The Global Automotive Executive Survey is KPMG International’s annual assessment of the current state and future prospects of the worldwide automotive industry. Two hundred automotive executives participated in the survey, over half of whom are business unit heads or higher. The respondents come from all parts of the automotive value chain including vehicle manufacturers, tier 1, 2 and 3 suppliers, dealers, financial service providers, rental companies and mobility solution providers. All of the participants represent companies with annual revenues greater than US$100 million, and 39 percent work for firms with revenues of over US$10 billion.
KPMG’s 2014 Survey confirms that the rising economic power of the emerging markets remains the overriding force for growth over the next decade and as the industry becomes more global, automakers are striving to use flexible, modular platforms to adapt to changing customer preferences and free up resources to invest in power train technology to satisfy increasingly tough environmental regulations. Respondents to this year’s survey feel that emerging nations offer the best hope for expansion, as many traditional automotive markets continue to decline. Eighty-five percent say that growth in the BRICs and other up-and coming nations is the biggest single industry trend up to 2025, which is consistent with the 2013 survey.
Consumers choose economy over innovation
The top priority for today’s car buyers is a longer lasting vehicle with low gasoline consumption, according to the 2014 survey. Fuel efficiency remains by some way the number one purchase criteria, as consumers vote with their wallets in the face of fast-increasing prices at the gas pump. enhanced vehicle lifespan has risen in importance for the third consecutive year, with 70 percent of respondents citing this factor as influential.
Conversely, alternative fuel technologies are taking a back seat in the quest to economize. less than half of the executives involved in the survey feel that this factor is critical to buyers, well down from 70 percent in 2009. Although driving an environmentally friendly car is still high on the wish list, other factors such as vehicle styling are playing a bigger part in the buying decision, suggesting that the car is likely to be a fashionable accessory for some time to come. a growing proportion of customers in the BRIC auto markets are expected to demand greener vehicles, which may be a response to the level of pollution in some of the teeming megacities in China, Brazil, India and Russia.
Prices continue to rise – especially for premium cars
Sales margins for premium cars appear to be both recession- and inflation-proof. Just over two-thirds of respondents anticipate prices to increase by at least 5 percent above inflation in 2014, and a fifth are confident that they will even climb by over 10 percent. When it comes to the mass market, expectations are more realistic, with a majority forecasting price rises of no more than 5 percent above inflation. Participants from the BrICs are more likely to predict modest price leaps for mass-market vehicles. although the swelling middle classes in these regions are increasing the base of potential car buyers, disposable income is still modest compared to more affluent parts of the world. Perhaps more importantly, in growing economies such as Russia, competition is fierce, with automakers from China and Taiwan adding to the glut of new products. Under such conditions, manufacturers are placing relatively less emphasis upon margins and more upon capturing market share and building brands; something acknowledged by the survey respondents on page 49, where three-quarters say they plan to begin or increase their brand and marketing expenditure.
TRIAD OEMs are twice as likely as BRIC OEMs to invest in ICE downsizing, with the later focused more on e-mobility
The race to produce cleaner, more efficient vehicles appears to have taken another turn, as optimization of the traditional ICE remains the clear priority for automotive companies. OEMs from the emerging regions are more inclined to invest in alternate power technologies than their TRIAD counterparts, which could signal a shift in technological leadership. Plug-in hybrids are forecast to be the leading e-car, with fuel cell-powered models growing in popularity. Consequently, OEMs from the emerging markets appear to have a more balanced portfolio, and, according to our survey, China is a prime example, with OEMs from the People’s republic planning to invest across all the e-technologies except pure battery vehicles.
Respondents believe that subsidizing e-car sales is more important than subsidies for power technologies
Interestingly, government subsidies/tax concessions on sales are considered to be a more effective tactic than subsidizing the actual research and development of e-vehicles. For example, pure electric cars make up 3 percent of monthly car sales in Norway, which now has over 10,000 such vehicles (more than in the whole of Germany), thanks to generous government subsidies such as tax breaks, exemption from vehicle and road tax and parking fees.
Expectations for driver-free vehicles are considerably higher in the BRICs than in the TRIADs
Across the BRICs, the expectations for driver-free transport are considerably higher (23 percent) than in the TRIADs (11 percent). The overall skepticism is reflected in the expected timescales for the adoption of self-driving automobiles. Four out of ten survey participants say it will take at least 20 years before they are in common use, and a further three out of ten predict that such cars will never succeed. Chinese and Russian automakers are the most positive.
Individual companies are pursuing the dream; for example, Nissan has already announced plans to introduce autonomous drive by 2020, and several other OEMs have voiced similar ambitions.
Dealers expand their range of services and touch points with customers
Although the future shape of the dealer sector is still uncertain, almost half of the respondents believe that conventional models are inappropriate, with online retailing and multi-brand providers set to rise significantly. Dealerships are also refining their operations, systems, prices and supplies, to increase efficiency and boost margins.
Traditional models of dealership are in steady decline, according to this year’s survey. Just 53 percent say that conventional retailing is a key approach for future success, down from 61 percent in 2013. In clear first place is the dealership as a service station (consistent with the 2013 findings), offering additional services such as banking, insurance and service updates. Many executives also feel that retail outlets are becoming touch points for relationships established on the internet, a preference that is especially strong amongst executives from the TRIAD markets, where online shopping is growing.
However, only 60 percent of dealers involved in the survey feel that the online route will thrive. Some dealerships may be wary of digital sales, believing it could affect their ability to sell customers additional features in the store. It is also harder to cultivate loyal clients when customers are interacting with a computer instead of a human being.
KPMG automotive retail market study reveals that in less mature markets, where demand is high, the fast growth of outlets leads to a decentralized structure. as demand slows over time and competition intensifies, profits decrease and customers become more sophisticated, resulting in greater consolidation to reduce operational costs.
BRIC automakers are more likely than their TRIAD peers to raise their investment levels in every major emerging market.
The enormous potential within the emerging nations is reflected in the high proportion of companies planning to either begin or increase their investment in these markets, with China the number one target, followed by India, and Brazil and Russia in equal third place.
Since the 2013 survey, a greater proportion of respondents feel that BRIC auto companies have good growth opportunities in Africa and the Middle East. Iran appears to have exciting prospects, with annual sales expected to reach 1.8 million cars by 2020. In the face of heavy sanctions, many established automakers have ceased operations in Iran, leaving the door open for BRIC manufacturers such as Russia’s AvtoVaZ, which has announced plans to export its Lada Granta and Lada Kalina models.
While the established automakers watch the emergence of new entrants in their home markets, borders also appear to be opening up in many of the BRICs. In India, Russia and Brazil, more respondents expect restrictions to decrease than increase.
Winners and losers in the battle for global dominance
It is all change at the top of the global growth rankings, as the European and Japanese presence diminishes, and the BRIC automakers climb steadily upwards. According to KPMG’s 2014 survey, seven out of the ten OEMs most likely to grow in the next 5 years are from China, Russia and India. Tata has risen from 10th to seventh and AvtoVaZ has made a huge leap from 21st to third. Russia’s leading automaker is 25 percent owned by Renault, with the links between the two (and Renault’s Ally Nissan) expected to deepen in future. Compared to the wider survey participants, Russian respondents are far less optimistic about AvtoVaZ.