KPMG's Global Automotive Executive Survey

technological fit

KPMG’s Global Automotive Executive Survey 2015 Who is fit and ready to harvest?

kpmg.com/GAES2015

How do we cut through complexity? View the interactive version of this survey online and filter the results based on your own preferences KPMG’s Global Automotive Executive Survey 2015

Acknowledgements Foreword The Global Automotive Executive In coming years the automotive sector will need to achieve a fine balance Survey is KPMG International’s annual between its traditional product- and technology-driven past and its potentially assessment of the current state and ubiquitously connected consumer lifecycle-centric and service-driven future. future prospects of the worldwide automotive industry. In this year’s survey, 200 senior executives from As this year’s survey findings now in its 16th consecutive year. the world’s leading automotive demonstrate, the industry seems We have placed the findings online companies were interviewed, to be positioned halfway between and made them interactive, enabling including automakers, suppliers, these two imperatives. On the one you to not only digest our general dealers, financial services hand, increasingly strict regulatory conclusions, but to also draw your providers, rental companies standards call for a strong focus on own inferences for your specific and mobility solution powertrain optimization, rationalization area of interest, all of which should providers. The responses and standardization. On the other, help you cut through complexity were very insightful and we increasingly tech-savvy customers and extract the maximum value would like to thank all those are helping to create a completely for your business. who participated for giving new mobility culture. us their valuable time. I personally invite you to get involved Special thanks to Moritz Tomorrow’s consumers will not only and access our online version of the Pawelke and his team for expect, but demand new and survey at kpmg.com/GAES2015. their efforts. innovative services and mobile apps that plug seamlessly into ubiquitously Enjoy the read! connected solutions. To stay ahead, traditional automotive players may need to reinvent their business models and ask themselves two pressing questions: “how do I become a high value service brand, while making the most of my strong product and engineering heritage?” and secondly, “how do I think about my brand from a consumer perspective, to attract the new generation of ‘digital natives’?” Dieter Becker Global Head of It is not just the automotive industry Automotive that is changing; so has our survey, KPMG International

2 | KPMG’s Global Automotive Executive Survey 2015 Contents

Executive summary 4

About the survey 6

Mobility culture 8 What is driving consumer demand?

Technological fit 16 Are companies betting on the right technologies?

Business model readiness 26 Is the industry set for an unstable mobility eco-system?

Prepared to harvest 34 Who is best positioned for sustainable growth?

KPMG Global Automotive thought leadership 38

© 2015 KPMG International Cooperative (“KPMG International”). KPMG International provides no client services and is a Swiss entity with which the independent member firms of the KPMG network are affiliated. KPMG’s Global Automotive Executive Survey 2015 | 3 Executive summary

Key trends to 2025 Vehicle segment Investment E-car market preferences priorities to 2020 penetration to 2025 Many innovative key trends are lower on executives’ The small and basic car Downsizing is still the High e-car market share agendas up to 2025: segment is expected number one powertrain forecasts appear contrary to to have a high growth investment area over the investment priorities: The majority of the executives potential in established next fi ve years: still feel that growth of and emerging markets The majority of auto execs emerging markets is the over the next fi ve years: However, since the 2014 from Western Europe and Mobility number one key trend. Technological survey, auto execs from China believe that the share culture Executives from mature fi t mature TRIAD markets have of electrified vehicles (among Only a minority of markets predict decreasing become relatively less overall new car registrations) respondents consider sales potential for the large focused on this area than will be between 11-15 Auto executives‘ alternative powertrain car segment up to 2020, with According to this their BRIC counterparts. percent. Respondents from views tend to refl ect technologies, mobility a more positive view of the year’s survey, North America are even more services and vehicle The number two investment concerns over basic and small car segment. the optimization optimistic, with most connectivity as extremely priority for both TRIAD and foreseeing a share of current commercial important key trends BRIC market respondents of traditional BRIC execs is fuel cell between 16-20 percent challenges, suggesting until 2025. envisage tremendous growth fossil fuel-based vehicles, replacing pure in 10 years. potential for all car size battery electric technology. a lack of consensus Please see p8-9 segments in the next fi ve propulsion Please see p20-21 over the shape of the years, particularly small and technologies still Please see p16-17 basic cars. future mobility Purchasing criteria dominates the Connectivity: eco-system. to 2020 Please see p12-13 technological E-car technology The next big thing roadmap. trends to 2020 Purchasing choices over Vehicle ownership The notion of self-driving the next fi ve years versus usage Plug-in hybrids are set to cars as the last evolutionary are not yet driven by attract the highest demand step of connectivity seems innovative concepts Vehicle ownership for all of all electrifi ed propulsion to be more distant than KPMG viewpoint and online services: age groups is considered technologies: media attention suggests: important up to 2020: Auto executives believe Although still rated as the Auto execs from mature Asian countries like Japan Auto execs are consumers are still fi xated Most respondents believe most important e-technology, plug-in hybrids’ popularity has and Korea are slightly more caught between on traditional product issues, vehicle ownership will still be with fuel effi ciency rated important for under-25s, while diminished year-on-year. optimistic about autonomous regulations that clearly as number one, those aged between 25-50 driving, believing there will be create technological closely followed by safety are expected to be even more Battery electric vehicles a breakthrough in the next 20 challenges, and and comfort. reliant on their own cars for remain in number two years. Respondents from position. However, in contrast satisfying the target personal mobility. Western Europe, North Compared to the 2014 survey, to prior years, a higher America and China are group of tech-savvy executives see a heavily Mobility services are forecast proportion of respondents more hesitant. mobility consumers, increased emphasis on to be an important source of believe demand for fuel cell that are never offl ine. enhanced vehicle lifespan, profit in fi ve to 10 years in electrical vehicles will increase Please see p22-23 most likely due to the both established and over the next fi ve years. burst of product recalls emerging markets. in recent years. Please see p18-19 Please see p14-15 Please see p10-11

Are companies betting on the right technologies? What is driving consumer demand?

4 | KPMG’s Global Automotive Executive Survey 2015 © 2015 KPMG International Cooperative (“KPMG International”). KPMG International provides no client services and is a Swiss entity with which the independent member firms of the KPMG network are affiliated. Business model Readiness for a new Strategies Race for market disruption ahead? mobility eco-system to survive share until 2020

No major business model Traditional automotive OEMs’ key survival strategy In the medium term, change or disruptive event OEM brands should matter is to achieve and maintain traditional OEMs are is expected over the next most in 10 years’ time: global reach. forecast to maintain their ﬁ ve years: dominance. However, they Auto execs believe For globally established should prepare for a more Most auto execs believe it is extremely likely that OEMs, such as BMW, disruptive future. Business that original equipment automotive premium and Volkswagen and Toyota, Prepared to model manufacturers (OEMs) mass market brands will remaining independent is harvest Auto execs are most will continue to own dominate over the next the top priority. optimistic that the readiness the customer relationship decade, followed by pure Hyundai group will increase up to 2020. e-car manufacturer brands. OEMs with limited global Executives feel there its global market share. reach, mainly from China will be no major shift Executives are very Please see p26-27 Brands from the ICT sector and mature Asian countries, Volkswagen is considered optimistic that are predicted to be more are most likely to merge with of power between to have far greater potential Business and investment traditional automotive important than traditional others in order to survive. OEMs until 2020. than its closest competitors, strategies should remain Tier 1 supplier brands. Toyota and GM. players can cope with conservative until 2020: Please see p32-33 an increasingly Global players like Daimler, When it comes to Chinese Organic growth is expected BMW and GM are considered OEMs, respondents rate unstable mobility to be the number one to be best prepared, closely Chery as having the best eco-system in the strategy for future success, followed by Volkswagen, chance of increasing market with two-thirds of auto Toyota and Ford. share up to 2020. short term. execs rating this factor as extremely important. In the executives’ eyes, Tata, another emerging newcomers like Tesla still OEM, is rated very positively Since 2014, an increasing have a huge gap to close and is expected to grow its KPMG viewpoint number of respondents feel it to achieve the awareness market share. will be necessary to diversify and reach of traditional Future automotive and expand the value chain OEM brands. Please see p34-37 and cooperate with players KPMG viewpoint business models should from converging industries, Please see p30-31 view the customers’ to cope with a mobility Auto companies should choose the core wider lives beyond eco-system that is becoming competencies around which to center their role as drivers, more and more unstable. their future business model. Will success building up a personal Please see p28-29 come to product-driven hardware relationship to increase manufacturers or brand-driven, integrated loyalty, in order to stay mobility solutions providers? on top of the longer-term customer interface.

