automotivenow magazine: trade in crisis - the strategies that promise profits

AUTOMOTIVE NOW Issue 12013

Trade in crisis The strategies that promise profits Losing weight is never easy Why no drive train innovations can succeed without weight reductions

After the tsunami How Japanrsquos car market coped with the consequences of the catastrophe

rsquo

rsquo

rsquo

04

Editorial

Dealers must act For the average automobile dealer from one of the traditional markets the good years are long over Many small dealerships have already had to throw in the towel Outside of the boom countries of the Near and Far East buyers are holding back Profit margins have been shrinking worldwide for years And manufacturers are obligating their authorized dealerships to remodel their point of sale or add new buildings with a regularity that the latter find difficult to finance lsquoGrow or diersquo could be their motto But itrsquos not that simple Today larger sales areas can t promise success sales do not guarantee profits

If you want to survive in the race for profits you should read the signs of the times and get business moving again by means of improved services modern marketing concepts and flexible financial services Dealersrsquo workshops must be equipped for the lightweight construction materials and drive technologies of the future provide appropriate machinery and train staff At the same time the customer demands a fulfilling experience when buying an automobile especially in the top price segment The sales room becomes a lounge with a DJ mixing desk The wheel of fortune and barbecue parties have had their day

Above all consideration should be given to the question of whether the dealer s role is really only to make sales Many experts see traditional car ownership as a relic of the past If you live in the Cloud you don t buy a car but hire one as and when needed And why should a dealer not be able to engage in car-sharing

Yours

Mathieu Meyer Partner Global Head of Automotive

copy 2013 KPMG International Cooperative (ldquoKPMG Internationalrdquo) a Swiss entity Member firms of the KPMG network of independent firms are affiliated with KPMG International KPMG International provides no client services All rights reserved

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Contents

04 Cover story The race for profits Low margins on car sales are making life hard for dealers worldwide But how will it be possible to achieve higher profits again A glance at the most innovative concepts in the automobile trade

10 Business partner ldquoGreat opportunities considerable riskrdquo Salzgitter authorized VW dealer Sven Strube is conshycentrating on the hire car business and car-sharing When fewer and fewer people own cars the indusshytry has to react Interview with an innovator

12 Know-how Successful liquidity management In difficult times cash flow control is essential to the survival of a car manufacturer Programs for cash optimization help to avoid such phases

14 Country focus Japan ndash Reborn After the catastrophe of Fukushima Japanrsquos automobile industry was on its knees Two years later the leading automobile nation is back on course for success

18 Expertise Turning Point In the light of dramatically changed marshykets the finance and leasing industry is having to reinvent itself A KPMG study reveals the direction it should take

20 Best practice Losing weight is never easy Modern vehicles are to be economical climate-friendly and equipped with alternative drive systems To achieve this they will above all have to be lighter

23 Exit Life in Athens goes on Vassilis Maragakis on the Greek taxi business in the crisis

Imprint

Published by KPMG AG Wirtschaftspruumlfungsgesellschaft Klingelhoumlferstraszlige 18 D-10785 Berlin

Editor and Project lead KPMG in Germany Andreia Guedes Campos T +49 711 9060 41117 andreiacamposkpmgcom

Editing design and production corps Corporate Publishing Services GmbH Kasernenstraszlige 69 D-40213 Duumlsseldorf T +49 211 54227-0 infocorps-verlagde

Editor-in-Chief Florian Flicke Editorial board Mirko Hackmann Cover photo Aufwind-LuftbilderBildstelle

Printed by Buersche Druck- und Medien GmbH Gabelsberger Straszlige 4 D-46238 Bottrop

Select articles in this magazine were contributed or written by authors or journalists engaged by corps Corporate Publishing Services GmbH


20

Title Innovations in the car sales industry

The race for profits Automobile dealers worldwide are struggling with poor margins in car sales Optimized services innovative marketing concepts and attractive financial services are intended to get business moving again The aim is to achieve additional sales ndash but above all higher profits once again Text Andreacute Schmidt-Carreacute

Volume is sometimes the key facshytor Two years ago in Plattling a small town of 30000 in eastern Bavaria car dealer Franz Xaver Hirtreiter spent EUR 15 million

developing a site In addition to new cars from the Volkswagen Group prospective customers can choose from around 1000 nearly-new used cars on a plot covering 40000 square meters ldquoMany customers have a new car with a precisely configshyured equipment package in their head but their budget will only stretch to a used carrdquo says Hirtreiter ldquoWith such a large selection to choose from they usually get pretty close to the car they wantrdquo And in a very convenient manner because Audis and more are all precisely lined up with plenty of room to wander round them lit

4 AutomotiveNow

by floodlights in the evening The dealershyship also scores well with its large cusshytomer car park an inviting bistro and sales staff who welcome the prospective cusshytomers as soon as they arrive The conshycept seems to be a winner The dealership sells twelve cars a day and customers ofshyten travel from a radius of up to 150 kiloshymeters In the coming year Hirtreiter will develop another 15000 square meters of sales space

