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Sales incentives forecast to decrease, crossover vehicle popularity to rise

November 23, 2010
Automotive executives are less confident about the overall industry's return to the profitability levels of 2000 compared with survey results of a year ago, pushing a recovery back at least two years, according to a survey released Jan. 2 by KPMG LLP. In a global study, 30 percent of automotive manufacturers and suppliers said they expect industry profitability levels of 2000 to return by 2005 at the earliest. In the same survey last year, 36 percent foresaw better profits in 2003, while another 24 percent thought greater profit levels would arrive in 2004. "It's obvious," said KPMG's Brian Ambrose, "that the executives no longer see profitability rebounding any time soon, both as a result of the eco- nomic downturn and of consumers' expectations for rebates, special pricing and other financial arrangements. "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. They are banking that those new vehicles will recapture the eye of the consumer, returning them to profitability and making zero-percent financing a thing of the past." Extensive use of zero-percent financing and other sales incentives have affected recent profits of U.S. automakers. Just 48 percent of survey respondents expect an increase over the next five years in the use of sales incentives for car buyers. That figure contrasts with 63 percent in the 2001 KPMG survey. Ambrose said that so much focus on zero-percent financing and other discounts by domestic brands has created a message of pricing and not new product innovation. In other forecasts, 73 percent in the survey said crossovers will increase in market share over the next five years, compared to 58 percent in last year's survey. "Consumers continue to refine their driving preferences," Ambrose said. "A lot of people have been driving sportutility vehicles, but prefer the ride of a car. It appears that automakers are listening." Safety was seen as the most important area for product innovations over the next five years, as it was in 2001.