism with expectations of increased

bankruptcies falling year on year from 56

percent to 36 percent. In 2008, 77 percent

of companies expected the rate to increase

one of the largest one-year deteriorations

in expectation in the survey. The number

of companies expecting no change has

fallen sharply, while the number expecting

bankruptcies to fall has declined to a barelysignificant 3 percent.

Revenue loss akey concern

Loss of revenues as demand growth slows

or goes into reverse has taken over as the

most important driver of bankruptcy cited

by 90 percent of respondents, compared

to 70 percent the previous year. However,

it is striking that all the potential drivers of

bankruptcy are cited more often in 2008 than

in 2007 (multiple answers could be given),

suggesting that companies believe that

legacy cost structures, indebtednessand social costs, including pensions

and healthcare, are all exerting greater

negative pressure in the deteriorating

business environment.


bankruptcies will increase, remain

the same, or decrease in the next

few years?

Source:


Key

2006

2007

2008

Which of the following do you think

are among the most important drivers

of bankruptcy?


Source:


Key

2007

2008



15/44


OEMs Tier 1 supplier Tier 2 supplier

87%

13%8%

17%

75%

33%

67%

Tier 1 suppliers seemost bankruptcies

Tier 1 suppliers are markedly the most likely

to consider that bankruptcies will increase,

with 87 percent forecasting an increase,

against 75 percent of vehicle manufacturers

(vehicle manufacturers are the only class of

company where any respondents believe that

bankruptcies may decrease. This may reflect

their expectation of direct government

support packages during 2009). No Tier 2

suppliers forecast a decrease in bankruptcies,

but they are also most likely to see the

bankruptcy rate as flat. There were no Tier 3

suppliers in the 2009 survey see

methodology note on page 3.


bankruptcies will increase,

remain the same, or decrease

in the next few years?

Source:


Key

Increase

Remain the same

Decrease



16/44


Peug

eot/Citro

en Ford

Chrys

ler

Suba

ru/Fu

ji

Gene

ralMoto

rs

Mitsu

bishi

Merce

des

Fiat

Russian

bran

dsBM

W

Rena

ultNiss

an

Volks

wage

nHo

nda

Hyun

dai/K

ia

Toyo

ta

Indian

bran

ds

Chine

sebran

ds0

20

40

60

80

100

81%

12%

7%

78%

16%

6%

68%

22%

11%

67%

22%

12%

62%

28%

9%

60%

26%

13%

43%

43%

14%

40%

45%

16%

33%

39%

28%

33%

37%

30%

32%

51%

17%

20%

44%

35%

20%

32%

17%

53%

30%

15%

12%

66%

13%

24%

63%

10%

21%

69%

48%

For each of the following companies,

over the next five years, will their

market share increase, remain the

same, or decrease?

Source:


Key

Increase

Remain the same Decrease

Chinese and Indian brandsto gain market share


Market share expectations continue to shift

in favor of emerging Asian and mature

Japanese and Korean brands; U.S. brands

are expected to perform worst. Year on year

Chinese brands have moved from second to

first place in market share expectations, and

Indian brands from fourth to second place,

relegating Toyota from top position to third.

Expectations of Hondas market share have

grown, as have expectations for many

European brands. Meanwhile, expectations

for General Motors, Ford and Chrysler have

declined further from an already low level,

with 63 percent of respondents expecting

Ford to lose market share, 66 percent for

General Motors and 69 percent for Chrysler.

On a regional basis, EMA companies are

markedly more optimistic on market share

expectation than companies in the Americas

or ASPAC and in particular, they are more

optimistic on the prospects for European

brands (more than half of EMA companies

see market share increases for VW

and BMW).


17/44


0

12

24

36

48

60

31-40% More than 40%21-30%11-20%1-10%None

0%

6%

21%

44%

15%

5% 5%

30%

0% 0%

32%

24%

14%

20%

15%

3% 3%

59%

77%

85%86%

ASPACEMEAAmericas

Note: Yes percentages represented

0

20

40

60

80

100

Overcapacityto increase

Auto industry assessments of levels of

overcapacity have also shifted, for the

worse, reflecting the declining demand

expectations. Overall, more companies

believe that overcapacity is now an issue,

and the proportion of respondents believing

it to be in the range of 11-20 percent has

risen markedly year on year, from 32 percent

to 59 percent. This assessment is confirmed

by partial production suspensions announced

by a range of auto-makers during the two

months following completion of this survey.

Asian companies seemost overcapacity

Regional assessments of the level of

overcapacity do not differ markedly,

although ASPAC companies are most

likely to consider that the industry has

overcapacity, while companies in the

Americas are least likely. Yet in all cases,

the proportion of companies seeing

overcapacity is high even in theAmericas more than three quarters

of companies see overcapacity.