However things are not running as smoothly for car sales staff everywhere as they are in Plattling The car sales inshydustry is facing a major challenge Even though the margins in used and new car sales rose temporarily in the boom year of 2011 industry observers estimate that they will drop below one percent again

this year Before the last boom the avershyage overall return on investment was around 08 percent ldquoIf the margin continshyues to shrink it could threaten the surshyvival of many dealersrdquo warns Professor Willi Diez Director of the Institute for the Automotive Industry in the Baden-Wuumlrtshytemberg city of Geislingen

Things are even more critical in reshygions like crisis-hit Southern Europe which are struggling with dramatically fallshying numbers of new registrations In countries such as Greece and Portugal the market collapsed by around 40 percent in 2012 compared with the previous year The after-market ie the repairs and spares business is also weakening It was the most important source of income for the dealers for a long time with which Ph

otos

AVP

Aut

omob

ilgru

ppe


they were able to cross-subsidize car sales But contrary to popular opinion cars are getting better and better and reshypairs are becoming less frequent For exshyample stainless steel exhaust systems last for seven years on average with brake pads now good for up to 50000 kilometers For that reason cars now only visit the workshop once a year on avershyage Dealers now often donrsquot get to see new cars at all between service intervals and at the same time the intervals are beshycoming longer and longer Apart from which the number of kilometers driven has fallen in recent years from around 14000 to 11000 People do in fact drive less the older they get and the younger generation often chooses to go without a car of their own

Success in small-town life AVP boss Franz Xaver Hirtreiter sells 10000 cars a year at 18 locations in the region of Upshyper Bavaria

Sales market At its Plattling site the AVP automotive group sells

twelve used cars a day on an area of 40000 square meters Customers

are impressed by the selection service and convenience

In addition the proportion of vehicles with an electric motor will increase in fushyture and electric and hybrid vehicles will cause the number of repairs to fall further because some important components such as the starter motor and gearbox are significantly less prone to failure on those vehicles ldquoThe pressure to develop new sources of income is growingrdquo says Diez ldquoIn future dealers will have to earn more money from services first and foremostrdquo

These primarily include types of sershyvices that go beyond classic repair work such as financial services ldquoUsually the customer first picks out the car and only then gives some real thought to where the money is to come fromrdquo says car sales researcher Diez ldquoSo the car sales staff have a good chance of selling a finance

AutomotiveNow 5 copy 2013 KPMG International Cooperative (ldquoKPMG Internationalrdquo) a Swiss entity Member firms of the KPMG network of independent firms are affiliated with KPMG International KPMG International provides no client services

All rights reserved


package too This opportunity is still not consistently exploited everywhererdquo

In Germany the manufacturersrsquo own companies account for 69 percent of the financed deals giving them a strong posishytion In the USA that figure is only 40 pershycent These are the findings of the KPMG study which appeared in September 2012 entitled ldquoGlobal automotive finance and leasingrdquo The proportion of finance deals for new car sales in Germany is in fact rather high compared internationally at over 60 percent Despite this there is still room for more In the USA for example 99 percent of customers use finance to buy their cars cash payments are an abshysolute exception

Leasing is especially attractive for dealers as it has the positive side-effect that in most cases at the end of the conshytract the buyer turns up once again at the dealership and nowhere else in order to order a new car In many cases the dealshyers also currently leave any insurance business to the insurance companies inshystead of offering the service themselves The insurance products range from thirdshyparty cover and the comprehensive insurshyance usual with new cars through to ancilshylary products such as policies that take over the finance obligation in the event of unemployment on the part of the customshyer ldquoInsurance certainly offers the greatest potentialrdquo says Diez

New technologies can also help dealshyers to extend the service they offer The Leipzig-based Automotive Process Instishytute (API) for example builds fully autoshymated robots which are set to replace human mechanics in the repairs recepshytion Stage one A robot that automatically measures up a car on the vehicle lift and detects within five minutes whether the carrsquos tracking is incorrect ndash a frequent fault ldquoChassis measurements were not one of the favorite jobs in the workshop in the pastrdquo says API managing Director Steshyfan Gaul ldquoThe labor costs were high and customers found them hard to acceptrdquo So far API has equipped 120 dealerships in Germany with the robot These also inshyclude a Renault dealership in Berlin

ldquoThe system has opened up an enshytirely new area of business for usrdquo says

Head of After-Sales Thilo Torge In the case of cars that are more than two years old and are driven more than 30000 kilomshyeters a year around 80 percent deviate from the manufacturerrsquos prescribed tolershyances The check is free of charge but nine out of ten customers then have trackshying and camber adjusted for a flat rate of EUR 8900 According to Torge customshyers also accept the service in so many cases because they can see the results for themselves on the system monitor ldquoThe customer gets neutral and transparshyent information about the condition of the vehiclerdquo says Torge The system has a modular structure so workshops can also use it to check tires and to read a carrsquos on-board diagnostics unit with a piece of control software

