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KPMG: Auto Execs See Permanent Shift Toward Fuel-Efficiency and Hybrids

4 January 2007

Automotive executives worldwide strongly agree that high oil prices have permanently changed consumers’ purchasing habits globally, driving them toward more fuel-efficient vehicles, including hybrids, according to an annual global survey of industry leaders by KPMG LLP, the US audit, tax and advisory firm.

The KPMG survey, based on interviews with 150 senior executives at vehicle manufacturers and suppliers worldwide, found that executives continue to believe that fuel efficiency and quality are the primary consumer preferences when purchasing a new car, 89% and 88% respectively. Last year, 87% of executives said quality was the leading factor, and 84% said it was fuel efficiency.

High gas prices, which are permanently etched on consumers&rsquqo; minds, have had dramatic implications for auto manufacturers who lack quality, fuel-efficient products to satisfy demand.

—Daron Gifford, National Automotive Industry leader, KPMG

For the second consecutive year, industry executives said they believe the most popular vehicles over the next five years will be hybrids, cited by 83% of respondents, and low-cost cars, according to 64% of respondents. Last year, 88% of executives said hybrids would be the most popular, while 79% cited cars.

Overall, 64% of executives said they expect cars to increase global market share over the next five years, outpacing larger vehicles, such as minivans, which were cited as a growth model by only 33% of executives. Meanwhile, just 28% said SUVs would be gaining share. Fifty-five percent of executives also expect market share for crossovers to increase, while 42% predicted market share for luxury vehicles will increase.

Gasoline prices have shifted the model mix in executives’ minds, and future winners in the global automotive marketplace will have to find ways to combine ingenious cost-efficiencies with startling design creativity.

—Daron Gifford

In breaking the categories down into a regional view:

  • 95% of North American executives said they were more likely to see a rise in hybrid sales over the next five years, while 67% of North American executives predicted crossovers.

  • 89% of European executives were optimistic on the sale of low-cost vehicles, and 57% forecasted luxury vehicles sales will increase.

  • 37% of Asian executives are more confident about the sales of large pick-up trucks, while 72% expected car sales to rise.

This year, 71% of executives believe hybrids will become a US market force.

The hybrid mantra is that the breed cannot fail, given consumer demand and its relatively minuscule production numbers.

—Daron Gifford

Additional findings in the survey include:

  • 90% of executives believe consumers will hold on to their new cars for three to seven years.

  • 66% of executives cited innovations in manufacturing as the greatest source of cost savings for vehicle manufacturers, followed by materials innovation and outsourcing to countries like China and Eastern Europe according to 61% of executives respectively.

  • 48% of executives named new models and 43% said new technologies are the areas where manufacturers will increase investment.

  • Executives expect alliances, mergers and acquisitions among vehicle manufacturers, Tier 1 and Tier 2-3 suppliers to increase globally over the next five years. 81% of Asian executives expect global consolidations and alliances to increase over the next five years, followed by 58% of North American executives and 56% of Eastern European executives.

  • 57% agree that alliances will be more important than mergers and acquisitions in the auto industry over the next five years.

  • 56% believe the rate of bankruptcy in the industry will increase over the next few years.

  • 42% of executives are predicting that industry profits will be flat or generally rise over the next five years, showing marginally high optimism when compared with last year’s 39%.

  • 96% of executives expect manufacturing to grow in Asia. 75% of all executives agree that automakers and suppliers will continue to make significant investments in China over the next five years.

  • 73% of executives cite India as the next region, aside from China, to undergo the greatest growth.

In the KPMG survey, the executives interviewed represented vehicle manufacturers and suppliers in Canada, United States, England, France, Germany, Sweden, India, China, South Korea, Japan and Australia. KPMG has released an annual survey of automotive executives expressing their views on the state of the industry since 1999.

January 4, 2007 in Fuel Efficiency, Hybrids, Market Background, Vehicle Manufacturers | Permalink | Comments (19) | TrackBack (0)

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Comments

"Hold on to their cars 3-7 years"

I don't understand this phrase.

How long do Americans typically own their cars?

3-7 years seems a startingly short time, are execs predicting increased turnover?

I have owned my 1994 Toyota Corolla for 12.5 years and 160,000 miles and only taken it into the shop four times.

I plan on keeping it unitl 2012 and then buying a diesel-hybrid plug in and running it on bio-diesel.

Am I the exeption? Surely many of my countrymen must also agree with the philosophy:

"Buy a Toyota or Honda and drive it into the ground."

This has been proven to be the most cost effective method of car ownership, both economically and environmentaly. Why else buy a Honda or Toyota if you don't plan on driving it for 15-20 years?

Am I outside the loop on this?

You are the exception. All you have to do is look at the number of new vehicles you see on the roads versus the number of 10+ year old cars (of course this could be dependant upon where you live if you are in a rural or area with low average income [El Paso, TX for example]).

If everyone kept their cars for 15-20 years no car makers would offer leases.

