Execs upbeat on industry's comeback, study says
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DETROIT -- Auto industry executives are bullish on the economic recovery, a survey released today says.
Ninety-four percent of automaker executives and 92 percent of supplier executives surveyed said business was "somewhat better" or "much better" than last year, according to the study by international consulting firm Booz & Co.
The study was conducted somewhat differently last year.
In the 2011 version, 97 percent of automaker and supplier executives said the industry was faring "about the same" or "somewhat better" than in January 2009. No respondents in last year's survey said business was "much better."
Higher demand -- driven by increased consumer confidence, easier access to credit, popular vehicles and other factors -- coupled with automaker and supplier efforts during the depths of the economic downturn to rid their balance sheets of excess assets, has put the industry in a place to grow and profit, Booz & Co. partner Brian Collie said.
"Really at the heart of the story, it gets to the industry seeing a much better alignment between supply and demand," Collie said in an interview. "The return of optimism we see really illustrates the potential of this industry, when you are able to align supply and demand, to create profit for suppliers and for OEMs. We see that right now and the survey results reflect that."
Through April, U.S. light-vehicle sales were up 10 percent from the same period last year, according to the Automotive News Data Center, and the survey indicated that the industry will continue to rebound.
According to 88percent of executives surveyed, Hyundai/Kia is the automaker most likely to increase its market share over the next five years, while 86 percent of suppliers and 72 percent of automakers surveyed said the believe that the Detroit 3 will maintain or improve their market share over the next year.
In February and March, Booz & Co. surveyed more than 200 executives from more than 75 auto manufacturers and suppliers, more than half of whom were vice presidents or higher.
Because of the jump in sales, 78 percent of manufacturer survey respondents said they were maintaining or reducing incentives.
"If supply is aligned with demand, you don't need to incentivize," Booz & Co. partner Scott Corwin said in an interview. "There are incentives, make no mistake. They're just not at the level they used to be."
Still, Collie stressed that the executives were cautiously optimistic.
"Everyone is staying focused on the right thing, letting the market come back naturally and growing with it," he said. "As long as the market keeps growing … everyone can sustain the benefits from it and they'll be more profitable. It's going to be a while until we get to a new normal, and the real question is what is that normal going to be?"
Supply chain awareness
The 2011 earthquake and tsunami in Japan severely hampered the auto industry, making executives keenly aware of the risks that come with an interconnected global supply chain.
According to the survey, 55 percent of manufacturers and 42 percent of suppliers said their business was impacted by the earthquake and tsunami. As a result, 92 percent of automakers and 85 percent of suppliers answered that they taking steps to alleviate similar risks.
"The events of the Japanese earthquake and tsunami brought home, in very painful terms, just how interconnected we really are," Collie said. "It illustrated the limitations of the lean global supply chain to the unforeseen, rare, 'Black Swan' types of events."
Still, he said respondents indicated that the benefits of an interconnected global supply chain far outweigh the costs, but that it is important for companies to consider the risks.
Slow sales cool EV optimism
As confidence grows, enthusiasm over alternative powertrains is slowing as 55 percent of respondents said they were less confident in plug-in hybrids than they were a year ago, 71 percent said they were less confident in pure electric vehicles and 75 percent said they were less confident in fuel-cell powertrains.
Collie said the drop in enthusiasm can be explained by lagging sales of vehicles such as the Chevrolet Volt plug-in hybrid, which fell short of General Motors' 10,000-unit U.S. sales target last year with sales of 7,671 units.
"The return just isn't there for many of these vehicles. I think we saw that over the past year," he said. "Many of the major OEMs came out with plug-ins or battery-electrics. And for many of those OEMs, at least as pertains to last year, the sales did not match their targets."
While automakers and suppliers are skeptical of pure electric vehicles, 40 percent said they feel that traditional hybrid powertrains will be the main alternative to internal-combustion engines by the end of the decade.
The executives also agree on the necessity of government support in order for alternative powertrains to succeed -- 60 percent say non-gasoline-powered vehicles could gain a market share of at least 10 percent with help from the government. Without governmental assistance, only 30 percent believe the goal is achievable.
"That's a pretty telling statement from the industry," Corwin said. "We need continued government support to make the economics work for the consumers."
You can reach Joseph Lichterman at jlichterman@crain.com.