Who is best positioned for sustainable growth? Is the industry set for an unstable mobility eco-system?

200 senior executive respondents 2 Czech Republic 2 Hungary 1 Sweden 3 Poland 1 Norway 2 Romania 1 Belgium 16 Germanyny 1 Switzerland 15 Russia 1 Netherlands

1 Canada 8 UK 8 France 8 South Korea

1 Spain 20 USA 16 Japan 6 Italy 25 China

15 India 4 Mexico 2 Thailand 5 Turkey 2 Colombia 2 Egypt 2 Indonesia

20 Brazil

4 Australia 2 South Africa 4 Argentina

TRIAD NA USA, Canada, Mexico BRIC SA Brazil FOLLOWER SA Argentina, Colombia MARKETS Germany, Spain, France, UK, Italy, Belgium, MARKETS MARKETS WE EE Netherlands, Sweden, Norway, Switzerland Russia RoW Australia, Egypt, South Africa Czech Republic, Hungary, Poland, MA Japan, South Korea I&A EE India Romania, Turkey CN China I&A Thailand, Indonesia

47% of survey respondents from TRIAD markets 38% of survey respondents from BRIC markets 16% of survey respondents from follower markets

Note: Percentages may not add up to 100 due to rounding Source: KPMG’s Global Automotive Executive Survey 2015

6 | KPMG’s Global Automotive Executive Survey 2015 © 2015 KPMG International Cooperative (“KPMG International”). KPMG International provides no client services and is a Swiss entity with which the independent member firms of the KPMG network are affiliated. DEMOGRAPHICS 200 senior executives – a clear picture of who they are and where they are from About the survey

Respondents by job title Respondents by company type Survey respondents 5% 2% 7% Vehicle Manufacturer 30%(60) (60) Two hundred automotive executives participated, over half of whom are CEO/President Supplier business unit heads or higher. The 40% (80) respondents come from all parts of the C-level Executive automotive value chain including vehicle Dealer Business Unit Head 10% (20) manufacturers, Tier 1, 2 and 3 suppliers, 45% dealers, ﬁnancial services providers, and Business Unit Manager Financial 10% (20) mobility service providers (including auto Services Provider rental and car sharing companies). Head of Department Mobility Thirty-seven percent of the executives Service Provider 10% (20) are based across Western and Eastern 42% Europe, with 13 percent in North America, 13 percent in South America and 13 percent in China. Over two-thirds of all participants represent companies with annual Respondents by regional cluster Respondents by company revenue revenues greater than US$1 billion. Nearly 40 percent of all respondents are from companies with an annual revenue Western Europe (WE) South America (SA) Mature Asia of more than US$10 billion. 44 (22%) 26 (13%) (MA) The respondent interviews, which were 24 (12%) 18% conducted by phone, took place in July and August 2014.

North America (NA) To ﬁ nd out more details about 25 (13%) this year’s survey respondents, India & ASEAN 33% please access the interactive online (I&A) 39% Over $10 billion 19 (10%) version of this survey on kpmg.com/ Eastern Europe (EE) $1 billion - $10 billion GAES2015. 29 (15%) China (CN) 25 (13%) $500 million - $1 billion

10% $100 million - $500 million Rest of World (RoW) 2% 8 (4%) Less than $100 million

Note: Percentages may not add up to 100 due to rounding Source: KPMG’s Global Automotive Executive Survey 2015

What is driving consumer demand?

The winds of change are sweeping Against this backdrop, auto executives appear to be focused on The survey participants believe that: customers’ key priority is fuel traditional concerns such as optimization of fuel-driven combustion efficiency, which is in line with their expectation that sales for small through mobility culture, with engines and cost efficiency programs, trusting that emerging markets and basic models will be particularly strong; and, although car growing demand for new services will be the main growth drivers for a long time to come. ownership is predicted to remain high across all age groups, mobility from evermore sophisticated This mindset could leave the main players highly vulnerable to new services such as car sharing are expected to see profitable growth competitors eager to attract the customer of tomorrow, by ‘owning’ within the next decade. customers – not just in mature innovative concepts like mobility services and vehicle connectivity markets but around the world technologies. Only time will tell if the respondents’ views on a number of issues prove to be accurate.

8 | KPMG’s Global Automotive Executive Survey 2015 KEY TRENDS TO 2025 Importance of key trends for the automotive industry Mobility culture

Innovative long-term concepts are not high on executives’ agenda Survey results 56%

52% The auto executives’ agenda is dominated by traditional trends such as growth in 49%

48% emerging markets, optimizing the internal combustion engine, standardized

43% platforms and rationalized production. 42%

41% Newer, industry-changing 40% developments such as self-driving cars, 38% connectivity, urban vehicle design and 36% 36% mobility services are still considered as relatively less important. 26%

KPMG viewpoint The survey results show that auto players

20% are adapting to regulatory restrictions on CO2 19% 18% 18% 18% 18%

18% emissions, and are aware of the signiﬁ cant 16% 16% 16% impact of cost pressures and portfolio shifts.

14% However, in the face of growing 13% 13%

12% environmental pressures, it is surprising

9% that battery electric mobility and fuel cell

8% electric mobility have signiﬁ cantly decreased in importance since the 5%

3% corresponding 2013 survey. The respondents may be underestimating n/a n/a n/a the effect on their business models of 2013 2013 2013 2013 2013 2013 2013 2013 2013 2013 2013 2014 2014 2014 2014 2014 2014 2014 2014 2014 2015 2015 2015 2015 2015 2015 2014 2015 2015 2015 2015 2015 2014 changing mobility needs. A majority seem to Market Downsizing Increasing use Rationalization Fuel cell OEM captive Innovative Mobility-as-a- Battery electric Connected car Self driving underplay the importance of connected car growth in and of platforms of production electric ﬁ nancing urban vehicle service mobility technologies cars/ technologies and automated driving, even emerging optimization and in Europe mobility and leasing design Autonomous markets of the internal standardization and shifting of concepts cars though these developments are at an combustion of modules the production advanced stage and receiving plenty of engine (ICE) to emerging markets industry and media attention.

#1 #2 #3 #4 #5 #6 #7 #8 #9 #10 #11

Note: % of respondents rating a key trend as extremely important. N/a – answer not included in respective year Source: KPMG’s Global Automotive Executive Survey 2015

Understanding what consumers want

Concerns over vehicle quality have for comfort, which is slightly at odds Gary Silberg risen following several high-profi le with the quest for better mileage, as The Americas Head product recalls, with more and more more energy is needed to power the of Automotive customers now seeking vehicles with associated technology. In building KPMG in the US longer lifespans. OEMs have to more effi cient vehicles, automakers maintain a careful balance between will have to focus not just on the product quality and cost optimization. powertrain, but also on the The intense cost pressures on communications infrastructure. suppliers in recent years, combined A further consequence of connected with the increased use of platform driving is concern over safety, as strategies, have raised the risk of travelers cede control of the vehicle. quality problems. Finally, vehicle styling and exterior Markets of all levels of maturity are has risen sharply in importance seeing growing demand for state-of between 2013 and 2015. Regardless of the-art technology in vehicles. The what is on the inside, customers still relatively low priority assigned to want to buy from trusted brands that connectivity does not resonate with reflect their own self-image. the growing consumer expectation of ubiquitous access to mobile online services. The high emphasis on fuel effi ciency and enhanced vehicle lifespan shows the rising prevalence of the idea of total cost of ownership (TCO) for private consumers. Our respondents believe that consumers still have a strong desire