Market research has shown the average time poeple keep their cars is 59 months.

Dan

I hear people in Japan keep their cars for shorter times. I am not sure why, but that was the statement.

Tax/inspection system over there heavily penalizes older vehicles.

Junkyards in Japan were often filled with cars only 3-4 years old when I lived there.

"fuel efficiency and quality are the primary consumer preferences when purchasing a new car, 89% and 88% respectively"

This is convoluted executive greenspeak, if 89% think fuel efficiency is a primary preference, why do the majority of the cars sold today in the US achieve less than 25mpg combined hwy/city? not to mention the larger sedans/suvs that these executives drive..

Presumably the shorter service time is offset by replacement cars with better emission control equipment onboard. Not a bad trade-off if the newer equipment does lower GHGs.

These execs appear to have made a remarkable turnaround from just a couple years ago. Thanks to Toyota's leadership.

>"fuel efficiency and quality are the primary consumer >preferences when purchasing a new car, 89% and 88% >respectively"
>
>This is convoluted executive greenspeak, if 89% think >fuel efficiency is a primary preference, why do the >majority of the cars sold today in the US achieve less >than 25mpg combined hwy/city? not to mention the larger >sedans/suvs that these executives drive..

Because they think 25 mpg is good mileage.

If you are a GM exec that drives a 14 mpg SUV, you would think 20 mpg is good mileage.

I like to compare SUVs, and other fuel-inefficient vehicles, to cigarettes. At first people thought they were "cool" and it was "OK" to drive them because gas was so cheap and "big companies" were making them.

Then, when gas prices started going up, people realized that SUVs were in reality "bad for you" and, hopefully, people will never drive them again.... I kinda screwed that up but you get the point...

Maybe vehicles that get poor economy should carry a big warning label on the side:

"EPA's GENERAL WARNING: Driving SUVs can lead to permanent environmental damage, be hazardous to other motorist's health, and screw your kids over big time in the long run."

YES to "I plan on keeping it unitl 2012 and then buying a diesel-hybrid plug in and running it on bio-diesel."

Don't buy the crap we're offered now. Keep that car gasoline-powered car, just drive it as little as possible. Wait until something decent is offered, flex-fuel plug-in hybrid, or diesel plug-in hybrid, or just good diesels to run on biodiesel. JUST DON'T BUY until responsible products are offered to us. That's how we vote with our dollars.

The hunger for eco-friendly alternatives is very real and it's encouraging to see shifting attitudes in the hierarchy of corporate structure. One need look no further than California as an example of the "if you build it they will come" mentality" which is detailed in this story at the Ecotality Blog:

http://www.ecotality.com/blog/?p=65

The market is truly out there.

That is what this site is about, GreenCars. We like our personal transportation but we want to be a bit more responsible and sustainable about it.

John:

I like your idea. It seems that many Americans like it too. Cigarette style WARNINGS + Stats would certainly help too.

For 2006, sales of GM, Ford and Chrysler down 8%, 7%, and 6% respectively. Sales of Toyota and other imports up 13% to 43%.

For 2007, much the same, specially if gas prices stay up. Higher price, lower energy ethanol is not the solution for the diminishing Big-3 gas/ethanol guzzlers sale. It is not easy (for the Big-3) to go from 15 mpg to 50 mpg. Catching up will take a few years. Meanwhile, many customers will switch to more efficient, cleaner vehicles.

Have you heard on the commercials the term "fuel efficient engine"?

Dont know if they use it with a footnote

I too drove my Honda Accord into the ground at 300,000 miles when the first transmission was about to go out.
My Ford Explorer lost its engine block at 90,000 miles, and the transmission failed 10,000 miles later.
Never will I buy a Ford again.... or another American car manufacturer's product until they are better than the competition in quality and efficiency.
Its either Toyota or Honda now...

about the hold onto their cars comment...

3 to 7 years seems about right, your needs change, when you buy or get rid of your car, it is often not new, but your needs change.

Maybe you have a two seater convertable.

Maybe you got a girlfriend and moved to the country, and a truck.

You get married and have a kid, then trade in the two seater for a small sedan.

The kids get older and move back to the city, swap the truck for a minivan, or station wagon.

None of the cars you get rid of go out of production, you just sell it, and buy a different vehicle which suites your current situation better.

-Michael

I can't remember where I saw the statistic, but I believe the typical car has about 3 owners between sales floor and junkyard. Old/high mileage cars tend to become less reliable. Those of us who can afford to will occasionally replace a less reliable or ugly car with a more reliable and attractive one.

In viewing the turnover rate of cars, don't forget the roll of fleets. Hertz/Avis typically keep a car for 24 months/24,000 miles.

I believe the median US Car is 7.9 years old (this having risen from under 6 years, 25 years ago, a measure of improved product quality).

I also believe the average car lasts around 14 years. The assumption I think for CO2 lifecycle calculations is 14 years and 200,000 miles. In that time, I think the average number of owners is about 3.

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