Survey: Auto execs more optimistic

NEW YORK (CNNMoney.com) -- Auto executives head into 2008 more optimistic than a year ago, despite record oil prices and slumping sales in the United States and Japan, according to a survey of top industry executives.

The annual survey conducted last fall by KPMG LLP, the U.S. audit, tax and advisory firm, finds that of 113 senior executives at vehicle manufacturers and suppliers worldwide, the percentage expecting improved profits in the next five years jumped to 26 percent from 16 percent a year earlier, while those expecting a drop in profit fell to 14 percent from 19 percent. A 37 percent plurality of executives surveyed are still looking for a volatile and unpredictable profit outlook, little changed from the 38 percent who saw that a year ago.

Among the factors causing executives to be more optimistic is strong growth in developing markets, such as China and India, which has reduced their fears over global overcapacity, and improvements in cost structure at North American automakers won during negotiations this past year between General Motors, Ford Motor and Chrysler LLC and the United Auto Workers union.

"It was a little surprising, given all the negative press we hear in the United States," said Daron Gifford, a KPMG partner and the head of the firm's automotive practice. "It was increased optimism, not a rose colored picture. There's a light at the end of the tunnel, but there's a long way to go to get there."

Betsy Meter, another KPMG partner in the auto sector, said that the improvements in cost structure made this past year are significant and key to the improved outlook.

"The respondents feel phase one of the restructuring is really complete, and we're sort of into a phase two," she said. "A big piece of that is the take out of capacity in the U.S."

But it's not just the U.S. automakers shrinking at home that has lifted industry hopes - its also the sales gains they are making in overseas markets.

Meter said that while Chinese, Indian and Korean brands are projected to have the best growth prospects for global market share, U.S.-based automakers also are expected to benefit. Twenty-two percent of executives now see U.S. automakers growing their global market share, up from 14 percent a year earlier, and those projecting a drop declined to 54 percent from 62 percent in the 2006 survey.

Those were the biggest changes in outlook found in the latest survey.

"Directionally it says companies are making the right investment globally," she said.

But the survey does forecast some challenges ahead for U.S. automakers, including the likelihood that Chinese rivals could begin exporting a significant number of cars to the U.S. market within five years.

The survey also finds executives believe buyers will have greater demands for fuel economy and environmentally friendly cars, which will cause increased demand for hybrid gas and electric vehicles, a segment where U.S. automakers badly trail their Japanese rivals Toyota Motor (TM) and Honda Motor (HMC) in offerings and sales.

The auto executives surveyed are right to have a more optimistic outlook, according to Michael Robinet, vice president of global forecast services for CSM Worldwide, an industry consultant.

"It's important we don't look at the industry through North American blinders," he said. "The global industry is growing by 2 million to 3 million units a year. You've got markets - Brazil, Russia, India and China - that are on fire now, it's mainly because their GDPs are rising and incomes are rising to the point where more and more people have the ability to buy vehicles. Virtually everyone is making money in Brazil and China."