10 | KPMG’s Global Automotive Executive Survey 2015 © 2015 KPMG International Cooperative (“KPMG International”). KPMG International provides no client services and is a Swiss entity with which the independent member firms of the KPMG network are affiliated. PRODUCT ISSUES Importance of vehicle features to consumer purchase decisions until 2020 Mobility culture

Purchasing choices not yet driven by innovative concepts and online services Survey results #1 #2 #3 #4 #5

Fuel effi ciency Enhanced vehicle Safety innovation Ergonomics & comfort Environmental Auto executives believe that consumers are lifespan friendliness still fixated on traditional product issues like fuel efficiency, safety and comfort. One factor that has leapt in importance is enhanced vehicle lifespan, which was ranked just eighth in 2013, but is now the second most important factor infl uencing the buying decision. Although both rank relatively low on consumers’ wish lists, there is still a preference for plug-in rather than vehicle- bound internet connectivity solutions. 67% 66% 68% 53% 45% 19% 52% 48% 46% 49% 36% 47% 41% 38% 35% The use of alternative fuel technologies 2015 2014 2013 2015 2014 2013 2015 2014 2013 2015 2014 2013 2015 2014 2013 remains a lower priority, suggesting strongly that, like last year’s survey, the #6 #7 #8 #9 #10 consumer purchase decision is driven more by the wallet than the conscience. Vehicle styling/exterior Plug-in solutions for Vehicle-bound internet Telematics/personal Use of alternative fuel navigation, speech connectivity & built-in assistance services technologies such as fuel recognition & mobile technologies such as cell electric power, bio To fi nd out more details about internet devices (e.g. navigation, speech fuels, solar power etc. iPhone, Blackberry) recognition etc. the views of our respondents by stakeholder group or regional cluster, please access the interactive online version of this survey on kpmg.com/ GAES2015.

40% 34% 23% 38% 39% 20% 24% 26% 17% 19% 16% 11% 18% 15% 21%

2015 2014 2013 2015 2014 2013 2015 2014 2013 2015 2014 2013 2015 2014 2013

Note: % of respondents rating a product issue as extremely important Source: KPMG’s Global Automotive Executive Survey 2015

Light vehicle sales forecast by segment market share | 2011-2020 Segment prospects 111m The good news for the industry is that all 107m Unclassiﬁ ed 104m 6% segments are predicted to increase in 6% volume. Within the next two years, global CAGR + 4.1% 100m 6% 8% MPV & Van vehicle sales will pass the magical 100 95m 8% CAGR + 1.9% million mark and continue to rise until 6% 90m 8% the end of this decade, on the back 7% 87m 8% of increasing demand in emerging 84m 7% Pick-up & SUV 17% CAGR + 4.3% markets like China. 81m 7% 8% 17% Yet, as the next page shows, the 77m 7% 8% 17% majority of auto executives cling to the 7% 8% 17% expectation of growth of small and basic 8% 2% Sports CAGR + 4.5% 7% 3% 17% 2% Large (-Plus) CAGR + 3.3% vehicles – so-called budget cars – based 9% 2% 3% upon a historical preference for such 17% 3% 10% 17% 2% 9% Midsize CAGR + 3.0% 3% automobiles in developing countries. 17% 2% 9% Formal forecasts for light vehicle sales 17% 2% 3% 9% 9% present a different picture compared to 2% 3% 17% that of many of the executives involved in 1% 3% 9% 2% 3% 10% our survey, with small and basic cars not 3% 10% 1.39% 2% 10% 1.39% predicted to increase their market share, 3% 1.39% 10% 1.39% which is set to remain at just six percent. 1.39% 1.39% 10% 1.39% 1.39% 32% Compact-size Conversely, the compact-sized, pick-up 1.39% 32% 1.39% 32% CAGR + 6.2% & SUV and sports segments are forecast 1.39% 1.39% 1.39% 1.39% 32% 1.39% 1.39% 1.39% 32% 1.39% 1.39% to outpace overall market growth rates up 1.39% 1.39% 32% 1.39% 1.39% 1.39% 1.39% 1.39% to 2020, with compact-sized being the 31% 32% 1.39% 1.39% 1.39% 1.39% 1.39% real success story. Almost one-third of all 27% 29% 1.39% 1.39% 1.39% 1.39% 1.39% vehicles sold worldwide are expected to 1.39% come from this segment in 2020. This 1.39% 1.39% 1.39% 1.39% 1.39% 1.39% puts the spotlight on recent efforts by global OEMs to invest in small budget Sub-compact-size cars in the BRICs and other high-growth 20% 19% 19% CAGR + 3.8% 18% 18% 17% 17% 18% 18% 18% territories, with a question mark hanging over the long-term sales volume and Small & basic margin potential for this segment. 6% 6% 6% 6% 6% 6% 5% 6% 6% 6% CAGR + 2.6% 2011 2012 2013 2014 2015 2016 2017 2018 2019 2020

Note: % - segment market share; CAGR – compound annual growth rate; Percentages may not add up to 100 due to rounding; in million units Source: KPMG’s Competence Centre Automotive, LMC Automotive

12 | KPMG’s Global Automotive Executive Survey 2015 © 2015 KPMG International Cooperative (“KPMG International”). KPMG International provides no client services and is a Swiss entity with which the independent member firms of the KPMG network are affiliated. CONSUMER DEMAND Development of vehicle size segments until 2020 Mobility culture

TRIAD executives no longer believe in large car segments – is this the end of a trend? Survey results Basic and small 81% 15% 4%

Sub-compact 75% 16% 9% Most auto executives from the TRIAD markets anticipate a signiﬁcant drop in Compact 61% 23% 16% sales of larger cars, which could signal the end of an era. Midsize 49% 41% 10% TRIAD BRIC executives are particularly VIEWPOINT Large & optimistic, with a majority expecting 25% 34% 41% Large Plus signiﬁcant growth in all car segments, although sales of small, basic and Sports 30% 35% 34% medium-sized cars are predicted to increase faster than larger segments like Pick-up & SUV 27% 42% 31% limousines, pick-ups & SUVs.

MPV & Van 27% 51% 22% KPMG viewpoint Basic and small 79% 11% 11% The expected fall in sales of larger vehicles is probably rather due to the stricter Sub-compact 75% 24% 1% environmental restrictions than to any decline in popularity of bigger cars. Compact 72% 20% 8% However, buyers are likely to switch back as soon as oil prices drop further (a probable BRIC Midsize 73% 24% 3% scenario). More effi cient powertrains, like VIEWPOINT hybrids, could also signifi cantly reduce the Large & 57% 31% 13% Large Plus total cost of ownership. The interactive online version Sports 60% 20% 20% of this survey on kpmg.com/ GAES2015 reveals regional differences Pick-up & SUV 59% 23% 18% among auto executives’ opinions: North American respondents’ views are MPV & Van 53% 26% 21% notable and surprising, with 92 percent forecasting an increased demand for small and basic cars. In China, on the other hand, sports Note: Percentages may not add up to 100 due to rounding cars sales are expected to grow strongly, Remain Note: % of respondents expecting a car segment’s market Increase Decrease share to increase/remain the same/decrease until 2020 the same reflecting a fast-maturing consumer with Source: KPMG’s Global Automotive Executive Survey 2015 evermore sophisticated tastes.

