TORONTO, Jan 4 (Reuters) - Canada's automotive industry is likely to shrink over the next five years as overcapacity and a murky profit outlook force some companies into bankruptcy and others to sell out, according to a survey released on Thursday by accountancy firm KPMG.
The KPMG survey of 150 senior executives at vehicle manufacturers and suppliers worldwide found that consolidation and global alliances in the industry could lead to a drop in the Canadian share of the domestic market.
KPMG's Auto Executive Survey 2007, which included 10 senior executives from Canada, showed 58 percent of those surveyed in North America expect global consolidation to rise over the next five years.
That compares with 81 percent of Asian executives and 56 percent of Eastern European executives. In Western Europe, just 32 percent of the respondents said they expect an increase in global alliances, mergers and acquisitions.
Consolidation is being driven by overcapacity throughout the market, the survey found.
"This condition is also forcing companies to follow the global supply chain, meaning they must go to where they can get the best overall deal," Roger Bryan, associate partner at KPMG's Automotive Practice, said in a statement.
"As they pursue the global supply chain and to the extent that it moves them out or away from their existing communities in Canada, it is likely to have an adverse impact on Canada."
The survey also showed that only 10 percent of executives see a decrease in the level of bankruptcies in the industry, while 87 percent say the level of bankruptcies will increase or remain the same over the next few years.
"There is no reason to disbelieve that the level of bankruptcies in Canada will either stay the same or rise," Bryan said. "There is going to be a continuing cost pressure because commodity products are increasingly moving offshore." Continued...
Health-care and benefits costs were pegged by 28 percent of North American executives as key drivers behind bankruptcy. In Europe, 70 percent of the executives cited noncompetitive cost structures as the greatest cause of bankruptcies.
In Asia, 17 percent of the executives surveyed said excess debt would prove to be the main reason for bankruptcy.
($1=$1.18 Canadian)
