As fuel efficiency remains the top concern among a cost-conscious driving public, global automakers, with still no clear course on electro-mobility, plan to continue to optimize the internal-combustion engine (ICE), but will also put a greater investment in hybrid plug-in fuel systems through 2018, according to the KPMG International 14th Global Automotive Executive Survey.
The continued uncertainty over electro-mobility technologies, as well as new trends in globalization, rapid urbanization and changing consumer behavior are the key forces predicted to cause a big shift in the automotive landscape over the next 5 years, according to the report, Managing a Multidimensional Business Model, based on a survey of 200 auto executives from 31 countries. The collective impact is expected to be felt across the entire automotive value chain, and calls for sweeping changes to automakers’ - and their suppliers’- business models.
“Together, these forces add considerable complexity to an OEM’s business model,” said Mathieu Meyer, KPMG’s Global Head of Automotive and a partner of the German firm. “Whereas in the past, automakers concentrated on just producing ICE cars, now they must cope with a range of propulsion technologies, new trends such as car sharing, internet connectivity as well as the growing significance of emerging markets. It is indeed a hugely transformative time for the global auto industry.”
Environmental: For Now, Optimizing ICE and Investing in Hybrid Plug-ins
Consumer interest in fuel efficiency for cost reasons is the primary factor in vehicle purchasing decisions, according to 92 percent of survey respondents. Environmental concerns such as reducing CO2 emissions is still important but slipped from second place in the KPMG 2012 global auto survey to fourth this year.
Twenty-nine percent of OEM and supplier executives say they will invest in downsizing and optimizing ICE technology. Chinese and Brazilian OEMs and suppliers also see a further window of opportunity for optimizing the ICE: 40 percent from China and 37 percent from Brazil are investing in the traditional powertrain technology.
Just over half of respondents say that ICE optimization will offer the greatest potential for clean, efficient engines for the next 6 to 10 years.
“There is an increasing realization that ICE has further scope for optimization,” said Mr. Meyer. “This a quite a turnaround in direction and a sign that some of the newer technologies are taking longer than expected to emerge.”
Investment in plug-in hybrid technology will be areas of investment for 24 percent of OEM and supplier respondents, while only an average of 8 percent say they will invest in pure battery technologies.
OEM and supplier investments plans are also in close alignment with perceived consumer preferences for electric vehicle technology, with 36 percent of respondents expecting that consumer demand will be highest for plug-in hybrids over the next 5 years, followed by non plug-in hybrids (20 percent) which ranked first in the 2012 survey; a distant fifth are pure battery-electrified vehicles (11 percent).
“The changing views on pure hybrids, plug-ins, fuel cell and battery-powered vehicles reflect the uncertainty as to which will be the dominant technology,” Mr. Meyer continued. “In the short term, the individual driver is likely to prefer a hybrid, whereas fleets may opt for electric cars. However, it seems that pure electric vehicles power will not prevail, at least in the next decade.”
Mr. Meyer commented further: “Another critical consideration that the industry and public sector must address as we plan a future of electro-mobility is when and to what extent an affordable infrastructure will be in place to address the recharging requirements of large numbers of electrified vehicles.”
Globalization: Market Share to Shift to BRICs and BRICs to Export
Notable market growth among BRIC countries and other emerging markets is a predominant trend in this year’s survey with nearly 86 percent of respondents.
In fact, an average of nearly 6 out of 10 respondents say they will increase their investments in the BRICs, which are expected to account for nearly 50 percent of all global vehicle sales by 2018. China is the first choice for investment followed by India, Russia and Brazil.
Not only are BRIC countries expected to see a surge in vehicle sales but BRIC automakers are setting their sights on exports to new markets in the next 3 to 5 years with the biggest growth opportunities being in Eastern Europe and Southeast Asia.
In addition to exports, it is anticipated that BRICs will build production hubs close to Western markets. In the Americas, 39 percent expect Mexico to become a production hub and for the European market, 70 percent favor Eastern Europe.
