China is the top investment destination for global automakers due to significant domestic demand and export opportunities, according to KPMGâ€™s fourteenth annual Global Automotive Executive Survey.
The survey, titled Managing a Multidimensional Business Model, interviewed 200 automotive executives across 31 countries. It found that 70 percent of respondents view China as their top choice for investments, ahead of other BRIC countries – India (63 percent), Russia (54 percent) and Brazil (48 percent). Additionally, 94 percent of respondents said they expect China to see growth in domestic vehicle sales, underpinned by the rising middle class and growing urbanization.
The survey also indicates that four Chinese manufacturers are expected to be among the top ten companies to gain global market share over the next five years. The BRIC markets are expected to account for nearly half of all global vehicle sales by 2018.
Andrew Thomson, Asia Pacific Head of Automotive and a Partner at KPMG China, says: â€œChina remains a highly attractive market due to its long term growth potential. It is no surprise that automakers are playing some big bets in China, and doing so ahead of the other BRIC and TRIAD markets.â€
By comparison, 87 percent of respondents said they expect India to see growth in domestic sales, followed by Brazil (80 percent) and Russia (76 percent)
Sport utility vehicles (SUVs) are the fastest growing car segment in China. According to the latest statistics from the China Association of Automobile Manufacturers (CAAM), the sales volume of SUVs rose 26 percent from January to November 2012, to 1.79 million units. This outpaced the 7.1 percent growth in overall car sales recorded for the same period.
Thomson adds: â€œWhile the trend among cost-conscious consumers in mature markets is to downsize to smaller, more fuel-efficient vehicles, a sizeable proportion of consumers in the BRIC markets still aspire to own bigger cars, such as SUVs. Innovative new concepts, such as rentals and leasing, as well as Mobility-As-A-Service (MaaS) models, also have potential for the future, given continuing urbanisation and the high density of the population in cities across the country.â€
In terms of service, most global respondents agree that dealerships will have to evolve the quality, range and mix of what they provide in order to thrive in the future. Added-value services are rated as the most important offering, particularly in the BRIC markets, where dealership models are relatively under-developed and service quality can vary considerably.
Three-quarters of auto executives from the BRIC markets see great potential for such developments. Meanwhile, the retail environment in China is undergoing substantial change with, for example, the rapid expansion of automakers into the countryâ€™s western provinces to exploit the next wave of growth from Tier three, four and five cities in these regions. Also, service is moving up the agenda as customer expectations rise, while retail models and store environments are adapting to changing consumer tastes and behaviors â€“ which in turn are heavily influenced by the growth of the internet and social media.
The auto industry also faces some challenges, the survey points out. For example, it appears to be getting harder to set up production facilities in the BRIC markets. In China, this may be a reflection of concerns about the level of fragmentation in how the automotive industry is structured in the country. Respondents also said that environmental restrictions will increase more than any other type of barrier, with 74 percent of auto executives indicating that such obstacles will become greater in China, up from 65 percent in 2012. Additionally, 52 percent said they expect government intervention to increase in 2013, while 54 percent believe import/export duties will rise in China. Meanwhile, overcapacity remains an ongoing challenge for the sector. One-fifth of respondents consider the risk of overcapacity in the BRIC markets as high or very high, with China being rated even higher at 26 percent.
In terms of emerging technologies, 36 percent of global respondents believe plug-in hybrid vehicles will attract the most consumer demand by 2018, powering ahead of conventional hybrids (20 percent), which topped the chart in previous surveys. Interestingly, for China, fuel cell technology was rated the most popular future option (44 percent), perhaps reflecting the relative lack of success to date of the countryâ€™s electric vehicle strategies.
The survey also noted that BRIC countries are expected to see a surge in vehicle sales, and that BRIC automakers are setting their sights on exports to new markets in the next 3 to 5 years, with the biggest growth opportunities likely to come in Southeast Asia and Eastern Europe.
Thomson concludes: â€œGoing forward, we continue to see huge potential in the China market for both domestic and international players. This may be a year when we see more consolidation, as well as more mid-size automotive deals overseas, probably with a focus on acquiring key technologies.â€