Survey: Auto Industry Execs Expect Market Share Struggle

Oct 25, 2013

Confidence in the U.S. auto industry is thriving due to surging sales and record profitability, but increased competition and expectation that growth in new-vehicles sales will slow has tempered executives’ optimism, according to the third U.S. Automotive Industry Survey and Confidence Index.

The survey, which was conducted by consulting firm Booz & Co., and Bloomberg News, indicated “cautious optimism” among most of the survey respondents despite a backdrop of positive factors in the auto industry.

Positive factors include a 17 percent year-over-year increase in new-car sales in August 2013, continued success with new product launches by OEMs and suppliers, and the perception that executives have been maintaining a disciplined approach, according to Booz & Co.

However, survey respondents expect overall vehicle sales growth of 1.4 percent from 2013 to 2017, which is below the 10.1 percent pace of 2010 to 2013. Their prediction of 16.3 million vehicle sales in 2017 also is lower than most industry forecasts, according to Booz & Co.

“A return to the fundamentals of great product and more disciplined financial and operational management have been key drivers of the recent U.S. automotive industry resurgence,” said Brian Collie, a partner at Booz & Co. “However, slower growth signals a coming fight for market share, as companies will need to take sales from competitors in order to continue growing—a zero-sum game. The key question is, ‘Will we continue to see competition rooted in superior product and providing a superior customer experience, or will we see executives revert to more aggressive price and sales tactics?’”

Booz & Co. and Bloomberg News issued the survey to more than 200 auto executives from more than 75 automotive manufacturers, suppliers and dealers in July and August.

Key findings of the Booz & CO. survey included:

Bullish outlook continues. More than 90 percent of respondents describe the industry as either “somewhat better” or “much better” relative to last year, and both suppliers and OEMs say they are reasonably well positioned to face future competitive pressures.

More aggressive use of incentives is expected. Operating with tight capacity has enabled OEMs to maintain strong pricing discipline and limit their use of incentives. However, warning signs are beginning to emerge that this may change—more than 40 percent of respondents expect more aggressive use of incentives during the next six months.

Industry efforts to drive greater adoption of alternative powertrains continue to face strong headwinds. Respondents expect only 20 percent of cars to be powered by electricity, natural gas, and other alternative power sources by 2020, down from last year’s prediction of 24 percent. Furthermore, these numbers are viewed as highly sensitive to continued government support without subsidies and infrastructure support, the expected 2020 penetration rate drops to 12 percent.

Hyundai and Volkswagen will continue to gain market share. Respondents see Hyundai, Volkswagen, BMW, and Ford continuing to gain market share, while they predict small market share losses for GM, and larger losses for Subaru and Nissan. Notably, the level of confidence in these predictions is significantly lower than it was last year, suggesting that velocity of gains and losses is slowing down.

Confidence is high toward in-vehicle entertainment, telematics, and the “connected car.” Some 70 percent of OEM respondents say they have compelling value propositions relative to offerings from smartphone makers, wireless carriers, and app makers. Tellingly, however, more than half admit they don’t have integrated solutions in this emerging field. Last year, 38 percent of OEM respondents said they intended to create their own platform for integrating digitization and connectivity.

Costs still in the crosshairs. Despite their massive efforts to shed excess capacity, reduce legacy obligations, and streamline operations, auto executives believe there are still significant opportunities to continue cutting costs. Fully 80 percent say cost reduction remains a top priority for their company, but a minority believe cost cutting has given their company a sustainable competitive advantage.