Global Automotive Outlook Survey: April 2008 - Summary

Dykema Gossett, PLLC

These findings of Survey were captured during the month of March 2008. The global financial shock witnessed subsequently has turned some of the findings on their head. The survey, nevertheless, gives an idea of the mood prevailing at that time. Seen in hindsight, Surveys can, at times, go terribly wrong.

"This will be another roller coaster year for the automotive industry in North America but global growth will continue." That statement, from one survey respondent, captures the mindset of industry leaders. Automotive executives say they are concerned about the near-term future of the US automotive industry and the domestic economy in general. Respondents foresee a down year in 2008, with 98% predicting that total US light vehicle sales will be lower than last year.

Highlights of Dykema's 2008 Global Automotive Outlook Survey include:

▪	Confidence in the US automotive industry is low, as 85% of respondents have a negative outlook for the remainder of 2008. No respondents have a positive outlook for the coming months.
▪	Respondents have somewhat more confidence in the non-US automotive industry. 49% have a positive outlook on the global automotive industry in 2008.
▪	More than half of the respondents think the US dollar will weaken in the remainder of 2008. Only 7% think it will strengthen. 52% of respondents said the declining value of the US dollar will negatively affect their business in 2008.
▪	44% of all respondents think that disputes between auto manufacturers and suppliers involving intellectual property rights will increase in the coming year.
▪	39% of respondents predict there will be an increase in joint ventures among OEMs in the next five years.
▪	70% of respondents believe that John McCain is the presidential candidate who would have the most positive impact on the automotive industry. 57% of respondents said Barack Obama would have the most negative impact on the automotive industry. 30% named Hillary Clinton.
▪	An overwhelming 84% of respondents said the new collective bargaining agreements negotiated by Chrysler, Ford and General Motors make them more competitive. 80% said these agreements will make investing in the North American automotive market more attractive to strategic, foreign and/or financial investors.
▪	Respondents cite energy policy (32%), tax policy (18%) and the green movement (16%) as the legislative issues they're most closely monitoring in 2008.

 
Verbatims

Respondents were asked to share their thoughts on the US and global automotive industry in an open forum for comment and feedback. The following represent select verbatims received from survey respondents.

▪	This will be another roller coaster year for the automotive industry in North America but global growth will continue.
▪	None of the presidential candidates appear to be pro-automotive.
▪	McCain is more likely to support American auto at least indirectly through economic boost programs. Obama will likely have the least influence due to inexperience and lack of established political alliances.
▪	In the US, domestics will continue to permanently lose significant market share. Increased outsourcing will permanently change the way vehicles are built. The UA W will continue to force manufacturing overseas and will permanently lose more membership.
▪	In 2008, Tier I will continue to vertically integrate and focus on industry segments.
▪	The Republicans will probably go a little easier on the domestic auto industry from a regulatory standpoint over the next four years while they scramble to bring more fuel efficient & alternative energy vehicles to the market.
▪	The automotive industry has a need for trade regulations similar to Germany to counter unfair practices in Asia.
▪	I believe the economic situation is worse than most people currently understand. The debt situation for people on a personal level will translate into lower discretionary spending and longer time for big ticket items to be re-invested in. This will translate into auto sales closer to the 14.7 million rate than the current projections of 15.5 million.
▪	Contrary to media reports, NAFTA and free trade has had a tremendously positive impact on the US economy and standard of living. This has aided the US auto industry more than any loss of jobs to other countries. Maintaining lower taxes and free trade are critical to our economic success.

 
Global Automotive Outlook Survey Results

Respondents were asked to complete a short questionnaire designed to measure attitudes and perspectives on the future of the US and global automotive industry. The following charts represent the collective input from the survey respondents. A full overview of the survey methodology can be found at the end of this report.

1.	Which Presidential candidate, if elected, will have the most positive impact on the automotive industry?
	▪	70% of respondents believe that if elected, John McCain would have the most positive impact on the automotive industry. Of those respondents who identified themselves as Democrats, 70% say Hillary Clinton would have the most positive impact on the automotive industry. Of those respondents who identified themselves as Republicans, 92% say John McCain would have the most positive impact on the automotive industry.
	▪	In their verbatim responses to the follow-up question "why would this candidate have the most positive impact on the industry," respondents do not broadly point to McCain as having a solid pro-automotive record. Instead, they tend to emphasize the anti-automotive and anti-business messages they associate with Clinton and Obama. Respondents do not appear to view McCain in a vacuum as a pro-automotive president, but rather the best available option for the industry.

 

2.	Which Presidential candidate, if elected, will have the most negative impact on the automotive industry?
	▪	57% of respondents say Barack Obama would have the most negative impact on the automotive industry. 30% name Hillary Clinton. Of those respondents who identified themselves as Democrats, 70% say Barack Obama would have the most negative impact. Of those respondents who identified themselves as Republicans, 60% say Barack Obama would have the most negative impact.
	▪	In their verbatim responses to the follow-up question "why would this candidate have the most negative impact on the industry," respondents point to Obama as more of an unknown, and a candidate who appears naïve on business issues.