Importance of vehicle ownership undisputed across all age groups

Survey results Consumers younger Consumers from Consumers from Consumers than 25 years 25 to 35 years 35 to 50 years 50+ years

According to the auto executives in our survey – regardless of which part of the 78% 72% value chain they represent – people of all Vehicle ages will continue to desire their own set of manufacturer’s 45% 45% 38%

wheels. Although the younger generation is viewpoint 35%

considered more open to alternative 23% 20% 17%

mobility solutions, the respondents still 13% 8% feel that under-25-year-olds are keen to 5% possess a vehicle. Even the ﬁ nancial services and mobility 100% service providers – whose business 95% 80% model is largely focused around vehicle 80% usage rather than ownership – are Dealer’s suggesting that their customers will still viewpoint 100% want to own cars. 20% KPMG viewpoint 15% 5% 5% 0% 0% 0% 0% Despite a universal preference for possessing one’s own vehicle, the main auto players need to consider carefully Financial 90% which user segments are most susceptible services and 85% to alternatives. With increasing vehicle mobility 65% restrictions in inner city areas, and a greater services 65% awareness of total cost of ownership, more provider’s viewpoint

and more customers are likely to reappraise 30% 30% whether to have their personal set of 15% 5% 8% wheels. Consequently, all mobility 5% 3% stakeholders should be ready to offer 0% Important Neutral Not Important Neutral Not Important Neutral Not Important Neutral Not easy-to-use, price-competitive solutions. important important important important The under-25-year-olds may appear to be the most obvious target, but with mature markets in particular experiencing Important Neutral Not important aging populations, those over 50 could also be seeking better and cheaper ways Note: Percentages may not add up to 100 due to rounding Important = Respondents answering with Not important = Respondents answering with Source: KPMG’s Global Automotive Executive Survey 2015 “extremely important” or “somewhat important” “somewhat unimportant” or “not at all important” to get around.

14 | KPMG’s Global Automotive Executive Survey 2015 © 2015 KPMG International Cooperative (“KPMG International”). KPMG International provides no client services and is a Swiss entity with which the independent member firms of the KPMG network are affiliated. ON-DEMAND MOBILITY Share of mobility services in 15 years’ time, and time horizon for profitability by maturity cluster Mobility culture

TRIAD countries are setting the pace for on-demand mobility services such as car sharing

TRIAD VIEWPOINT BRIC VIEWPOINT

What do you believe will be the share of on-demand services in 15 years time?

12% 11% 35% Below 5% KPMG Insight 16% 47% Mirko 6-15% The dawn of 7% Hilsheimer Partner car sharing 16-25% KPMG in China in China more than 25% 42% 31% The rapid pace of urbanization in China should see a rise in car sharing over the next few years in Tier 1 cities, with Generation Y consumers being the early adopters. Nevertheless, the size of this market will remain small, with Chinese drivers not yet ready to follow countries When do you expect like Germany, because Chinese mobility solutions to consumers still want to own cars. become an important Car sharing in China has to compete source of proﬁ t? 16% with a diverse range of services, such as 32% short-term car rentals, carpooling and 34% They are already 11% peer-to-peer driver dispatch services. As 27% mobility concepts evolve, we expect to In 5 years see new approaches to car sharing, much of which target the business-to In 10 years business segment, such as Volkswagens’ 4% 8% 41% V Rent’s car pools that are marketed to > 10 years 27% various companies. The Chinese market will develop slowly, although the Never potential is high in a number of cities. With limited ﬁnancial and political support from local government, the business case for car sharing is unproven.

Note: Percentages may not add up to 100 due to rounding Source: KPMG’s Global Automotive Executive Survey 2015

Are companies betting on the right technologies?

Focusing solely on the further As the mobility eco-system becomes more complex, the main players established and high-growth markets. development of the internal must choose between several different, and in some cases conﬂ icting Recent marketing initiatives, supported by wide media coverage, technologies, raising the stakes for critical investment decisions. suggest the age of innovative technologies, like fuel cell vehicles and combustion engine could mean the By betting too much and too soon on future trends, automakers self-driving cars (a last evolutionary step of vehicle connectivity) is main global automakers fall behind could lose existing, loyal customers. But if they fail to gain a foothold in rapidly approaching. Despite such signals, most executives in our their more innovative rivals new mobility solutions, they risk falling behind competitors. survey do not anticipate such developments becoming signiﬁ cant in Although downsizing the internal combustion engine remains the the next 20 years. number one investment priority, such a route leaves automakers vulnerable to increasingly strict environmental regulations in both

16 | KPMG ’s Global Automotive Executive Survey 2015 © 2015 KPMG International Cooperative (“KPMG International”). KPMG International provides no client services and is a Swiss entity with which the independent member firms of the KPMG network are affiliated. INVESTMENT PRIORITIES Top powertrain technology investment areas up to 2020 Technological fit

Downsizing is still the number one investment priority Survey results Hybrid fuel Plug-in hybrid ICE downsizing Fuel cell Battery electriﬁ ed electrical vehicles systems fuel systems vehicles1

46% Despite the promise of new, cleaner technologies, automotive executives still believe downsizing the traditional internal combustion engine is likely to yield the 32% best results in the short-to-medium-term. 29% When it comes to alternatives, fuel cells TRIAD 24% have moved ahead of battery electric VIEWPOINT systems to become the number two 20% 19% 19% 19% 18% priority for investments until 2020. 15% 15% 13% 11% 11% 8% KPMG viewpoint The interactive online version of this survey on kpmg.com/ 2015 2014 2013 2015 2014 2013 2015 2014 2013 2015 2014 2013 2015 2014 2013 GAES2015 reveals regional differences among auto executives’ opinions: In the past 12 months, respondents 42% from TRIAD have reduced their interest in 41% ICE downsizing, which is possibly an acknowledgment of more onerous 33% regulations on CO2 emissions in their home markets. This trend is even more profound among BRIC 23% 22% VIEWPOINT 20% 20% the OEM TRIAD respondents, who have 17% 16% already shifted their investment priority from 14% 14% 12% 13% ICE downsizing to hybrid fuel systems. Such laws are not as well-developed in 8% 7% some emerging markets, hence the relatively higher priority assigned to ICE downsizing among the BRIC auto executives. 2015 2014 2013 2015 2014 2013 2015 2014 2013 2015 2014 2013 2015 2014 2013

Note: % of respondents rating a powertrain investment area as extremely important Note: 1 With and without range extender Source: KPMG’s Global Automotive Executive Survey 2015

Electrified powertrain production forecast | 2011-2020 Just 4.6% of engine

production to be electric 5.1m 4.9m 0.01% Full/Mild Hybrid 0.01% ▲ The day when most of us drive fully 4.6m 0.01% electric cars is still on the distant horizon. 0.62% 4.6% Plug-in Hybrid of total In 2020, less than one in 20 vehicles 4.1m 0.60% 0.01% 0.55% powertrain produced are forecast to be equipped Battery EVs production with electriﬁed powertrains, the majority (with & without range extender) 3.6m 0.49% worldwide of which will be only slightly electriﬁ ed full or partial hybrids. Fuel Cell 0.44% 0.99% While the survey respondents believe 3.1m 0.87% 0.80% that plug-in hybrids will generate the most 0.68% consumer demand by the end of this 2.6m 0.38% decade, projections show that this 0.53% segment will make up just one percent of 0.32% 0.36% total worldwide engine production in 2020. The excitement over the potential of 0.19% 2.1m fuel cell electric cars is also likely to be 1.9m overhyped; by 2020 a mere 0.01 percent 0.18% of cars are likely to be equipped with 0.14% 0.10% 0.07% this type of propulsion – which equates to approximately 16,000 fuel cell drive units per annum.

