“This survey is a predictor of change,” said Dieter Becker, KPMG’s Global Head of Automotive. “In 2004, fuel efficiency was forecast to rise among consumer purchase criteria. Today, fuel efficiency is the number one consumer concern.”
Titled Creating a Future Roadmap for the Automotive Industry, the KPMG survey provides insight from over 200 global automakers, suppliers and dealers on expected challenges and opportunities in consumer trends, technology innovation, new business models, opportunities for growth and profitability and emerging markets over the coming five to 10 years.
“In many ways, there is a two-tier global market in play,” said Gavin Maile, KPMG Africa Automotive Industry Leader. “More mature countries are struggling to cope with the problem of changing mobility behaviour while in up-and-coming regions in Africa and Asia, for example, there is a push to deliver a variety of cars to populations eager for greater mobility at an affordable price.”
Consumer trends call for purpose-built vehicles, ‘mobility solutions’
Population growth and urbanisation is driving a significant change across the entire automotive landscape. A rise in low-emission zones and restricted access to inner city centres might be only the beginning, as new car-free cities like Masdar, United Arab Emirates demonstrate. “The new Gauteng tolling plan and the carbon tax is likely to influence South African consumer behaviour and impact on sales mix,” Maile said.
These emerging trends are the dominant view among respondents with 73% believing vehicles will be designed to specific purposes, and 76% saying that vehicle design will be determined by urban planning.
While the world waits for affordable electric vehicles, for which intensive research and development (R&D) is currently underway, the study showed ‘mobility service solutions’1 are what some respondents believe may be game-changing. While only 9% of respondents believe that mobility solutions will represent a significant part of their strategy, some automakers like Daimler, Peugeot, BMW and others are already investing in this area.
“Such a forward-thinking approach could become the competitive edge that will accelerate these companies into a leadership position in a realigned automotive value chain,” Becker said. “Those who own the mobility grid could well be the same as those who own the market.”
With the emergence of mobility service solutions - and fuel-efficiency still unequivocally the biggest consideration when purchasing a car - around 80% of respondents say that hybrid and electric vehicles will see the lion’s share of growth of any vehicle category over the next five years. Nevertheless, many respondents are expecting a continued role for government, since they believe electric cars will not be affordable without subsidies anytime soon. “The development of the local Joule has suffered from a similar need for funding for both R&D and manufacture,” said Maile.
New technologies and shifting responsibilities in the value chain
While a majority of respondents said electric cars will not be affordable to the mass market in the next five years, investment in this category is important – of all available alternative fuel technologies, almost 90% of respondents are planning to invest in hybrid systems, battery electric power or hydrogen fuel-cell technologies over the next five years.
In the race to lead in technology innovation in alternative fuels and powertrain technologies, 68% of major players are opting to enter into strategic alliances or joint ventures with suppliers rather than seek capital and go it alone. This view is shared mainly among global players in the Europe, Middle East and Africa (EMEA) and America’s region. Those in Asia Pacific are most likely to secure loans to fund these investments.
These movements could have significant implications for how the automotive value chain will evolve.
“Alliances are a good way to get access to specialised technological know-how in addition to sharing risk and cost,” Becker said. “This is particularly true with hybrid and electric powertrain technology. What is worth noting is that these joint activities may blur the differences between suppliers and manufacturers.”
Half of those participating in the survey believe that, with strategic partnering so key to rapid technological innovation, the industry will see a value chain evolution with a new dynamic taking shape between original equipment manufacturers (OEMs), suppliers, new entrants and niche players.
These shifts, which respondents believe will take some years, will call to question such issues of where along the value chain the brand will have dominance and whether it will be the OEMs or their partners who will lead in powertrain technology. Well over two-thirds of respondents believe that OEMs will own powertrain technology up to 2020.
“In this brave new world of changing market conditions, supplier evolution and the drive for rapid innovation, pooling knowledge is a must,” Becker said. “However, automakers need to begin thinking about new business models to retain their technology, know-how and brand reputation. Our report gives some indication of what those models could be.”
In terms of overall profitability, most respondents believe OEMs will be the most profitable over the next five years. “This is very different to previous survey results where finance companies have been seen as the most profitable,” says Maile, “which is probably as a result of lower interest rates and credit approvals and high repossessions.”
Overcapacity a concern but exporting to other markets offers a solution
As automakers grapple with the inevitable changes that will shape the future of the sector, overcapacity continues to be a chief concern in both mature and emerging markets. Almost two-thirds of respondents believe the United States is the most overbuilt with Japan and Germany following. Interestingly enough, even China and India are expected to reach noteworthy overcapacity within five years.
“During 2010, South Africa exported 51% of its production (a new record) and this figure is expected to rise further in 2011,” said Maile. “Reliance on exports is a key risk for the South African manufacturers, together with possible increases in logistics costs.”
Most automakers believe that increasing exports to new markets could offer relief. However, with many OEMs building plants in new markets, export opportunities may be limited in the future.
About the survey
Two hundred automotive executives participated in the survey, of which over half were business unit heads or higher. Respondents represent all parts of the automotive value chain including Original Equipment Manufacturers, Tier 1, 2 and 3 suppliers and dealers.
51% of the executives were based in the Europe, Middle East and Africa region, 27% in Asia-Pacific and 22% in the Americas. All participants represent companies with annual revenues greater than US$100 million and more than a quarter works for firms with revenues greater than US$10 billion.
1 Mobility Service Solutions is a term used in the automotive industry to describe emerging business models in which single or multiple providers offer(s) consumers a comprehensive transportation solution that may employ the short-term rental of a car or various modes of transport, getting the consumer from ‘A to B’ as efficiently and cost-effectively as possible.