Is there global overcapacity in

the automotive industry today?

If yes, how much?

Source:


Key

2006

2007

2008

Is there global overcapacity in the

automotive industry today?(Multiple responses allowed)

Source:KPMG Global Auto Executive Survey 2009



18/44



10 20 30 40 50 60 70

No data for 2006 and 2007

No data for 2006 and 2007

16%

67%66%

31%

48%

58%

59%65%

61%

67%57%

61%

50%46%

36%

28%46%

34%

29%46%

32%

16%

38%

43%43%

26%

Manufacturing process andtechnology innovations

(including plant flexibility)

Local regional tax incentives

Restructuring

Supply chain management

Computer modeling andsimulation in design

Direct labor

Healthcare, benefitsand pension costs

Overhead cost reductionincluding shared services

Product materials innovation

Low-cost country sourcing

70%

For auto manufacturers and suppliers,

rate their opportunity for future cost

savings in the following areas

Source:


Key

2006

2007

2008

Cost saving isinnovation-focused

Amid declining revenues and falling

profitability, companies will need to cut

costs further. In 2008, companies were

generally more likely to rate cost savings

opportunities as important, compared

to 2007. Respondents continue to see

innovation (in manufacturing process and

materials technology) as a more important

cost-saving opportunity than direct overhead

cost reductions. The one area of potential

cost saving that has fallen both in relative

and absolute importance in respondents

ratings is low-cost country sourcing,

reflecting the widespread belief that the

direct cost advantage of low-cost country

sourcing has largely been captured, and that

future savings will be found in process and

productivity improvements.


19/44



0

100

90

80

70

60

50

40

30

20

10

Man

ufacturin

gproce

ss

andt

echn

ology

inno

vatio

ns

Prod

uctm

aterial

sinn

ovati

on

Low

cost

coun

trysourcin

g

Supply

chain

man

agem

ent

Overhe

adcost

redu

ction

inclu

dings

hareds

ervic

es

Restr

ucturin

g

Compu

term

odelling

ands

imula

tioni

ndesign

Localre

gionalin

centive

s

Directlab

or

Healthc

are,ben

efits

andp

ensio

nco

sts

68%69%

77%

65%66%

70%

59%57%

67%

55%

62%

52%

49%49%

56%

43%

49%

63%

43%44%44%

32%

27%

41%

28%29%30%

25%

30%

27%

For auto manufacturers and suppliers,

rate their opportunity for future

cost-savings in the following areas

Source:


Key

OEMs

Tier 1 supplier

Tier 2 supplier

Suppliers see most cost-saving opportunities

Tier 2 suppliers have higher expectations

of finding cost savings in almost all areas

except social costs and supply chain

management. In particular, they see more

savings potential in restructuring reflecting

the likely productivity and profitability gains

in what is the most fragmented segment

of the automotive supply chain.


20/44



Manufacturers and dealersface consolidation

Vehicle manufacturers and dealers will face

consolidations in the next five years, say

companies. The level of expectation of

mergers and acquisitions (M&A) and

alliances over the coming five years is

an important indicator of the impact of

operating conditions, as well as of the level

of competitiveness among companies:

both factors are likely to drive restructuring.

Expectations of M&A and alliances have been

on a rising track since 2006 for all segments

of the industry except vehicle manufacturers.

In 2008, companies expect such restructuring

to increase among vehicle manufacturers,

and they expect all M&A and alliance

activity to rise, with the biggest rises among

vehicle manufacturers (from 47 percent of

respondents to 71 percent) and dealers (from

49 percent of respondents to 60 percent).

This result echoes the responses given

when companies were asked when they

thought restructuring among U.S. vehicle

manufacturers would be largely completed.*

In this years survey, it was clear that

expectations of restructuring for better

profitability had been deferred, with 90

percent of respondents expecting the

cycle of restructuring to continue to 2010

or beyond, compared to 73 percent in 2007.

*Questions asked of U.S. companies only.

59%

72%71%

41%

49%

60%61%

64%

52%Tier 2

43%

Tier 3

59%

47%

71%

Vehicle manufacturerDealersTier 2 suppliersTier 1 suppliers

0

16

32

48

64

80

For the following type of automotive

companies, do you expect alliances,

mergers and acquisitions to increase,

remain the same, or decrease over

the next five years?

Source:


Key

2006

2007

2008


21/44



M&A driven byeconomic downturn

In 2007, companies were likely to see

restructuring driven by growth opportunities;

in 2008, the primary drivers of M&A and

allianceswere more likely to be costs, the

risk of bankruptcy and rationalization in the

face of a declining economy. The perceived

importance of access to new markets has

fallen, while the potential for product

synergies and lowering raw material

costs has risen.

