Auto Execs See More Growth, Say More Capacity Will Be Needed

DETROIT -- (WWJ) Auto executives see a North American industry on the rise, with domestic carmakers stabilizing their market share, and rising car sales meaning a need for new auto plants. That's the takeaway from the consulting firm KPMG's annual study of auto executives.

"This is probably the most optimistic, and certainly gives a very strong view towards a stable industry, and an industry that's gone through a lot of difficulty, a lot of cost cutting, but those programs are really taking effect," says Betsy Meter, the audit partner in charge of KPMG's Detroit auto practice.

Interview: WWJ's Jeff Gilbert talks with KPMG Partner Betsy Meter.

The need for new capacity is particularly acute in North America, where carmakers have been hiring new workers and adding shifts.  Seventy percent of the auto executives studied say they expect new investment in the next five years.

"Capacity remains an issue globally, but the U.S., back to selling 15 million cars a year, is seeing increased investment interest from global automakers who continue to bring new plants online despite any capacity concerns," said Gary Silberg, national automotive industry leader for KPMG LLP.  "Companies in Europe and Japan may be struggling to 'right-size' the supply-and-demand equation, but the trend in automotive right now is to bring the supply closer to where the customers are. Just look at the number of foreign automakers and suppliers who've announced plans to build new plants here."

KPMG's Betsy Meter says the expansion in North America comes as car companies look to close plants in Europe, where sales have plunged.

"They are investing where the demand drives it," she said.  "So, you're seeing companies come into the U.S.  and announcing that they are going to expand and add capacity here." This comes as auto executives feel that Ford, GM and Chrysler are now in better shape and have now stabilized their market share.

"I think the executives really feel the three have made improvements in quality, cost structure," said Meter.  "Their market share will remain consistent as long as the product offering is there and the quality continues to remain."

The KPMG study also showed a more "back to basics" approach when it comes to fuel economy, with auto executives feeling that hybrid and electric vehicles would remain a fairly small part of the market through at least 2025.  KPMG's Gary Silberg says most of the fuel economy gains will come from improvements in the internal combustion engine.

"When you look at the current MPG estimates for new cars, it's very evident that automakers are continuing to significantly improve engine efficiency," he said. "Electric vehicles are still in their infancy and consumer demand so far has been modest due to concerns over infrastructure, battery costs and range. Today's combustion engines can continue to offer consumers the fuel efficiency and performance they desire, and what's clear is that the internal combustion engine is not going anywhere anytime soon."

For their 2013 study, KPMG interviewed 200 mid-level auto executives ,including 22 from North America.  The interviews were conducted in November.

KPMG has been doing this study since 1999.

Meter says the resurgence of the North American Auto Industry should translate to better profits going forward.   "The results that the companies are going to be releasing are another indication of a strengthening industry."

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