“Given the opportunities of Eastern Europe as a hub combined with strong local growth potential, it can be expected that this region will increase in importance as an automotive player in the near future”, said Mr. Meyer.
As the OEM race to conquer the high-growth emerging markets picks up, sales and production declines remain a concern especially in Western Europe where a sizable proportion of respondents expect sales and production to decrease in Spain, Italy, France and the UK. The US seems to have managed the turnaround as over 40 percent of respondents expect that vehicle sales will either remain steady or increase.
A majority of respondents for the BRIC countries as well as Indonesia, Malaysia, Mexico and South Africa predict an upward sales trend.
To counter dips in sales and output, automakers are looking ahead to ways to manage capacity. Twenty-five percent see industry consolidation, joint ventures or alliances as an appropriate solution. However, approaches differ widely among various countries and region with no common solution identified to date.
In terms of which automakers are expected to fare well in market share over the 5 year period, just two come from the West – Volkswagen and BMW, with VW expected to be the top-ranking leader according to 81 percent of respondents. Four Chinese manufacturers are among the top 10. US top automaker Ford has slid down the ranking from the KPMG 2012 global auto survey from 8th to 14th just above General Motors (GM), whose market share is expected to increase according to 44 percent of respondents.
Urbanization: ‘Mobility-as-a-Service’ (MaaS) a Likelihood for Cities
The rapid growth and increasing congestion of urban areas coupled with changing consumer thinking on car ownership in cities is giving rise to a keen interest in mobility solutions as new forms of transport.
Over two-thirds of respondents envision new alternative solutions to single vehicle ownership such as vehicle-sharing or pay-per-use. Over half of respondents believe that on-demand mobility will account for between 6 and 15 percent of market share over single vehicle ownership by 2025.
For traditional OEMs, MaaS remains somewhat of a gray area; half of the respondents expect that the leading role for new mobility services will not be in the hands of the OEMs, but provide a great opportunity for new players, according to 46 percent of the respondents. Success in MaaS will be a value proposition based on functionality and ease of use, and a majority says that brand will play a big role in this space.
Increased driving restrictions to manage traffic flow and protect cyclists and pedestrians in congested urban areas will dramatically impact vehicle design say 83 percent of respondents. Smaller vehicles mean lighter materials such as carbon fiber, titanium and plastics. Forty-three percent of respondents expect that these types of materials will be in mass production within 5 to 10 years.
The Changing Consumer: Big, Upscale Cars Trend in Emerging Markets
Interestingly, while the trend among cost-conscious consumers in mature markets is to downsize to smaller, more fuel-efficient vehicles, the reverse can be seen in emerging markets where buyers want larger, more upscale cars such as sport utility vehicles (SUVs), mid-size and multi-purpose vehicles (MPVs). Just 39 percent of respondents from mature markets, for example, expect market share for SUVs to increase; while 66 percent of respondents from the BRICs expect an increase in market share for this type of vehicle.
Online Dealerships to Emerge
The way consumers purchase their vehicles is also changing, particularly in the Americas where according to 83 percent of respondents, online activity and intermediaries will increase. Respondents from Asia, however, expect the traditional dealer model to remain strong in countries in that region.
Also altering the automotive landscape is growing trend of ‘connected car’ technologies where 54 percent cited its importance compared to 22 percent in the KPMG 2012 survey. Technology companies are expected (42 percent) to have the lead over OEMs and Tier 1 suppliers for control of in-car technology over the next 5 years.
About the Survey Report
Managing a Multidimensional Business Model surveyed 200 auto executives including automakers, suppliers, dealers, financial service providers, rental companies and mobility service providers from 31 countries. Thirty-nine percent of respondents are based in the Europe, Middle East and Africa region, 37 percent from Asia-Pacific and 24 percent from the Americas.
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About KPMG International
KPMG is a global network of professional firms providing Audit, Tax and Advisory services. We operate in 152 countries and have 145,000 people working in member firms around the world. The independent member firms of the KPMG network are affiliated with KPMG International Cooperative (“KPMG International”), a Swiss entity. Each KPMG firm is a legally distinct and separate entity and describes itself as such.