The importance of a declining economy

continues to rise as a restructuring driver

(as it has consistently over the last three

years), and the risk of bankruptcy is now

seen as significant by 73 percent of

respondents, compared with 55 percent

and 33 percent in the two previous years

respectively. The number of respondents

citing a growing economy as a driver has

fallen from 66 percent in 2007 but still

stands at 61 percent a reminder that while

recession grips the OECD economies, there

remains very significant growth in the four

BRIC economies.

20 32.5 45 57.5 70 82.5 95

83%

44%

75%85%

49%

80%

67%74%

35%

66%

61%

23%

53%65%

31%

58%68%

23%

55%33%

55%73%

33%Risk of bankruptcy

Pension and healthcare costs

Declining economy

Direct labor cost pressures

Expanding economy

Raw materials cost pressures

Access to new technology No data for 2006 and 2007

No data for 2006

Potential for product synergies

Access to new markets and customers 95%

In general, which of the following

do you think will be among the most

important drivers of alliances, mergers

and acquisitions in the industry?


Source:


Key

2006

2007

2008


22/44



U.S. restructuring cyclemay yet succeed

Despite the cash crisis that has engulfed

U.S. vehicle makers, many respondents

continue to believe that the U.S. makers

will restructure and become more

profitable. A large proportion of respondents

50 percent continue to agree that the

current restructuring plans of U.S. OEMs

will be successful. This level represents

a somewhat more pessimistic result than

in 2007, when 58 percent agreed thatrestructuring will be successful, although the

decline must be set against a background of

crisis among the U.S. major manufacturers

which has greatly increased uncertainty over

their long-term business viability, as well as

over the details of their short-term

restructuring programs.

The number of respondents who are neutral

on the success or failure of restructuring

has greatly increased from 30 percent to

43 percent but the number thinking that

restructuring will fail has actually fallen

marginally, from 10 percent to 6 percent.

When asked when restructuring will be

completed, the overall results show

a tendency to defer expectations of

completion, although the numberexpecting completion by 2010 has

risen from 40 percent to 47 percent.

Will restructuring programs in the

U.S. enable U.S. OEMs to be

more efficient and competitive?*

Note: this question was asked before

October 31 2008 and does not take

into account any subsequently

announced restructuring programs

and discussions.

Source:


Key

2007

2008

30%

58%

10%

43%

50%

6%

0

12

24

36

48

60

Disagree Neutral Agree

* Question asked of U.S. companies only.


23/44



Investment growthto fall

Industry investment expectations have

fallen across the board in line with other

indicators of deterioration, although more

than half of companies still forecast some

investment growth in all areas. But there

is a clear division between the areas where

investment expectations are close to those

of 2007, and areas where investment

expectations have fallen more sharply.

Companies expect innovation investment

to be resilient: 91 percent of respondents

see increasing investment in new models

(against 94 percent in 2007), and 92 percent

see increasing investment in new

technology (against 93 percent in 2007).

Expectations of restructuring investment

are also roughly stable. However,

expectations of investment increases in

marketing, new plants and logistics have all

fallen significantly.

Respondents from companies in all

segments and regions of the industry

overwhelmingly believe that Asia will build

the most manufacturing capacity in the

next five years (84 percent of respondents).

Asian companies themselves are significantly

more optimistic than others on the likelihood

of increasing investment in almost all

potential areas of investment. The one

exception is expectations of rising

investment in new technologies although

even there, the expectation is high at 90

percent of Asian respondents and the

difference between Asia and other

regions is marginal.

40 50 60 70 80 90 100

Vertical integration

Mergers and acquisitions

Logistics/distribution

New plants

Marketing and advertising

New technologies

New models/products

92%

94%91%

93%

55%

72%52%

72%

60%69%

66%67%

52%51%

Do you expect manufacturers to

increase their investment over the

next two years in the following areas?


Source:


Key

2007 2008


24/44



2/New markets In a world now dominated by impendingrecession in the OECD together with rising

financing costs; falling confidence; and thereal threat of bankruptcy for more than oneof the established auto-makers new marketsoffer one area of consolation. Although theimpact of the global financial crisis is being feltin every economy in the world, Brazil, Russia,

India and China still represent the growthmarkets of today and the potential globalexporters of tomorrow.

Nevertheless, companies see momentumslowing in new markets too. Compared with

last year, they believe there will be lessproduction growth, less export growth, andmore overcapacity emerging. The expectationsare for continued growth, but the forecast paceis moderating very significantly.


25/44


2/ New markets 23

More balanced growthin new markets

Companies believe that even when Chinaand India are discounted, emerging markets

will still grow faster than any other region.

