Chinese automakers are set to account for one third of new auto sales worldwide by 2020, with continuing investment in the sector, according to KPMG’s fifteenth annual Global Automotive Executive Survey.
The publication, titled Strategies for a Fast-Evolving Market, surveyed 200 executives including automakers, suppliers, dealers, financial service providers, rental companies and mobility service providers from 28 countries.
Sales are expected to surge in BRIC countries, particularly in China; Ten out of the top twenty Original Equipment Manufacturers (OEMs) expected to gain larger market share in the next five years are from China, the survey finds.
Andrew Thomson, Asia Pacific and China Head of Automotive and a Partner at KPMG China, says: “Chinese auto consumers have high expectations and are increasingly keen to have more options available to them in their vehicles, a wide variety of products to choose from and good service from enhanced dealer networks. China offers a relative ‘greenfield’ environment to exploit a wide range of opportunities for auto manufacturers.”
Additionally, Chinese survey respondents ranked urban vehicle design as their top priority. Thomson explains: “The phenomenal expansion of cities in China is putting pressure on infrastructure and our prediction is that there will be greater demand for solutions such as improved connectivity, lightweight materials, alternative powertrains and even, eventually, self-driving cars to avoid congestion and pollution.”
The report notes that an increasing proportion of automobiles produced by BRIC companies are aimed at export markets. Forty-four percent of respondents (doubled from a year ago) said they are confident that China will export over two million cars within two years, faster than previously expected. In 2013, a majority (47 percent) said they believed China’s exports will exceed 2 million cars in 3-5 years.
Thomson adds: “It does not seem likely that China can match such bold expectations, as a big export push – especially into the more mature auto markets – would require significant efforts to improve not only quality, but also brand perceptions and distribution networks. The current top export destinations for Chinese cars are Russia, Brazil, Iran and Venezuela.”
While Chinese and other BRIC automakers are still struggling to conquer the more mature markets of Western Europe and North America, their own domestic markets provide enormous potential, which is reflected in the high proportion of companies planning to either begin or increase their investment in these regions. China is rated as the number one investment destination, attracting positive sentiment from 73 percent of respondents in the BRIC countries and 64 percent from respondents in the TRIAD markets. China is followed in attractiveness by India, Brazil and Russia.
Growing expectations of reduced market entry barriers in the BRIC markets have also enhanced the attractiveness of these environments: 57 percent of respondents believe local content rules in India will decrease; 47 percent expect Brazil to have less local government intervention; 44 percent envisage Russia’s import and export duties to decline. In the case of China, however, a majority envisage conditions will remain stable.
Meanwhile, a significant majority of respondents see emerging markets as a major growth engine for the auto industry: 85 percent say that growth in the BRICs and other potentially high-growth markets is the biggest single industry trend until 2015, according to the survey.
Separately, the survey notes that organic growth has overtaken joint ventures and partnerships as the most favored business strategy. In 2013, respondents placed joint ventures and alliances as the main approach, while organic growth now tops the list; 84 percent of OEMs from the TRIAD countries list organic growth as their main business strategy.
This significant response may be a result of challenges that are being experienced in current partnerships, such as effective integration and finding synergies. However, respondents indicate that joint ventures, alliances and mergers and acquisitions are most likely in China, the rest of Asia and Central and South America in the 5 years up to 2019. These observations reflect the evolving nature of these geographies, as new and existing players strive to gain leadership positions.
Thomson concludes: “Once again, our survey highlights the dynamic and challenging nature of the automotive industry. China continues to be a key focus for almost every OEM and prospects continue to look bright for the future. Whilst Chinese OEMs continue to make progress, questions remain in respect of their future development. Meanwhile, their foreign counterparts continue to lead the Chinese market. As the auto industry becomes more global, it will be interesting to see who emerges as China’s winners and losers”.
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About the 15th Global Automotive Executive Survey
Strategies for a Fast-Evolving Market surveyed 200 senior executives including automaker, suppliers, dealers, financial service providers, rental companies and mobility service providers from 28 countries in July and August 2013. Forty one percent of the respondents are based across Europe, Middle East and Africa, 35 percent in the Asia Pacific region and 25 percent in the Americas. All of the participants represent companies with annual revenues greater than USD100 million, and 39 percent work for organizations with revenues of over USD10 billion.
KPMG is a global network of professional firms providing Audit, Tax and Advisory services. We operate in 155 countries and have 155,000 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.
KPMG China has 16 offices in Beijing, Shanghai, Tianjin, Shenyang, Nanjing, Hangzhou, Fuzhou, Xiamen, Qingdao, Guangzhou, Shenzhen, Chengdu, Chongqing, Foshan, Hong Kong SAR and Macau SAR, with around 9,000 people.
KPMG China refers to the member firms of KPMG International in Mainland China, Hong Kong SAR and Macau SAR.