KPMG Analyst Says Hybrids Answer for Australia

The future success of Australia’s automotive industry could rest with hybrid powertrains and other environmentally friendly technologies, an industry analyst suggests.

David Gelb, an automotive partner in the New York-based international advisory firm KPMG, says a possible remedy to Australia’s diminishing auto industry is to improve incentives for research and development and to encourage auto makers to produce hybrids locally.

In releasing KPMG’s annual global automotive industry survey, Gelb says if Australia can establish an advantage in hybrid or other drivetrain systems, it might have a chance to become a world supply center for these technologies, which then could be exported to assembly plants in countries with lower labor costs.

The KPMG survey polled 150 senior executives at auto makers and suppliers.

“A large majority of respondents believe high oil prices will permanently drive consumers toward more fuel-efficient vehicles, including hybrids,” Gelb says. “We’ve already seen the impact this shift is having on the sales of SUVs and 4-wheel-drive (vehicles).”

Since 2002, the proportion of respondents who rated fuel efficiency as critical has soared from 58% to 89%, Gelb says.

The survey finds 83% of those surveyed nominated hybrids as the most likely vehicle type to see increased market share over the next five years.

Survey respondents say high oil prices will drive consumers toward fuel-efficient vehicles.

“Here is a real opportunity for Australian manufacturers to produce a product with strong, increasing demand,” Gelb says. “However, the federal government must provide the incentives for industry to move production of hybrids to this country,” he says.

Gelb says the only way for Australian auto makers to compete with the emerging economies of China, South America and Eastern Europe is to invest in fuel-efficient and carbon friendly alternatives.

“Typically, it has been the larger cars and truck-based vehicles that have kept the (Australian) industry profitable,” he says. “The challenge now will be how can hybrids and smaller fuel-efficient cars help troubled companies recover? The answer is innovation.”

Federal Chamber of Automotive Industries CEO Peter Sturrock disagrees with Gelb. “Given the size of our market and industry, it is commercially unrealistic to think that we can develop those (alternative) technologies independently in Australia or manufacture them here independently,because the market is still quite small for that technology,” he says.

Meanwhile, the survey finds 81% of Asian executives expect global consolidations and alliances to increase over the next five years vs. 58% of North American officials, 56% of Eastern European executives and 32% of Western European brass.

“Not surprisingly, 87% of executives believe the level of bankruptcies in the industry will increase or remain the same over the next few years, while only 10% see a decrease,” Gelb says.

Some 47% of those polled see non-competitive cost structure as the driving force behind bankruptcy. However, Asian executives (43%) and their European counterparts (45%) are more positive about profits increasing over the next five years than North American executives (38%).

Over the next five years, 49% of respondents say vehicle manufacturers will increase their investment in new technologies; 48% say investment in new models/products will rise and 43% say money will go toward mergers and acquisitions.