Expectations of growth over the next three

years in markets outside China and India

are globally well-distributed. Expectations

are strongest for Central and South America,

reflecting the relative resilience of Brazilian

demand as economies elsewhere turn

down. Nevertheless, a significant minority

of respondents also expect strong growth

in the Middle East and Africa, and again in

Russia and Ukraine. No respondents saw

any other region (such as South EastAsia, or any developed region) assuming

growth leadership.

0

12

24

36

48

60

Eastern EuropeCentral andSouth America

Othersouth-eastAsian country

Russia

14%

6%

29%

43%

Middle Eastand Africa

14%

Which one of the following markets

or regions, other than China and India,

will have the greatest growth of

consumer demand in the next

three years?

Source:


China demand growth

to slow

Expectations of a rise in demand for

vehicles in Chinahave been revised

downwards. A year ago, most respondents

forecast vehicle demand in China at 12-16

million vehicles a year in five years time

(59 percent of companies). Today, only

30 percent of companies believe that this

figure will be achieved. The number of

respondents seeing demand at only 10-12million units has risen from 13 percent to

30 percent, while the proportion of those

forecasting even less demand of less than

10 million units has risen from 4 percent

to 10 percent. There has been a small rise

at the higher end of expectations, but it is

far outweighed by the downward revision of

most respondents. China is growing, but the

growth rate is moderating and that will be

reflected in vehicle sales, say companies.

4%10%

30%

10%

20%

10%

20%

13%

15%

9%

25%

34%

2007 2008

In your opinion, what will be the

annual volume of units sold in

China in five years?

Source:


Key

Less than 10 million

10-12 million

12-14 million

14-16 million

16-18 million

18+ million


26/44



Overcapacity alreadyemerging in China

There is a near-term problem of

auto-making overcapacity in China, say

the majority of companies. The proportion

of companies forecasting the emergence

of overcapacity as an issue within the next

five years has risen from 45 percent to

63 percent -- and more than a quarter of

companies now see the issue as immediate

(within the next two years). With Chinese job

losses mounting and domestic demand likely

to fall, companies are increasingly saying

that the Chinese auto sector is now overbuilt.

A remarkable 81 percent of all respondents

see overcapacity emerging within 10 years, and

99 percent believe the problem will eventually

emerge the clearest consensus expressed in

the survey.

9%

27%

36%

18%

18%

36%

20%

35%

2007 2008

Note: Due to the rounding of percentages, the chart addsup to 99 percent not 100 percent.

When will overcapacity in China

become a serious problem?

Source:


Key

1-2 years

3-5 years

6-10 years

10+ years


27/44


2/ New markets 25

Chinese exportmomentum falling

Chinas momentum as a global exporter is

slowing. Consistent with lower expectations

for production and emerging overcapacity,

companies are also growing more

pessimistic about Chinas sales overseas.

Asked when China would sell one million

or more vehicles in other markets (in 2007

companies were asked when China would

achieve one million plus sales in the U.S.

alone), expectations of that level of sales

being achieved within five years have fallen

sharply from 32 percent to 18 percent. This

fall is even more striking when the larger

arena of sales in the 2008 question is taken

into account.

In 2008, respondents were asked for the

first time, questions about the prospects

for automotive industry growth in India,

Brazil and Russia. Although there are no

previous survey results to allow comparative

findings for these markets, expectations

appear to be guardedly optimistic especially

for India and Brazil. When asked to forecast

Indias achievement of one million or more

vehicles manufactured annually outside

India, a high proportion (58 percent) thoughtthat figure would be achieved within three

to 10 years.

In Brazils case, 55 percent of respondents

thought that market growth over the next

two years would be strong no respondents

foresaw contraction. Expectations for Russia

were somewhat more cautious. However,

in contrast to the results for China, three

quarters of respondents said that overcapacity

would not emerge in Russia for at least six

years, and the remaining 25 percent

considered that it would be 10 years or more

before Russias automotive capacity would

be fully built up.

2007

31%

42%

26%

1%

When will China sell a significant

number of cars in the U.S. market?

Source:


Key

1-2 years

3-5 years

6-10 years

10+ years

2008

18%

46%

36%

When will China sell a significant

(ie, 1,000,000) number of cars in

other markets?

Source:


Key

3-5 years

6-10 years

10+ years


28/44



3/ Technology and innovation Given that the Global Auto Executive Survey2009 took place against a background of

impending recession, global financial crisisand the real threat of bankruptcy for morethan one leading auto-maker and giventhat most of the elements of this crisis werealready visible before the survey began it remains striking that auto companies remain

firmly focused on technology and innovation.


29/44


3/ Technology and innovation 27

Fuel technology theleading trend

In the formation of their strategies, this

years survey shows clearly that auto-makers

are looking beyond the current economic

and financial turmoil. Amid global conditions

that amount to an economic and industry

crisis, the worlds auto-makers still consider

innovation and technology to be the most

important trendover the next five years.

