KPMG International's 14th Global Automotive Executive Survey – 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. 39% of respondents are based in the Europe, Middle East and Africa region, 37% from Asia-Pacific and 24% from the Americas. Almost 10% of the respondents are based in Russia. The survey looks at the key issues such as environmental challenges, growing urbanization, changing customer behavior and the increasingly globalized nature of competition.
- Cost keeps fuel efficiency prime factor in purchasing decisions
- Emerging markets trend toward upscale vehicles; in mature markets: downsize
- Consumers are not embracing battery driven cars, with plug-in hybrids seen as the next big thing, and automakers continuing to invest in ICE (internal combustion engine) optimization
- Mobility solutions offer a real alternative to car ownership
- Online dealership activity will continue to rise, with multi-brand dealerships set to dominate
- Emerging and mature markets are converging in terms of quality, safety and reliability, while BRIC manufacturers will soon export significant numbers of vehicles
- BRIC manufacturers are heading for South East Asia and Eastern Europe as a hub to enter the mature markets
- Japan, Germany, US, Korea, Spain and France all have a high risk of overcapacity
- Manufacturers are focusing on new technologies whereas suppliers are interested in operations
- Responsibility for new technological building blocks will be shared among a diverse set of competitors
- Vehicle manufacturing will remain the prime source of profits – especially in the BRICs
Fuel efficiency for economical reasons is the primary factor in vehicle purchasing decisions, according to 92% of survey respondents. In Russia even more so, where all respondents rate fuel efficiency either "extremely important" (80%) or "very important" (20%).
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. In Russia the environmental concerns are even less important for consumers, where environmental friendliness only comes in at a seventh place.
What is interesting in the results from Russian respondents is that after fuel efficiency, the consumers’ purchase decisions are significantly influenced by:
- Ergonomics and comfort;
- Vehicle-bound internet connectivity and built-in technologies; and
- Plug-in solutions for mobile internet devices, etc.
"These factors rate significantly higher in Russia than elsewhere (and even higher than vehicle safety)", said Ulrik Andersen, KPMG’s Head of Automotive and audit partner in Russia/CIS, "indicating a desire to trade up from basic cars and the Russian consumer becoming more quality conscious and technologically advanced. While these factors suggest a larger focus on luxury, there is also an element of pragmatism involved. Due to relatively poor road conditions, traffic congestions and vast geographical distances to cover, the comfort of your vehicle becomes more important. Furthermore, electronic equipment is important to efficiently navigate through the congested city traffic and, in general, provides a mean to pass the time and stay connected to the outside world when spending significant time on the road."
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% of respondents from mature markets, for example, expect market share for SUVs to increase; while 66% of respondents from the BRICs expect an increase in market share for this type of vehicle.
The Russian respondents follow suit with the expected market share of SUVs increasing significantly but also smaller and more basic cars are expected to see significant increase in demand. What is surprising considering the relatively low market penetration of the premium car segment in Russia (4-7%) compared to more mature markets (e.g. Norway: 15-20%; Germany: 25-30%) is the less optimistic market outlook for some of these segments. The vehicle demand is expected to increase/decrease by 2018 as follows:
(e.g. BMW 3 Series, Nissan Altima, Toyota Camry)
(e.g. Daimler E Class, Volvo S80, Ford Taurus)
(e.g. BMW 7 series, Daimler S Class, Jaguar XJ)
*Japan, Western Europe and North America
"These car segments have shown good growth results in Russia up till now but could be heading for a more difficult time going forward, at least according to the Survey", said Ulrik Andersen. "It is, however, hard to believe that we will see a general decrease in all these segments when considering the relatively low market penetration of premium cars. Furthermore, many Russian consumers are using the car as a status symbol as well as there is a desire in the human mindset to trade up when changing cars, i.e. bigger and better. Therefore, provided there is a stable economic development in Russia we do not see signs of widespread decreases in these segments for the time being. Nevertheless, the survey results may suggest that now is a good time to carefully rethink sales and marketing strategies for these car segments. The manufacturers should consider how they want to position themselves to avoid a downward trend and loss of market shares within these segments as well as to other segments like more Basic/Compact cars and also to Sports, SUVs and MPVs."
The future of propulsion
Despite new technological developments, ICE downsizing is expected to be the leading solution for the foreseeable future. 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. "This is quite a turnaround in direction compared to previous surveys and a sign that some of the newer technologies are taking longer than expected to emerge", said Ulrik Andersen.
In line with the expected consumer demand, investment in plug-in hybrid technology will be areas of investment for 24% of manufacturer and supplier respondents, while only an average of 8% say they will invest in pure battery technologies. Despite this development away from pure battery technologies, the Russian respondents are of all the BRIC countries the most optimistic about pure battery propulsion technology.
"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", Ulrik Andersen 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. 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. It is widely recognized that the development and success of electric vehicles are closely connected with government regulations, incentives and subsidies to support R&D and establishing sufficient infrastructure to accommodate large numbers of electric vehicles. Without support from the public sector it will undoubtedly take much longer before electro-mobility becomes a widespread means of transportation.";
Growing urbanization: 'Mobility-as-a-Service' (MaaS) a solution for large 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. This development is further fueled by restrictions on driving, charges for road use and parking as well as stricter rules on CO2 emissions.
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% of market share over single vehicle ownership by 2027.
Ulrik Andersen commented further: "Despite the much talk about traffic congestions in large Russia cities, the survey shows that Russia is the most pessimistic country when it comes to the future of MaaS. While the idea of MaaS may not have caught on yet in Russia, the trend is still upwards. With increasing fuel prices, stricter environmental rules and further restrictions on road use and parking, it is likely that the potential for MaaS will see a growing following in the coming years. Nevertheless, for the current moment the survey suggests a low interest in Russia for MaaS where single vehicle ownership is still the prevailing preference."
For traditional manufacturers, 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 manufacturers, but provide a great opportunity for new players, according to 46% 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.
Online dealerships to emerge
The way consumers purchase their vehicles is also changing, particularly in the Americas where according to 83% of respondents, online activity and intermediaries will increase. Respondents from Asia, however, expect the traditional dealership model to remain strong in countries in that region. While the trend towards online dealerships is recognized by Russian respondents, similar to respondents from Asia the traditional dealership model is still believed to be the most important model for future success, at least for the current moment.
Nevertheless, new trends with increased online presence and the use of social media as a powerful promotion tool coupled with more focus on used car sales, after-sale services, finance and leasing options, etc. are slowly changing the landscape of the Russian dealership industry.