1.2m 2.97% 3.00% 2.96% 2.86% 2.76% To ﬁ nd out more details about 0.12% 2.62% the electric engine production 2.50% prospects until 2020 by regional cluster, 2.18% 2.16% please access the interactive online version of this survey on kpmg.com/ GAES2015. 1.39%

2011 2012 2013 2014 2015 2016 2017 2018 2019 2020

Source: KPMG‘s Competence Centre Automotive, LMC Automotive Note: % - share of overall powertrain production volume in respective year; in million units

18 | KPMG’s Global Automotive Executive Survey 2015 © 2015 KPMG International Cooperative (“KPMG International”). KPMG International provides no client services and is a Swiss entity with which the independent member firms of the KPMG network are affiliated. CONSUMER DEMAND Electrified propulsion technology attracting the most demand until 2020 Technological fit

Plug-in hybrids are seen as number one, although losing ground Survey results

2015 30%

Plug-in When asked to rank the most popular 2014 35% #1 hybrids form of electric technology by 2020, respondents chose plug-in hybrids, 2013 36% although the gap with battery electrified cars has closed to one percentage point. Fuel cell electric vehicles are the biggest risers, jumping from just 17 percent in 2013 to 27 percent in this year’s survey. 2015 29% Battery electrified 2014 31% KPMG viewpoint #2 vehicles1 The announcement that, amongst others, 2013 28% Toyota is to market a fuel cell electric vehicle in 2015 has generated considerable media attention recently, but, as our powertrain forecasts predict, this technology is unlikely to gain more than 27% 2015 a tiny proportion of the overall market Fuel cell until 2020. electrical 2014 24% #3 vehicles Without a comprehensive refueling infrastructure, and eco-friendly production 2013 17% of hydrogen from renewable energy sources, fuel cells remain a long-term aspiration rather than a commercial reality in the foreseeable future – especially in less developed regions. 2015 16% Non-plug-in hybrids To find out more details about #4 (Full/Mild/ 2014 12% the views of our respondents by Micro) stakeholder group or regional cluster, 2013 20% please access the interactive online version of this survey on kpmg.com/ GAES2015. Note: % of respondents rating an electrified propulsion technology as extremely important Note: 1 With and without range extender Source: KPMG’s Global Automotive Executive Survey 2015

How do we cut through complexity? KPMG’s Global Automotive Executive Survey 2015 | 19 View the interactive version of this survey online and filter the results based on your own preferences | kpmg.com/GAES2015 KPMG insight

What’s next for e-mobility in China?

Danny Le China’s government and automotive mobility, demand for electric-powered Partner industry both have high hopes that autos is currently restricted to small KPMG in China electric cars will signal a new era in the ﬂ eets for a few government institutions. world’s fastest growing car market. Not However, growing pressures from air content with catching up with more pollution, rising fuel costs, strict established players in traditional emission standards, and rapid combustion engine technology, China urbanization should ensure that the aspires to leapfrog rivals to become huge potential for electric cars is the premier market for e-mobility. With eventually realized, although this will hard work and not a little innovation, require further innovation and disruption forecasts suggest that China will meet across the automotive eco-system. this objective by 2020. Vehicle and battery cell production is still in its early stages, with a need for Chinese ﬁrms to improve capabilities in design and development of core e-vehicle components. Current electric models from domestic OEMs have not proven particularly popular with consumers. Regardless of these humble beginnings, China has by far the world’s largest R&D budget, indicating a patient, mid-to-long-term perspective. Despite strong political funding for programs across multiple cities, and a huge population seeking greater

20 | KPMG’s Global Automotive Executive Survey 2015 © 2015 KPMG International Cooperative (“KPMG International”). KPMG International provides no client services and is a Swiss entity with which the independent member firms of the KPMG network are affiliated. E-CAR MARKET PENETRATION Share of electrified vehicles among overall new car registrations by 2025 Technological fit

At least every tenth vehicle sold in 2025 to be electric, according to auto execs’ opinions Survey results 1-5% 5%

6-10% 20% Nearly half of all North American Western respondents expect the share of e-vehicles European 11-15% 43% to be between 16 and 20 percent of overall viewpoint new car registrations in 10 years’ time. 16-20% 18% This is a more optimistic view than 21-25% 14% Western European auto executives have, nearly half of whom believe that the share will be between 11 and 15 percent. Chinese automakers express similar sentiment. More than two-thirds of these 1-5% 0% respondents believe the share of e-vehicles in their home country will be 6-10% 12% between 11 and 15 percent by 2025. North American 11-15% 28% viewpoint 16-20% 48% KPMG viewpoint Electric technology has yet to deliver on 21-25% 12% its early promise, and consequently most companies have focused their efforts on improving ICE efﬁ ciency. Nevertheless, the results show that the auto executives still feel that e-cars can 4% 1-5% thrive, although investors continue to face considerable uncertainty.The biggest drivers 6-10% 20% for e-mobility are likely to be regulations and Chinese tax incentives, rather than actual consumer viewpoint 11-15% 68% demand, as governments in emerging as 16-20% 8% well as mature markets strive to create low carbon economies. 21-25% 0%

Note: Percentages may not add up to 100 due to rounding Source: KPMG’s Global Automotive Executive Survey 2015

Self-driving is not a future dream but today’s reality

Seung Hoon Wi When can we expect to see perfect business opportunities to target Asia Pacifi c Head self-driving cars? Most available consumers with infotainment, of Automotive forecasts suggest that, by 2020, up to education, healthcare and other KPMG in Korea 10 percent of all mass-produced services. vehicles will be driverless. Before such vehicles can become In the meantime, we are already ubiquitous, a number of issues must enjoying many of the benefi ts of be clarified, such as cost, legal autonomous driving, including parking responsibility, security and privacy. The assistance, alerts for approaching substantial investment required for vehicles, people and objects, traffi c this technology could arguably have a congestion assistance, lane departure very positive return, in terms of warnings and cruise control. There is increased safety, higher fuel effi ciency, also an increasing convergence of and shorter, more productive journeys, sensor- and connectivity-based where occupants not only get to their solutions that mimic the human destination faster, but can also work senses to instruct the car to act as its along the way. driver would choose, and make As the future rapidly becomes decisions based upon information today’s ‘new normal’ and consumers from the surrounding environment. In get accustomed to hands-free this respect, self-driving cars can be driving, process power – rather positioned as a safer form of motoring, than horsepower – may become reducing the risk of driver error. the biggest differentiator. These vehicles are far more than just another way of getting around. They generate huge amounts of valuable data about travelers’ habits and characteristics, creating new

22 | KPMG’s Global Automotive Executive Survey 2015 © 2015 KPMG International Cooperative (“KPMG International”). KPMG International provides no client services and is a Swiss entity with which the independent member firms of the KPMG network are affiliated. CONNECTIVITY: THE NEXT BIG THING Self-driving cars: the final evolutionary step of connectivity Technological fit

Autonomous driving’s breakthrough is Global OEMs seen as leading in the field of further away, according to auto executives connectivity and self-driving cars Survey results Western European 5-10 years 11% BMW 24.5%

viewpoint A commercial market for self-driving cars 11-20 years 20% Daimler 15.5% seems no closer, even though initial pilots have produced positive results, with plenty 21+ years 43% General Motors 11.5% of coverage in the mass media. Auto executives from Western Europe, never Volkswagen Group 10.0% 25% North America and China are the most pessimistic, and feel it will take more than Toyota 9.5% 20 years before these vehicles are 5-10 years North American 4% commonly seen on our roads. In Japan viewpoint Tesla 6.0% and Korea, there is greater hope, with an 11-20 years 8% expected time span of 11 to 20 years. Ford 5.5% 21+ years 60% Honda 4.5%

KPMG viewpoint never 28% FCA 3.5% Self-driving cars are the ﬁnal step of true connectivity, enabling car occupants to treat 5-10 years 0% Hyundai/Kia 3.5% their vehicles as true extensions of their viewpoint Chinese homes, ofﬁces or smartphones, freed from 11-20 years 28% Chery 1.0% the responsibility of driving. The daily commute will offer customer relationship 21+ years 52% Nissan 1.0% owners incredible opportunities to tap into additional revenue streams. never PSA 1.0% 20% This market will not succeed without Renault 1.0% overcoming critical legal and liability issues 5-10 years associated with driverless motoring.