Fuel efficiency improvements, alternative

fuel technologies and environmental

pressures are considered the three most

influential trends.

Costs, economic crisis and competition all

attract a much lower proportion of responses.

(Note that rising fuel costs are considered

important by only 3 percent of respondents,

compared to 29 percent of respondents who

consider the manufacture of fuel-efficient

cars the most significant trend. This apparent

contradiction must be interpreted in the

light of a background of falling oil prices

during late 2008, leaving prices at less than

half of their peak in mid-2008, but still at

an historic high compared to the average

of the last two decades.)

0

30

25

20

15

10

5

Risin

gfu

elco

sts

Com

petition

Othe

rs:glob

aliza

tion,

nee

dfo

r

effi

cient

vehic

les,M

&A,etc

Ensu

ring

safe

ty

Deali

ngwith

eco

nomic

crisi

s

Prod

uctio

nof

env

ironm

ent-f

riend

lyca

rs

Switc

hingt

oalt

erna

tive

fuel

vehic

les

Man

ufac

turin

gfu

el-ef

ficien

tcar

s

Man

ufac

turin

gsm

allca

rs

Redu

cingc

osts

Useo

flat

estt

echn

ology

(eg,

fuel

cellt

echn

ology

,

prop

ulsion

,hyb

ridsy

stem

s,et

c)

29%

23%

22%

12%

10%

7%

6%

4%

3%3%

12%

What are the most important trends in



Source:



30/44



Environment a priorityfor vehicle makers

On a company basis, the view of the relative

importance of trends reveals important

priority variations according to business

segment. In particular, vehicle manufacturers

are much more likely to see environmental

issues as significant than are suppliers.

This is confirmation of views expressed

in KPMG firms interviews with auto

companies over the last year.

Suppliers typically say that environmental

concerns are issues for their customers, and

only indirectly issues for suppliers themselves;

and vehicle manufacturers tend to say that

environmental concerns are transmitted

directly to them by customers and by

regulators. However, suppliers are more

concerned than auto-makers with reducing

costs, as cost pressure is typically transmitted

to suppliers by their customers. Cost concerns

increase the lower down the value chain the

company sits.

0

5

10

15

20

25

30

35

40

Man

ufac

turin

g

fuel-

effic

ientc

ars

Switc

hingt

oalt

erna

tivef

uel

Prod

uctio

nof

envir

onm

ent-f

riend

lyca

rs

Useo

flate

stte

chno

logy

Redu

cing

cost

s

Man

ufac

turin

gsm

allca

rs

Deali

ngwith

econ

omic

crisis

Ensu

ring

safe

ty

Risin

gfue

lcos

ts

Com

petit

ion

Othe

rs

30%

27%

35%

29%

19%19%

30%

19%

12%

13%13%

8%

9%10%

12%

5%

9%

4%

3%

9%

4%

3%

4% 4%

1%

4% 4%

0%

3% 3%

8%

15%15%

What are the most important trends in


Source:


Key

OEMs

Tier 1 supplier

Tier 2 supplier


31/44




32/44



Fuel technology the keyproduct innovation

Auto companies long-term focus on fuel

efficiency and alternative propulsion is also

evident when companies are asked about

the relative importance of individual

product innovations. In 2008, hybrid

systems continue to be considered the

most important industry innovations, and

with even greater conviction than in 2007

91 percent of respondents consider hybrids

important in 2008, up from 79 percent in

2007. Sales expectations for hybrid vehicles

have also risen sharply: in 2007, only 27

percent of companies thought that hybrid

sales would exceed 800,000 units in the year

ahead; in 2008, 80 percent of respondents

think that sales will exceed 1.5 million units

in the year ahead.

Electric and battery technology has also risen

sharply in companies ratings of importance,

from 60 percent to 82 percent. Overall, the

proportion of respondents rating individual

technologies as unimportant has tended to

fall slightly across the board, indicating an

increasing focus on technology by all auto

companies.

% citing important on a scale listing important, neutral, and unimportant for 2008

l ll l

0

100

90

80

70

60

50

40

30

20

10

Hybr

idsys

tem

s

Elec

tric

and

batte

ry

tech

nolo

gy

Fuel

cellt

echn

olog

y

Adva

nced

mat

erial

s

(eg,

carb

onco

mpo

site)

Safe

tyinno

vatio

ns

Etha

nola

ndoth

er

alter

nativ

es

Adva

nced

des

igns

Dies

el

Tele

mat

icsor

pers

onal

assis

tanc

e

79%

91%

60%

82%

78%76%

67%

61%

51%

55% 56%53%

41%

51% 50% 49%

31%

41%

For the following automotive product

innovations, rate the importance to

the industry over the next five years

Source:


