KPMG Automotive Survey: an in-depth look into the challenges and trends of the auto industry

KPMG is a global network of professional firms providing audit, tax and advisory services and is part of one of the biggest accounting firms in Europe. Each year they release the Global Automotive Executive Survey, which is an assessment of the current state and future prospects of the worldwide automotive industry. In this year’s survey, 200 senior executives from the world’s leading automotive companies were interviewed, including automakers, suppliers, dealers, financial service providers, and for the first time mobility service providers. Roughly half of the executives are based across Europe, Middle East and Africa, while the remaining is based in the Asia-Pacific region and in the Americas. All participants represent companies with annual revenues greater than US$100 million and more than a fifth work for firms with revenues greater than US$10 billion.

There is no doubt that the current economic situation of our global economy is quite unstable, and this survey has asked very relevant questions relating to all fields of the auto industry such as the changing nature of mobility, electro mobility and the environment, urban mobility concepts, connectivity, retail trends, alliances, overcapacity and emerging markets. Most of the respondents believe that emerging markets will face the same opportunities and challenges as developed countries by 2025. This point hints that the auto industry will mature throughout the developing world as we see their growth continue to spiral upwards, and India and China will dominate here. And because of the higher growth and maturing markets the respondents also believe that customers are becoming less certain of their reasons for purchasing vehicles.

When it comes to electro mobility, 54 percent of the respondents believe that electric component suppliers will gain a more significant role by 2025, but underestimate the importance of emerging concepts and business models. This is mainly due to the higher environmental restrictions on all car manufacturers, especially in Europe.  The respondents also expect OEMs to be the dominant force in electric and traditional propulsion technologies. However, the survey indicates that none of the new technologies offer significant potential for differentiation, although battery management is considered the most likely. The Chinese respondents believe that by 2025 battery-electrified vehicles will be the most popular new technology among customers, which is being motivated by government incentives and better infrastructure, plus the desire for a cleaner planet earth will soon be highly regarded as one of the main points in deciding to buy a car. These respondents also believe that expected customer demand for fuel cells in the BRICs is not matched by an appropriate investment effort, which is something we see in India today. The most positive outlook for electro mobility is that between 9-14 million new electrical vehicles will be registered in TRIAD and BRIC markets in 2026. However, one thing is clear, and that is consumers are not prepared to make any concessions when buying an electric vehicle.

Urban planning was also one of the key areas of interest that was discussed in the survey. According to the respondents, Asia-Pacific auto executives are the most likely to recognize the significance of urban planning. Another highlighted point is that by 2050, 70 percent of the world’s population will live in urbanized areas, suggesting a need for better urban development and planning.

The survey also indicated that the world is moving from car ownership to car usership. This indicates that there is a noted disadvantage for everyone to own their own vehicle. The survey suggests that Mobility Services will become more important and beneficial towards the future of urban planning and the auto industry as a whole. Mobility services include leasing of vehicles, renting of vehicles and sharing of vehicles. 29 percent of the respondents believe that joint approaches will be a successful strategy to provide mobility services that can actually work efficiently. Mobility services will be seen as a new urban mobility concept.

Better technology plays a huge role in the industry, and in-car technology is just as important for usability. People expect the same connectivity when on the move as they receive at home and at work, hence there is a greater need for all cars to be connected. Majority of respondents see the OEM as the leader of in-car revenue streams. However, it is doubtful whether this situation can continue, as IT companies are the driving force behind new developments, and with the increasing dominance of plug-in solutions, manufacturers stand to lose valuable revenue streams. Nonetheless, it is now known that ubiquitous connectivity will enrich the auto experience.

Retail trends are also changing thanks to the internet and e-commerce. In fact, 81 percent of the respondents expect dealers to invest more in web marketing and advertising, while 72 percent forecast increased investment in IT systems and e-commerce sales platforms. These Innovations lay the path to sustainable growth – and the survey suggests that these are best achieved through partnership with others. As we have already seen today there are any alliances between different OEM’s the most famous of course being Renault-Nissan.  The survey also indicated that hedging against debt and risk of bankruptcy has become a lower priority to OEMs and also that partnerships and alliances are a far more popular choice than mergers and acquisitions – at least for OEMs. It was also noted that the Middle East and Africa are considered a less attractive prospect for joint-ventures/alliances or M&A activity.

Coming to emerging markets, the survey concluded that the world market share of the four BRICs is set to rise to over 40 percent by 2016. Environmental restrictions are also expected to increase within all BRICs and by 2017 at the latest, China is expected to export more than 1 million vehicles annually.

Global production volume will rise to over 100 million vehicles by 2016 and in its final point the survey pointed out that the specter of overcapacity and excess production will haunt the auto industry.  The perception of the U.S. as the most overbuilt market is outmoded as it has actually shrunk manufacturing capacity by more than 1 million vehicles since 2008, while China is estimated to have 6 million units of unutilized capacity in 2011 – that is double the size of the German car market. The global automotive market will be overbuilt by 20–30 percent by 2016.

In conclusion OEMs will have to engage in new technology, such as electro mobility, as well as innovative mobility concepts, connected car solutions, service orientation and e-financing solutions. They will also need to focus on cooperation and alliance, and have to be aware of the growing strength of emerging markets and lingering shadow of overcapacity and excess production.