17% Mature Asian Google 0.5% With potentially ﬁerce competition from viewpoint information, communication and technology 11-20 years 33% Isuzu Motors 0.5% (ICT) companies, traditional OEMs must ask 21+ years themselves whether they are in-line to be 29% Mitsubishi 0.5% the pace setters in this sector.

never 21% Suzuki 0.5%

Note: Percentages may not add up to 100 due to rounding Note: Industry players ranked #1 according to respondents, sorted in descending order Source: KPMG’s Global Automotive Executive Survey 2015 Note: Percentages may not add up to 100 due to rounding Source: KPMG’s Global Automotive Executive Survey 2015

Automakers need to understand what drives customers’ behavior Dieter Becker Global Head of Communication technologies such – and harvest the undoubted potential Automotive as car-2-car, car-2-infrastructure or of data, OEMs should consider KPMG International car-2-home may bring signifi cant customers’ lives as a whole, rather than benefits to consumers, but these viewing them as ‘drivers’ only, towards factors, known collectively as the building a personal relationship to ‘internet of things’ simply represent a increase loyalty. commodity. To capture the real value of Technology also enables predictive connectivity, vehicle manufacturers product analytics, where automakers have to use the power of data to get can constantly monitor vehicle inside customers’ heads, understand performance and component wear what drives their behavior and adapt and tear. Such a strategy is supported business models to ever-smaller target by modularization and standardization, groups of like-minded individuals. which enables more cost-effi cient Connected car technologies can be production and makes it easier to a crucial interactive media, especially replace or adapt different parts of when linked to location, offering not the automobile. just traffic guidance, but also useful As a warning: development cycles local retail or leisure options, can differ widely between hardware personalized news and entertainment, and software, so these and other services – all of which can two areas should be managed provide a healthy revenue stream. separately, with a central interface Ultimately, it should be possible to to ensure compatibility. predict what products and services the customer is most likely to want. To move to the lucrative upper right-hand quadrant (refer to chart on page 25) – the ‘Internet of Behavior ’

24 | KPMG’s Global Automotive Executive Survey 2015 © 2015 KPMG International Cooperative (“KPMG International”). KPMG International provides no client services and is a Swiss entity with which the independent member firms of the KPMG network are affiliated. THE NEXT BIG THING Increased connectivity means increasing convergences between largely separated industry sectors Technological fit

Low (vehicle independent) Facebook News Behavior based cross-selling

Social Networking & Predictive Consumer Communication Analytics

Twitter VOIP Location based BEHAVIOR OF INTERNET cross-selling

Car-2-Infrastructure

Safety & Efficiency Predictive Product Features Analytics Proximity to current business models business current to Proximity

Car-2-Car Car-2-OEM INTERNET OF THINGS OF INTERNET

High Traffic Collision Continuous monitoring of Real-time residual (vehicle management avoidance wear & tear components value calculation dependent)

Moderate Revenue potential for new business models Very high

Source: KPMG Competence Centre Automotive

How do we cut through complexity? KPMG’s Global Automotive Executive Survey 2015 | 25 View the interactive version of this survey online and filter the results based on your own preferences | kpmg.com/GAES2015 Business model readiness

Is the industry set for an unstable mobility eco-system?

As more players join the mobility The unpredictability of new technologies makes it hard to plan crossing sector boundaries, and think ‘out of the box’ to find ways market, it is vital for companies to for disruptive changes such as e-vehicles, connectivity and to intelligently expand value chains and diversify. A unique brand autonomous driving. However, an evolving mobility culture, which becomes even more critical, to differentiate yourself in a market both diversify and differentiate eschews traditional car ownership in favor of more flexible options, teeming with new competitors from other sectors and offering to maintain success means that automotive companies must prepare for ‘black swans’ customers a wider range of products and services. on the horizon. As the mobility eco-system broadens, automakers can no longer rely on organic growth, and will have to build strategic alliances

26 | KPMG’s Global Automotive Executive Survey 2015 BLACK SWAN AHEAD? Likelihood of major business model disruption by 2020 Business model readiness

No major change ahead, as OEMs are expected to continue to own customer relationships Survey results How likely is a major business model Who will be the ‘owner’ of the customer disruption in the next 5 years? relationship in the next 5 years? Over half of all auto executives think it is somewhat unlikely or not likely at all that a major disruption to existing business models will occur in the next ﬁ ve years, 3% 43% with just approximately one in 10 Extremely Somewhat 72% 2% likely unlikely OEMs Other expecting a major change. This conservative outlook extends to expectations of market dominance, with almost three out of four respondents expecting OEMs to continue owning the customer relationship until 2020.

KPMG viewpoint As an alternative perspective, nearly 4% one-third confess to being neutral over the Connectivity likelihood of a disruptive event, implying provider that change is at least at the back of many executives’ minds. Breakthroughs such as mobility services 8% and e-vehicles may be a few years away, Mobility but that does not mean that these potential solutions ‘black swans’ can be taken off the senior provider management agenda. Arguably, the current period of stability could be a great opportunity to prepare for a very different future. If the main auto 9% 32% 14% 15% companies fail to get ready now, they risk Somewhat Neutral Not likely Retailers being overtaken by new competitors, such likely at all as connectivity service providers, and lose those all-important customer relationships.

Note: Percentages may not add up to 100 due to rounding Source: KPMG’s Global Automotive Executive Survey 2015

Spotting a black swan in the dark

As this year’s survey demonstrates, making the most of my strong product Roger Bayly the world inhabited by future auto and engineering heritage? Partner customers is changing fast. It is no Should I build, buy or partner to KPMG in the UK surprise, then, that relationships with achieve this goal? brands and mobility providers are up How do I change my vehicle and for grabs, with emerging consumers system architectures to enable me to more inclined to trust a tech company refresh products in a cycle measured than an OEM to provide an in months rather than years? autonomous vehicle. Who do I work with to develop these Given the potential value streams technologies and how do I reconfigure from connectivity and associated my product development capabilities? services, it is easy to see why black How do I create the investment swans are flying overhead in the form capacity to do all of this, while of new brands and disruptive services continuing to develop and deliver and products. today’s products and maintain returns But – and this is the big “but” – to shareholders? What level of will these new offerings come from resilience to market, event and existing, major OEMs or from some volatility risk should I maintain during other source? And, will key players this period? from converging industries want to Member firms are seeing our cooperate, compete or even position clients across the automotive value themselves at the top of the new chain starting to address these value chain? questions, and the next few years With these challenges looming, are going to be fascinating. OEMs need to ask themselves some searching questions: How do I think about my brands from a consumer rather than an automotive perspective - to attract the new generation of ‘digital natives’? How do I learn to be a high value, branded services business, while

28 | KPMG’s Global Automotive Executive Survey 2015 PREPARE FOR THE BLACK SWAN Most important business and investment strategies Business model readiness

Organic growth considered the number one strategy for future success Survey results 2015 67%

Organic growth 2014 63% #1 Two-thirds of respondents see organic 2013 24% growth as the most important strategy. In second place is expansion of the 2015 54% value chain and diversifi cation, as Expansion of the companies move into new markets value chain and 2014 49% such as mobility services. #2 diversifi cation Interestingly, cooperation with 2013 22% converging industry players is ranked ahead of partnerships with other 2015 49% automakers, reflecting the growing Cooperation with players from importance of technology and the rising 48% converging industries 2014 influence of new competitors. #3 (e.g. ICT sector) 2013 20%

2015 45% KPMG viewpoint Corporate partnerships like joint ventures and 2014 38% Organic growth alone will not meet the #4 strategic alliances needs of tomorrow’s mobility culture, and 2013 34% OEMs must shorten innovation cycles to bring new products and services to the 2015 30% market. In the crucial battle to attain Outsourcing of (non) core activities to customers’ loyalty, automakers will have 2014 #5 suppliers/contract 24% to cooperate with companies offering manufacturers innovative technologies and services. 2013 18% This inﬂux of new players makes it much harder to keep control of the interface with 2015 23% drivers and passengers. Mergers and Mergers and acquisitions (M&As) 2014 16% #6 acquisitions with peers are a lower priority, given the 2013 14% associated cost and risks. Even if they are inclined, traditional automakers may Note: % of respondents rating a business and investment strategy as extremely important struggle to achieve M&A investments in Source: KPMG’s Global Automotive Executive Survey 2015 the connectivity and infotainment sector, due to the ﬁnancial strength of the likes of Apple and Google.