Key

2007 2008


33/44



Asian companies mostinnovation-focused

Regional ratings of the relative importance of

product innovations produce very significant

results: with a large degree of consistency,

ASPAC companies are more innovation-

focused by outlook than companies in the

Americas, and EMA companies are less

innovation-focused (in terms of their tendency

to rate technology issues as important). With

the single exception of their rating of electric

technologies, ASPAC companies tend to rate

all product innovations as important in more

cases than do companies in the Americas or in

EMA. Also with two exceptions (electric

technologies and advanced designs), EMA

companies tend to rate product innovations as

important in fewer cases. A comparable

pattern was evident when companies were

asked about the impact of alternative energy

on their M&A and alliance strategies: ASPAC

companies were more likely to report

more joint ventures, and less likely to report

no impact although in this case, EMA

companies were also more likely to report

a strategic response than companies in

the Americas.

0

100

90

80

70

60

50

40

30

20

10

Hybrid

systems

93%

86%

93%

Elec

trican

dba

ttery

tech

nolo

gy

75%

86%

83%

Fuel-cellt

echn

olog

y

78%

70%

82%

Safety

inno

vatio

ns

57%

49%

82%

Advanc

edmaterial

s

55%

50%

60%

Etha

nola

ndother

alte

rnatives

52%

45%

53%

Advanc

eddesig

ns

42%

46%

66%

Dies

el

52%

41%

58%

Tele

matics

orp

erso

nal

assis

tanc

ese

rvice

s

34%34%

58%

For the following automotive product

innovations, rate the importance to

the industry over the next five years.

Source:


Key

Americas

EMA

ASPAC


34/44



Cost will determinepurchase decisions

Expectations of the drivers of consumer

purchases have changed significantly:

as economies turn down, companies now

expect cost issues to take over from quality

as the leading determinants of consumer

behavior over the coming five years.

Although quality is cited by almost the same

high proportion of respondents as in 2007

(85 percent this year, against 86 percent

last year), companies now think that fuel

efficiency is more important. Fuel efficiency

is now rated as the most important issue

by a very high 96 percent of respondents.

Alternative fuel is rated highly at almost

last years level, while affordability rises in

significance from 69 percent to 83 percent.

0

100

90

80

70

60

50

40

30

20

10

Fuel

effi

cienc

y

Affo

rdab

ility

Qua

lity

Safe

ty

Alte

rnat

ivefu

el

Envir

onm

enta

lfrie

ndlin

ess

Vehi

clesty

ling

and

desig

n

New

tech

nolo

gies

Serv

iceab

ility

Sale

sin

cent

ives,

such

as

0%fina

ncin

g

84%

96%

69%

83%86% 85%

70%

75%

65%

70%

50%

72%

62%

69%

54%

63%

49%

59%

45%

59%

Over the next five years, how

important will the following issues

be to consumer purchase decisions?

Source:


Key

2007 2008

Other cost issues come lower in the

ranking sales incentives for example is

last although this should not be interpreted

as an insignificant result at 59 percent of

respondents, having risen significantly from

45 percent of respondents in 2007. The

tendency is for all factors to receive higher

ratings from respondents in 2008, indicating

that companies expect to see more critical

and discriminating customers in the next

five years.


35/44




36/44



4/ Beyond crisis:challenges and opportunities The automotive industry is by nature

forward-looking: while the pace of innovationimplementation is fast, the cycle of muchautomotive research and development canbe long. The maturing of emerging marketsis also a long-term issue, even though thepace of change has accelerated in recent

years. The Global Auto Executive Survey 2009reveals that automotive companies continueto see opportunities not only in technology,but also in the application of technology andthe management of consumer expectations as well as in the continued growth ofemerging markets.


37/44


4/ Beyond crisis: challenges and opportunities 35

New markets and fueltechnologies the keyopportunities

Companies remain focused on growth.

When asked about the opportunities for the

automotive industry in the next five years,

companies point to what they consider to

be businesses and markets that have been

insufficiently explored by the automotive

industry. Alternative fuels and fuel efficiency

figure in the top three opportunities; emerging

markets rate as second in importance,

reflecting the fact that despite declining

expectations of sales and production growth

revealed in responses to earlier questions,

these are still growth markets and are likely

to remain so for the foreseeable future. It is

also striking that cost control is rated the least

significant of opportunities in sharp contrast

to surveys in previous years, the expectation

of opportunity has shifted away from costs

and towards new products and new markets.

On a regional basis, the results point to one

important differential in emphasis.

0

25

20

15

10

5

Alternativefuelcars

Exploration

ofemergingm

arkets

Fuel-efficientcars

Developing

new

technology

Environment-friendlycars

Low-pricedcars

Meetingcustomerdemand

Costcontrol

Others:restructuring,

improveddesigns,etc

21%

19%

17%

16%

13%

12%

6%

5%

11%

What are the chief opportunities for

the automotive industry now and for

the next few years?

