- The Washington Times - Thursday, January 2, 2003

Despite sales-boosting buyer incentives, nearly one-third of auto industry executives expect American carmakers to struggle for profits through 2005 as they lose market share to Asian and European manufacturers.

A global study by the accounting and tax firm KPMG LLP, based on interviews with 100 industry leaders, found 30 percent said profitability likely won’t reach 2000 levels for at least two years. Executives weren’t as pessimistic last year when 36 percent forecast that 2003 would likely be the most profitable year, while 24 percent thought 2004 would be more profitable for the industry.

“It’s obvious from the survey findings that the executives no longer see profitability rebounding any time soon — both as a result of the economic downturn and of consumers’ expectations for rebates, special pricing and other financial arrangements,” said Brian Ambrose, national industry director of KPMG’s Automotive practice Thursday.

More than half of the executives surveyed said they expect the global share of the market for U.S. cars, trucks and sport-utility vehicles will decrease over the next five years, while 11 percent expect demand for American-made vehicles to grow.

“Asian and European brands have been successful at bringing the right product to the market quickly while being flexible in their manufacturing processes to respond to changes in demand,” Ambrose said, adding that Korean automakers such as Hyundai and Kia were likely to gain customers by offering a lineup of lower priced product with improved quality.

Ambrose said most executives are looking for ways to cut costs and would like to see General Motors end the zero-percent interest financing wars it launched to jumpstart sales in the aftermath of the Sept. 11, 2001, terror attacks.

“Right now North American manufacturers are in a transition phase and, over the next few years, plan to roll out dozens of models with exciting styling and new technology,” he said. “They are banking that these new vehicles will recapture the eye of the consumer, returning them to profitability and making zero-percent financing a thing of the past.”

Just 48 percent said they expect use of sales incentives to increase over the next five years, down from 63 percent in 2001.

“Over the past 12 months the industry has been focusing much of its attention on zero-percent financing and discounts,” Ambrose said. “The American consumer has become very fickle and interested in affordability but, at the same time, demands quality products.”

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