Traditional automotive players set to prevail – but are Tier 1 suppliers most under threat? Survey results

Leading premium market OEM brands 34% 48% 17% 2% A vast majority of respondents believe #1 (e.g. Mercedes, BMW) that the established premium and mass market OEMs will continue to dominate the automotive landscape over the next decade. Leading mass However, in an unstable mobility market OEM brands 32% 52% 14% 2% eco-system, Tier 1 suppliers are feeling #2 (e.g. Nissan,VW) the warm breath of new competitors, with brands from the technology and communication industry now considered equally likely to play a role in the Pure e-car brands/ sub-brands 13% 54% 29% 5% mobility space. #3 (e.g.Tesla, BMW i)

KPMG viewpoint Software/internet brands 5% 17% 35% 36% 8% As the mobility culture evolves, strong brand (e.g. Google, Apple, Intel) image and a premium positioning are the #4 best defense against new entrants. If the ICT sector is not yet able to displace traditional automakers, then it is certainly intruding into the territory of Tier 1 suppliers, Traditional Tier 1 suppliers (e.g. Continental, 3% 19% 50% 27% 2% as hardware components become evermore #5 Valeo) commoditized, and software and services rapidly gain in importance.

To ﬁ nd out more details about Other technology the views of our respondents companies 2% 14% 30% 40% 15% by stakeholder group or regional cluster, #6 (e.g. Panasonic, IBM) please access the interactive online version of this survey on kpmg.com/ GAES2015.

Extremely Somewhat Somewhat Not at all Note: Percentages may not add up to 100 due to rounding Neutral Source: KPMG’s Global Automotive Executive Survey 2015 likely likely unlikely likely

30 | KPMG’s Global Automotive Executive Survey 2015 © 2015 KPMG International Cooperative (“KPMG International”). KPMG International provides no client services and is a Swiss entity with which the independent member firms of the KPMG network are affiliated. READINESS FOR AN UNSTABLE MOBILITY ECO-SYSTEM Automotive OEMs that are considered to be best prepared Business model readiness

Global players such as Daimler, BMW and GM are considered to be the best prepared Survey results

70%

GENERAL In a fast-changing eco-system, Daimler is MOTORS seen as the number one brand, closely followed by GM and BMW. These 60% VOLKSWAGEN BMW companies have successfully positioned GROUP themselves as product- technology- and DAIMLER brand-driven. At the other end of the scale, 50% newcomers such as Tesla still face a huge TOYOTA uphill struggle to establish a universally strong brand and technology-oriented image. Despite its investment in innovation HONDA FORD and its undeniable large achievements 40% regarding e-car technology, the gap between established brands and newcomers could still take longer to close.

30% KPMG viewpoint In an unstable mobility eco-system, the RENAULT HYUNDAI/KIA relationship between brand, products and 20% technology is becoming more complex. As MITSUBISHI products and technologies become more commoditized, brand reputation could be TESLA FIAT CHRYSLER the decisive differentiating factor. AUTOMOBILES 10% (FCA) As mobility players contemplate their brand strategies for this brave new world, MAZDA they could consider taking a look at the direction taken by highly ranked OEMs like % of respondents considering OEM to be among the top 5 product and technology-driven OEMs and technology-driven 5 product be among the top OEM to considering % of respondents TATA SUZUKI BMW and Daimler and their approaches to ﬁ nely balance their activities. 0% 10% 20% 30% 40% 50% 60% 70%

% of respondents considering OEM to be among the top 5 brand-driven OEMs

Source: KPMG’s Global Automotive Executive Survey 2015

For globally established OEMs, remaining independent is the number one survival strategy Survey results #1 BMW 78% 12% 10%

As they consider future strategies, #2 Volkswagen Group 76% 19% 6% respondents see the big OEMs primed to go it alone, rather than partner with #3 Toyota 65% 28% 8% others. Even smaller newcomers like Tesla are expected to remain independent, #4 Hyundai/Kia 63% 29% 9% despite the high costs of building a global brand and reach. #5 General Motors 60% 24% 17% Executives from emerging market OEMs, however, are more likely to favor #6 Tesla 59% 24% 17% stronger alliances, to achieve the critical mass necessary to compete effectively. #7 Renault 56% 25% 20% This is mainly due to their lack of sophisticated products and solutions, #8 Tata (incl. JLR) 55% 32% 14% making them highly reliant on know-how transfer from established global #9 Nissan 53% 36% 12% technology leaders from Western countries, through cooperation. #10 Ford 52% 30% 18% The Chinese company considered best equipped to stay independent is Chery, #11 Honda 52% 28% 20% which, interestingly, has a greater global reach than its domestic counterparts, #12 Daimler 51% 31% 19% making it China’s largest passenger vehicle exporter. #13 Chery 47% 36% 18%

#14 FCA 44% 27% 30%

#15 Mitsubishi 40% 40% 21%

#16 Avtovaz 37% 49% 15%

Remain independent Strengthen alliances Merge with other OEMs

Note: Percentages may not add up to 100 due to rounding. Sorted descending by % remain independent Source: KPMG’s Global Automotive Executive Survey 2015

32 | KPMG’s Global Automotive Executive Survey 2015 © 2015 KPMG International Cooperative (“KPMG International”). KPMG International provides no client services and is a Swiss entity with which the independent member firms of the KPMG network are affiliated. Business model readiness

OEMs with limited global reach may have the greatest need for mergers Survey results #17 Suzuki 37% 40% 24%

#18 Mahindra Group 35% 47% 19% Respondents believe that certain Japanese OEMs – notably Mazda, Isuzu #19 BAIC 34% 48% 19% and Fuji Heavy/Subaru – are more disposed to mergers. This is probably due #20 SAIC 33% 39% 29% to a lack of growth potential in their focus markets, forcing them to look further #21 BYD 32% 46% 23% aﬁeld to expand.

#22 Dongfeng 31% 34% 36% KPMG viewpoint

#23 Brilliance-Jinbei 31% 52% 18% Although the stronger, established OEMs with global reach are better positioned to #24 PSA 31% 36% 34% thrive as independent companies, the instability of the future mobility eco-system #25 Changan 25% 51% 24% could necessitate a rethink. Given the need to bet on a range of #26 Geely 24% 37% 40% different technologies and business models, alliances could spread the cost and risk, #27 Great Wall Motor 23% 42% 36% and bring valuable new intellectual property. This may even apply to largely independent #28 Mazda 22% 36% 43% global players for whom cooperation is not an immediate priority. #29 FAW 20% 44% 36% More details on the past year’s results can be found in our #30 Jianghuai Automotive 20% 42% 39% interactive online version of the survey on kpmg.com/GAES2015. #31 Isuzu Motors 18% 36% 47% Compared to the 2014 survey, this year’s results are more optimistic. In 2014, only #32 Fuji Heavy/Subaru 12% 38% 51% six companies were thought to have the strength to survive independently, a ﬁ gure Remain independent Strengthen alliances Merge with other OEMs that has risen to 12 in 2015.

Note: Percentages may not add up to 100 due to rounding. Sorted descending by % remain independent Source: KPMG’s Global Automotive Executive Survey 2015

Who is best positioned for sustainable growth?

In the medium term, the As the survey indicates, the winners in the new mobility culture on the back of strategic acquisitions of JLR (Jaguar Land Rover). traditional OEMs are forecast to will be those companies that achieve the right balance of marketable Hyundai’s continued rise in market share expected by the majority technologies and apply the appropriate business models to cater to of respondents, on the other hand, is predicted to stall somewhat maintain their dominance, but it’s increasingly tech-savvy heterogeneous customer groups. according to recent market forecasts. vital they prepare for a more The existing order is not about to be shattered, with the top 10 Nevertheless, the traditional OEMs will need to check their blind OEMs all forecast to be from mature markets in 2020, and German spots in a proactive way as the tremendous growth in new disruptive future in the long term manufacturers continuing to dominate the premium end. The main technologies and customization options is likely to completely changes in market position involve Volkswagen potentially stealing the change the automotive eco-system as we know it today. number 1 mass market spot from Toyota as of 2016, and Tata rising

34 | KPMG ’s Global Automotive Executive Survey 2015 © 2015 KPMG International Cooperative (“KPMG International”). KPMG International provides no client services and is a Swiss entity with which the independent member firms of the KPMG network are affiliated. FIT AND READY TO HARVEST Top 20 OEMs expected to increase their global market share until 2020 Prepared to harvest

Executives are most optimistic about Hyundai’s market share increase Survey results

#1 6% 17% 78% Hyundai/Kia Hyundai/Kia is expected to gain market #2 5% 20% 75% Volkswagen Group share in the next ﬁ ve years, according to #3 10% 20% 71% Avtovaz this year’s respondents. Just behind is Volkswagen with its #4 8% 23% 69% BMW nearest rivals Toyota and GM in ninth and 14th place respectively. #5 14% 18% 69% Chery Of the Chinese OEMs, Chery is #6 16% 23% 62% Tata (incl. JLR) once again the most highly rated, while another company from a high growth #7 16% 23% 62% Nissan market, Tata, performed promisingly, #8 9% 32% 60% BAIC ranked in sixth place.