Source:


ASPAC companies are much more likely to

cite opportunities in alternative fuels and

environment-friendly cars. This result is

confirmed when companies were asked about

automotive trends: again ASPAC companies

were much more likely to cite the production

of environment-friendly cars as a significant

trend than were other companies.

The conclusion has to be that in the global

Auto Executive Study 2009, ASPAC

companies are more focused than others

on the environment as an opportunity.


38/44



Economy and environmentare key challenges

Companies are highly concerned about

demand and financial costs. When asked

about challenges rather than opportunities,

respondents give a high rating to the global

economy and financing costs. However it is

significant that environmental concerns have

not been eclipsed by the global financial

crisis the environment still ranks above

financing or technology issues. Also striking

is the very low proportion of respondentsrating low-cost country sourcing as a

significant challenge, suggesting that most

companies consider that the challenges of

capturing potential savings in emerging

economies are now well understood.

0

25

20

15

10

5

Glob

alec

onom

ycrisi

s

Envir

onmen

talc

once

rns

Fina

ncin

gco

st

Useof

alte

rnative

fuels

Compe

titio

n

Ove

rcap

acity

Tech

nolo

gicalin

nova

tion

Intro

ductio

nof

new

low-cos

tvehicl

es

Increa

singwag

es

Cost

redu

ctio

n

Low-cos

tcou

ntry

sou

rcin

g

Others:

remainin

gprofita

ble,

acce

ssto

inve

stmen

tcapita

l,etc

20%

18%

14%

13%

11%

7% 7%

6%

5%

4%

2%

6%

What are the most important

challenges facing the automotive

industry over the next two to

five years?

Source:



39/44



0

5

10

15

20

25

30

35

40

Risin

graw

material

cos

ts

Risin

gco

stoffuel/e

nergy

Glob

alec

onom

iccrisi

s

Envir

onmen

talc

once

rns

Fina

ncin

gco

sts

Useof

alte

rnatefuels

Compe

titio

n

Ove

rcap

acity

Tech

nolo

gicalin

novatio

n

Introdu

ctio

nof

new

low-cos

tvehicl

es

Increa

singwag

es

Cost

redu

ctio

n

Low-cos

tcou

ntry

sou

rcin

g

Others

31%

38%

19%

28%

33%

31%

22%21%

12%

30%

8%

19%

14%13%

15%

12%13%

15%

7%

15%

4%

9%

7%

4%

9%

4%

8%

2%

8% 8%

4% 4%

12%

5%

3%

4%

0% 0%

3%

6%7%

4%

What are the most important

challenges facing the automotive

industry over the next two to five

years?

Source:


Key

OEMs

Tier 1 supplier

Tier 2 supplier

Vehicle makers seethe environment asthe key challenge

Responses by business segment to the

question of challenges reveal significant

differentials. Vehicle manufacturers are far

more likely than suppliers to consider that

environmental challenges are significant.

Tier 1 suppliers are far more likely than any

other companies to be concerned with a

challenge from competitors; Tier 2 suppliers,

which tend to operate the most labor-

intensive of automotive operations, are morelikely than any other companies to be

concerned with labor costs.


40/44



Success comes fromgood management

In such difficult times, what is the key

success factorin the automotive industry?

Companies are most likely to give answers

that stress management rather than

technology. They are most likely to say

that success comes from the leveraging

of technology not the raw development

of new technologies, but the application

of technology to product and processes.

The second most cited factor is meeting

customer expectations. Consistent with

results elsewhere in the survey, the

maintenance of brand image and the

manufacturing of safe vehicles is rated as

critical by very few companies (3 percent

in each case), suggesting that the great

majority of auto companies now feel that

they have reached a plateau of achievement

in building their brands and their reputations

for safety.

0

30

25

20

15

10

5

Man

ufac

turin

gsafe

vehic

les

multi-fu

nctio

nmod

els,con

venie

nce

Othe

rs,egm

anufacture

of

envir

onmen

t-frie

ndly

cars,

Bran

dimag

e

Staying

compe

titive

Fuel-

efficien

tcars

Approp

riate

prod

uctp

ricing

Main

tainin

gliqu

idity/

profita

bility

Flexibilit

yina

dapting

tochan

ge

quality

prod

ucts

Man

ufacturin

ghig

h-

Cost

control

Affordable/

cost-ef

ficien

tcars

Mee

tingc

ustomer

exp

ectatio

ns

Leve

raging

tech

nolog

y

17%

16%

14%

13% 13%

8% 8%

7%

6% 6%

3% 3%

26%

What are the critical success factors in

todays automotive environment?

