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January 08, 2010 01:00 AM

Execs say technology No. 1 auto issue in 2010

Lindsay Chappell
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    DETROIT (Jan. 8, 2010)—Forget all that talk about cost-cutting and quality improvements—it's the race for new technology that is motivating auto industry leaders around the world this year.

    An executive survey released today by management consultants KPMG L.L.C. finds that new vehicle technologies will be the most important industry issue of 2010.

    According to the annual survey of 200 senior automotive executives around the world, technology issues will affect market share, investment and mergers and acquisition activity.

    At the heart of that new technology discussion: alternative power systems.

    “New technology is primarily driven in the powertrain,” says Gary Silberg, KPMG's national automotive industry leader. “Manufacturers are working on hybrids, electrics, clean diesels, natural-gas vehicles, fuel cells and solar cells.

    “In many cases, those technologies are being developed in-house. In past years, automakers showed that they were willing to rely on suppliers for a lot of new technology, especially in electronics.

    “We're seeing a reversal of that now. General Motors, Nissan, Ford, Toyota and the Germans are all saying that these new systems are core technologies.”

    The survey, conducted last fall, is not necessarily an indicator of what will happen. But it does clearly indicate what occupies the minds of global decision-makers as the industry tries to shake off the recession.

    KPMG found that 85 percent of those surveyed think new technologies will be the most important issue facing the global auto industry for the next 12 months.

    The No. 2 issue facing the industry: developing new products to go with the technologies.

    The heightened technology buzz is noteworthy because it eclipses two of the industry's great management obsessions of the past two decades: cutting costs and improving quality.

    “In the recent past, the hot button was cost reduction,” says “We've witnessed a lot of rationalization across the industry — the shutting of plants, lower parts costs, the push for better efficiency and reduced head count.

    “But that hunkering-down mentality is changing. The emphasis going forward is on getting new products to market.”

    Betsy Meter, KPMG's automotive industry audit leader, says other technologies also are stirring the industry. Vehicle electronics, such as Ford Motor Co.'s voice-response Sync system, have signaled that buyers are willing to pay for feature upgrades even on lower-segment cars.

    “Product innovation has overtaken product quality in the industry's sense of urgency,” she says.

    “That's partly because the automakers have improved their quality so much over the past decade. But we're also seeing an opportunity coming up for manufacturers to improve their market share and also their cost picture through product innovation.”

    Such innovation has helped Ford increase market share in Europe and the United States, says KPMG's Silberg.

    The KPMG survey also captures a shift in attitude toward Ford. One year ago, executives were asked which automakers would capture additional market share over the coming five years. At the time, only 13 percent listed Ford among the gainers. In this year's survey, 29 percent said they expect Ford to gain share.

    Chrysler, which has not been perceived as a technology leader lately, will lose market share over the next five years, according to 72 percent of the KPMG respondents.

    Finances, of course, remain a concern during this recession. Survey respondents said the most important factor in mergers and acquisitions will be debt and bankruptcy, which was not among the top three considerations in last year's survey.

    Betsy Meter, says expectations about merger and acquisition activity last year were not realized in 2009 because of the crash in capital markets. There simply was no financing for deals last year.

    Meter says the survey indicates that as the economy comes back, some companies will be making up for lost time — especially given the financially vulnerable position of some acquisition targets.

    But she says companies appear to be more focused now on picking partners based on their technological promise rather than gains in cost savings or access to new customers.

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