#9 10% 31% 59% Toyota

#10 14% 28% 59% Mahindra Group KPMG viewpoint

#11 16% 27% 58% Brilliance-Jinbei The ranking of who is going to win or lose market share has always been a frequently #12 18% 25% 58% Renault quoted result in the history of our Global Automotive Executive Survey. In order to #13 20% 23% 58% Tesla give the opportunity to compare the survey #14 13% 32% 55% General Motors results with the most recent market forecasts we have included a detailed #15 17% 32% 52% BYD reality check on the survey ﬁ ndings on the #16 22% 27% 52% Honda following two pages. To ﬁ nd out more details about #17 20% 29% 51% Daimler the views of our respondents #18 23% 30% 48% Changan by stakeholder group or regional cluster, please access the interactive #19 22% 32% 46% SAIC online version of this survey on kpmg. com/GAES2015. #20 18% 38% 45% Ford

Note: Percentages may not add up to 100 due to rounding Increase Source: KPMG’s Global Automotive Executive Survey 2015 Decrease Remain stable

Leading mass market OEMs – Sales ranking 2011-2020 Not a single emerging market OEM is predicted to make the top 10 by the end of this decade in the mass market segment

2011 2012 2013 2014 2015 2016 2017 2018 2019 2020

#1 Volkswagen Group Volkswagen is predicted to take over Toyota’s crown as number one mass market OEM from 2016 onwards. #2 Toyota Group

#3 Renault-Nissan Group GM has lost its leading position, dropping from ﬁrst place in 2011 #4 General Motors Group to fourth in 2014.

#5 Hyundai Group Contrary to the executives’ highly optimistic views on Hyundai’s prospects, the Korean automaker is forecast to remain in ﬁ fth place #6 Ford Group until 2020.

Fiat Chrysler Automobiles #7 Chinese automakers are still unable to make the top 10, despite technology transfer from #8 Honda Group leading global OEMs like VW, Toyota or GM that has beneﬁ ted the likes of First Automobile #9 PSA Group Works (FAW), Shanghai Automotive Industry Corporation (SAIC) and Beijing Automotive #10 Suzuki Group Industry Holding Co (BAIC).

Note: OEMs ranked descending by sales volume in respective year Source: KPMG Competence Centre Automotive, LMC Automotive

36 | KPMG’s Global Automotive Executive Survey 2015 © 2015 KPMG International Cooperative (“KPMG International”). KPMG International provides no client services and is a Swiss entity with which the independent member firms of the KPMG network are affiliated. Prepared to harvest

Leading premium market OEMs – Sales ranking 2011-2020 German automakers are set to continue their domination of the premium segment

2011 2012 2013 2014 2015 2016 2017 2018 2019 2020

#1 BMW Group German automakers are forecast to remain dominant #2 Volkswagen Group in the premium segment up to 2020 and almost certainly way beyond. #3 Daimler Group

#4 Geely Group Geely and Tata occupy the next two ranks and will outpace Toyota, thanks to their premium brand acquisitions (of Volvo and #5 Tata Group JLR respectively) over the last couple of years.

#6 Toyota Group

#7 General Motors Group

#8 Renault-Nissan Group

FCA, which dipped out of the top 10 in 2013, is predicted to Fiat Chrysler Automobiles #9 win back its place in the elite by 2017.

#10 Honda Group

Ford Group Note: OEMs ranked descending by sales volume in respective year Source: KPMG Competence Centre Automotive, LMC Automotive

KPMG’s dedicated global Automotive team works with some of the world’s largest and most successful auto companies.

Our Automotive network, linking more than 4,000 professionals within our member ﬁ rms around the world, brings together KPMG Audit, Tax and Advisory professionals to help us take a comprehensive approach to clients’ activities within the industry.

Our services focus on assisting member ﬁ rms’ clients address major issues and market priorities facing the automotive industry, including:

• Converging industry topics (bridging knowledge between industries) • Operating business model restructuring (managing the risks of expansion) • Market entry/segment entry (understanding cultures and business partners) • Consumer trends (creating new business models or managing risk e.g. from IT) • Evolving distribution channels (aligning with customer needs) • Reporting, regulation and compliance (using new technologies from Big Data initiatives for audit, tax, deal advice and consulting) • Improving operational efﬁ ciencies (generating economies of scale, while maintaining quality)

KPMG’s Global Automotive teams offer a proactive, forward-thinking service to clients, helping them take advantage of the sector’s growth potential and overcome the main issues and challenges.

38 | KPMG’s Global Automotive Executive Survey 2015 © 2015 KPMG International Cooperative (“KPMG International”). KPMG International provides no client services and is a Swiss entity with which the independent member firms of the KPMG network are affiliated. Global Automotive thought leadership

Me, My Car, My Life (November 2014) In this study, KPMG sets out to better understand how the automotive industry will adapt to and shape the converging worlds of personalized mobility and the internet of everything.

AutomotiveNow (December 2014) In emerging markets, competition is ﬁ erce for Western truck manufacturers. This is why more and more of them are choosing to cooperate with local brands and to offer simpler models. But is this the right way to go? This issue of the AutomotiveNow Magazine gives you a comprehensive insight of challenges for truck manufacturers in emerging markets.

Practical Aspects of IFRS: a guide for automotive companies (Spring 2015) The Automotive IFRS and Indian GAAP report examines the sector-speciﬁ c IFRS and GAAP issues and is designed to strengthen the client’s technical IFRS GAAP expertise.

Global Heavy Truck Brand Value Study (Summer 2015) KPMG‘s Global Heavy Truck Brand Value Report will map and analyze all important truck brands from around the globe, measure the brand attributes that deﬁne the brand value, and assess which are most important in deﬁning the individual brand strength.

Global Americas Asia Pacific EMEA

Dieter Becker Gary Silberg Seung Hoon Wi Dieter Becker Global Head of Automotive The Americas Head of Automotive Asia Pacific Head of Automotive EMEA and German Head of Automotive KPMG in Germany KPMG in the US KPMG in Korea KPMG in Germany [email protected] [email protected] [email protected] [email protected]

Americas country leaders: Asia Pacific country leaders: EMEA country leaders:

Jeff Dobbs Charles Krieck Megumu Komikado Ulrik Andersen Gavin Maile Global Sector Chair, KPMG in Brazil KPMG in Japan KPMG in Russia KPMG in South Africa Industrial Manufacturing [email protected] [email protected] [email protected] [email protected] KPMG in the US [email protected] Danny Le Laurent Des Places Fabrizio Ricci KPMG in China KPMG in France KPMG in Italy [email protected] [email protected] [email protected]

Ergün Kis Francisco Roger Rull KPMG in Turkey KPMG in Spain [email protected] [email protected]

Additional key contacts Functional leaders John D. Leech Rajeev Singh KPMG in the UK KPMG in India Moritz Pawelke [email protected] [email protected] Roger Bayly Brigitte Romani Global, EMEA and German Executive Global Automotive Advisory Leader Global Automotive Tax Leader for Automotive KPMG in the United Kingdom KPMG in Germany KPMG in Germany [email protected] [email protected] [email protected] Ulrich Bergmann Axel Thümler Alana Mohan Global Automotive Financial Services Leader Global Automotive Audit Leader Global Marketing Manager KPMG in Germany KPMG in Germany Please visit kpmg.com/GAES2015 for a full for Automotive [email protected] [email protected] copy of the survey or to use the interactive KPMG in Canada online tool to filter survey results [email protected]

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