Auto industry looks east for growth

“THE AUTO business is not getting any easier and its growth is shifting from North America and Western Europe to Asia and Eastern Europe,” says KPMG in its 2006 Auto Executive Survey. And South Africa is going to have to work hard at retaining its industry. Africa is left out of the equation as far as the executives polled are concerned. There is not a single mention of the continent in the report. Almost nine in ten respondents (86%) strongly agree that “cross border activity, such as partnerships, manufacturing, sourcing, and other transactions” over the next five years “will increase.” But not too many are confident about making money in the market. When asked whether any vehicle manufacturers or big suppliers would file for bankruptcy in the next few years, 76% said “yes.” Expectations for the industry’s future profitability growth around the world are low, even in China. One worry is overcapacity. Another is an “almost palpable” resignation that sales incentives and low-cost financing options have become routine. A third reason is revealed in expected changes in the model mix: the future is largely about low-margin products, small cars and hybrids, and family sedans, according to the report. “Without high-margin SUVs and pickups and luxury cars, where will profits be found?” asks KPMG. One place may be electronics: 61% say the percentage of a vehicle’s value from electronics “will increase dramatically.” (It was 47% last year, 76% in 2002 and 2003.) Another may be fuel-efficiency measures that are less costly than full-blown electric-gas hybrids, such as diesel engines. A third will be the growing use of shared vehicle platforms coupled with customer-pleasing designs.