 

3.	What is the single biggest automotive public policy issue that you're watching in 2008?
	▪	Energy policy dominates the concerns of automotive industry executives with 61% indicating they are watching legislation related to energy policy, green movement and CAFE standards. While Congressional hearings and legal battles about state attempts to exceed federal standards are currently ongoing, only 11 % of respondents name this as the issue they are most closely monitoring. They may believe that given the current political environment and relatively slow speed of legislatures and the court system, movement is unlikely in 2008. The importance of energy policy is reflected in an estimate by a high-level General Motors executive that the recently passed CAFÉ standards will cost GM between five and six thousand dollars per car.

 

4.	What is your outlook on the US economy in 2008?
	▪	73% of respondents have a negative outlook on the US economy in 2008. No respondents have a positive outlook. 90% of Democrats and 60% of Republicans have a negative outlook on the US economy in 2008.

 

5.	What is your outlook on the US automotive industry in 2008?
	▪	87% of all respondents have a negative outlook on the US automotive industry in 2008. No respondents have a positive outlook.
	▪	Of those respondents with a negative outlook on the US economy, 94% have a negative outlook on the US automotive industry in 2008.
	▪	Respondents indicated they have a negative outlook on the US economy and are not comfortable with two of the three current presidential candidates. Both are major business-driving factors likely influencing respondents' overall outlook on the automotive industry.

 

6.	In 2007, total US light vehicle sales were 16.15 mn units. What do you think sales will be in 2008?
	▪	98% of all respondents think total 2008 US light vehicle sales will be lower than last year.
	▪	The lowest estimate is consistent with many of the projections of industry watchers, some of which are as low as 15 million. In mid-March, global information firm J.D. Power and Associates revised their prediction of total 2008 US light vehicle sales, predicting they would be 14.95 million, not 15.7 million as they originally forecast That estimate means sales are expected to reach their lowest levels since 1995, dropping to 14.95 million cars and light trucks.
	▪	The declining sales expectations for 2008 reinforces respondents general uncertainty about the domestic automotive market and negative outlook on the US economy.
	Note: No respondents selected "16-16.5 million units."

 

7.	What is your outlook on the global (non-US) automotive industry in the coming year?
	▪	Showing more confidence about non-US markets, 49% of all respondents have a positive outlook on the global automotive industry in 2008. 38% of all respondents have a neutral outlook.
	▪	The lack of an even heavier consensus in favor of non-US markets likely indicates respondents are seeing some flattening of growth in Asia and a potential slowdown in emerging markets.
	▪	This view suggests the decline of US light vehicle sales in 2008 will have less of an impact on those OEMs with the greater global reach.

 

8.	In 2007, total non-US light vehicle sales were 49.2 million units. What do you think sales will be in 2008?
	▪	Approximately three-quarters of all respondents think total 2008 non-US light vehicle sales will be higher than 2007.

 

9.	In the remainder of 2008, will the US dollar weaken, strengthen or stay the same?
	▪	56% of all respondents think the US dollar will weaken in the remainder of 2008. Only 7% believe it will strengthen. 70% of Democratic respondents predict the dollar will weaken 'and none think it will strengthen.
	▪	The weakening US dollar may actually favour North American producers as foreign-based companies exporting to the US, or those with a significant portion of their cost base in appreciating currencies, face pricing/profit squeezes. A continued weakening dollar could afford some marginal benefit to North American automotive producers.

 

10.	What impact will the declining value of the US dollar have on your business for 2008?
	▪	52% of respondents say the declining value of the US dollar will negatively affect their business in 2008. Of those respondents with a positive outlook on the global auto industry, 62% say the declining value of the US dollar will have a positive or no impact on their business.

 

11.	Do the new collective bargaining agreements negotiated by Chrysler, Ford, and General Motors make them more globally competitive?
	▪	A significant majority of respondents think the recently negotiated collective bargaining agreements will allow US auto manufacturers to be more globally competitive. The new agreements, in relieving the automobile manufacturers of legacy costs, might be seen as a watershed in the decline of manufacturing generally in North America.

 

12.	Will these new collective bargaining agreements make investing in the North American automotive industry more attractive to strategic investors, foreign investors, financial investors, all investors or no investors?
	▪	80% of respondents think the new collective bargaining agreements will make investing in the North American automotive market more attractive to strategic, foreign and/or financial investors. While respondents have a negative outlook on the automotive industry in 2008, their prediction of increased investment may indicate that they are more optimistic in the longer-term state of the domestic market.

 

13.	Do you think that OEMs will be more or less aggressive with warranty recovery initiatives - either formal warranty recovery programs or warranty recovery litigation - in 2008?
	▪	Nearly half of all respondents think that OEMs will be more aggressive with warranty recovery initiatives, and about half think there will be no change. 52% of Republicans and 30% of Democrats think they will be more aggressive. December 2008

 

14.	In 2008, do you think disputes between auto manufacturers and suppliers involving intellectual property rights will increase, stay the same or decrease?
	▪	44% of all respondents say that disputes between auto manufacturers and suppliers involving intellectual property rights will increase and 53% think they will stay the same. Of those respondents with a negative outlook of the global auto industry, 83% think such disputes will increase.
	▪	Responses demonstrate the increasing importance of intellectual property to automotive manufacturers.

 

15.	Which of the following changes do you believe will occur to the OEM business model in the next five years?
	▪	39% of respondents say an increase in joint ventures among OEMs is likely, and 28% predict outsourcing of assembly/manufacturing operations in the next five years. Responses indicate that as OEMs move into emerging markets, the partnering model that evolved in China and now Russia, will continue to hold true.