Source:



41/44



Brand no longerguarantees success

On a regional basis, there is a broad measure

of agreement on many, but not all, success

factors. Competitiveness and affordability

of products is more important to EMA

companies. Companies in the Americas are

more concerned than others about profitability

and pricing reflecting their earlier entry

into recessionary conditions. What is

perhaps most interesting, is that there are

two potential success factors both traditional

areas of automotive business concern

where there is a striking measure of agreement

(in terms of the small number of companies

that consider them critical) that these are

no longer prime concerns. Neither brand

image nor manufacturing safe vehicles is

cited as being key by more than 5 percent

of companies in any region, and brand image

attracts no citations at all in the Americas.

Almost all companies now consider that

technology, pricing and to some extent

costs are the key success factors for

the future.

0

5

10

15

20

25

30

35

40

Man

ufacturin

gsafe

vehic

les

Othe

rs

Bran

dimag

e

Staying

compe

titive

Fuel-

efficien

tcars

Approp

riate

prod

uctp

ricing

Main

tainin

gliqu

idity/

profita

bility

Flexibilit

yina

dapting

tochan

ge

quality

prod

ucts

Man

ufac

turin

ghigh

-

Cost

control

Affordable/

cost-ef

ficien

tcars

Mee

tingc

ustomer

exp

ectatio

ns

Leve

raging

tech

nolog

y

8%

21%20%

19%

13%

16%

7%

22%

11%

14%

13%13%

14%15%

9%

12%

9%

6%

2%

12%

5%

14%

4%5%

8%

6%

4%3%

10%

2%

5%4%

2%

0%

3%

4%

24%

19%

38%

What are the critical success factors in

todays automotive environment?

Source:


Key

Americas

EMA

ASPAC


42/44


Conclusion The results of the KPMG Global AutoExecutive Survey 2009 highlight the

impact of the global downturn on theautomotive industry.


Sales and profitability expectations are

down sharply.

More bankruptcies are expected, and with

them, a return to intensive restructuring.

Costs will have to be cut, which in turn

means that process innovation will have

to intensify.

Customers will become morediscriminating, and more concerned

with total cost of ownership.

The downshift in expectations is not

confined to the mature automotive

economies of the OECD. Expectations for

growth in China and India have also proved

very vulnerable to the downturn. But at the

same time, expectations for Central and

South America, and for the Middle East and

Africa, have proved fairly resilient. In the

longer term, companies still believe that

emerging markets represent an area of

continuing opportunity.

Companies also see great opportunities in

new technologies particularly alternative

fuel and fuel efficiency technologies. It is

remarkable that despite the fall in oil prices

during late 2008, companies have actually

increased their sales expectations for hybrid

and alternative propulsion vehicles a result

that reflects the fact that oil prices remain

historically high.

The automotive industry is clearly facingan unprecedented crisis a crisis that

companies fully expect will reshape the

industry. But even amid crisis conditions,

the long-term concerns of automotive

companies remain strikingly stable:

developing and leveraging technology in

an era of gradual but inexorable shift away

from oil dependence. One of the lessons

of the 2009 survey is that companies that

manage that shift successfully are likely

to be the industry leaders of the future.


43/44



44/44

kpmg.com

KPMGs

Global Automotive contacts

Uwe Achterholt

Global Chair, Automotive

KPMG in Germany

[email protected]

Tel: +49 89 9282 1355

Roland Schmid

Global Executive, Automotive

KPMG in Germany

[email protected]

Tel: +49 89 9282 1147

Fiona Sheridan

Global Senior Marketing

Manager Automotive

KPMG in the U.K.

[email protected]

Tel: +44 20 7311 8507

KPMGs

Regional Automotive contacts

Dieter Becker

Automotive Europe

KPMG in Germany

[email protected]

Tel: +49 711 9060 41720

Jeff Dobbs

Automotive U.S.

KPMG in the U.S.

[email protected]

Tel: +1 313 230 3460

Andrew Thomson

Automotive Asia Pacific

KPMG in China

[email protected]

Tel: +86 (21) 2212 2877

The information contained herein is of a general nature and is not intended to address the circumstances of any particular

individual or entity. Although we endeavor to provide accurate and timely information, there can be no guarantee that

such information is accurate as of the date it is received or that it will continue to be accurate in the future. No-one should

act upon such information without appropriate professional advice after a thorough examination of the particular situation.

The views and opinions expressed herein are those of the interviewees and do not necessarily represent the views and

opinions of KPMG International or KPMG member firms.

2008 KPMG International. KPMG International isa Swiss cooperative. Member firms of the KPMGnetwork of independent firms are affiliated with KPMGInternational. KPMG International provides no clientservices. No member firm has any authority to obligate

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