High division of labor Furthermore dealers who consistently increase their direct customer contacts have a good chance of succeeding ldquoThere is not just one revolutionary ideardquo says car sales researcher Diez ldquoItrsquos imporshytant to implement lots of small steps conshysistentlyrdquo For example tire storage offers bring the customer into the dealership for two extra appointments per year In many places a reminder of the next vehicle inshyspection date together with a service ofshy

fer is already part of good practice Other services such as the conditioning of used cars are offered by many dealers but they do not actively advertise them to customers

In addition to which the owners of older vehicles represent unused potential in the classic repair business On average only one customer in two has the car reshypaired and maintained at the dealership With every year following the sale the ratio falls still further Above all in the case of the vehicles from four to eight years old the dealers could make up ground on the independent workshops with extendshyed warranties and special offers such as repairs carried out with used Genuine Parts or discounts on spares At the same time the standardization of processes for repairs and maintenance could improve earnings in the core business

What that might look like is demonshystrated by dealers in the USA A high division of labor is already usual there in the workshops and in sales Stock-keepshying is for the most part highly efficient and several salespersons share one customer one explains the product to the customer while another specializes in negotiating and concluding the deal Trade experts in Germany also repeatedly recshyommend separating the canvassing of

Robots instead of mechanics The R 2000 direct reception system from API is intended to replace the human

in the repair reception process

6 AutomotiveNow copy 2013 KPMG International Cooperative (ldquoKPMG Internationalrdquo) a Swiss entity Member firms of the KPMG network of independent firms are affiliated with KPMG International KPMG International provides no client services

All rights reserved

Analog was yesterday The ldquoAudi Cityrdquo digital showroom uses groundbreaking technology to cleverly exploit real estate space in expensive city locations Visitors can get to know the entire model range in a small space in a previously unknown way

customers from the actual conclusion of the sale so that good sales staff do not squander their time calling possible proshyspective customers

The sale of new cars locally in particushylar could become even more difficult in the future since car sales over the Internet are continuing to increase The online inshytermediary Autohaus24de for example a joint venture between Springer Verlag and Sixt is currently cooperating with 400 car dealers throughout Germany The intermeshydiary does not see itself as a competitor but merely as a sales channel for the trade ldquoThe dealers reach customers nashytionwide compared with the normally more locally or regionally oriented busishyness of the car dealershipsrdquo says Managshying Director Christian Mewes ldquoIn addition the dealers can decide what stock they want to sell via the Internetrdquo But the imshyportant thing for customers is above all the low price The intermediary advertises discounts of over 40 percent

As far as sales channels go the Intershynet still plays a subordinate role last year 35000 new cars were sold through Intershynet intermediaries and according to the experts that is set to rise to 100000 by

2015 That would account for seven percent of private sales This additional channel is increasingly used by primarily large dealerships but there are also critical voices to be heard ldquoIn our view it is unacshyceptable that the demands placed on the classic dealership are increasing when more and more customers are simultaneshyously buying their cars via other channelsrdquo criticizes Ulrich Fromme Vice President of the German Federation of Motor Trades [Zentralverband Deutsches Kraftshyfahrzeuggewerbe)

The goods have to be fresh Car dealer Franz Xaver Hirtreiter has not so far been impressed by the competition on the Internet ldquoThe numbers of vehicles sold are still very lowrdquo says Hirtreiter ldquobut wersquoll take a look at it of courserdquo In the meantime the dealer is also sprucing up his auto outlets outside of the large new site in Plattling The former book and newspaper publishing manager did not get into the automobile business until the end of the nineties and since then has taken over and re-established a whole string of car dealerships Now the enterprise includes 18 outlets predominantly with

brands from the Volkswagen Group including four Porsche Centers More than 600 employees sell around 10000 cars per year in the region of east Bavaria ndash from the Viechtach location near to the Czech border to the sports car center 200 kilometers away at Inntal to the south of Rosenheim

ldquoI expect that regional chains like ours will come to dominate rural areas in futurerdquo says Hirtreiter He sees a whole string of advantages He saves around 20 percent on purchasing compared with small individual dealerships for example in the case of engine oil ldquoWhen I order 150000 liters the managing director of the oil company comes by in personrdquo He has also centralized functions such as the acshycounts department with all the outlets networked by means of corporate softshyware Another advantage is that the comshypany has the potential to reach more customers than an individual dealer ldquoIf a Golf has been standing on the lot for four weeks we take it twenty kilometers to another outletrdquo says the boss ldquoPeople have a feel for whether a car has been standing there for some time The goods always have to be freshrdquo

Phot

os A

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rdquo


The dealership as a lifestyle experience DJs play until four in the

morning at the ldquoMercedes- Benz Connection City Store in Tokyo

There are also a lot of small advanshytages in everyday business such as the fact that the workshops can help one another out with special tools However he does not see much sense in national consortia ldquoIt only works within a limited radiusrdquo says Hirtreiter ldquoItrsquos simply not worth transporting used cars or tools 600 kilometers as far as Berlinrdquo Particularly as he leaves the big cities to the manufacturshyers ldquoThey have a different clientele there The personal relationship with the cusshytomer is not so important Apart from which the locations are simply too expenshysive They are not worth it for mediumshysized companies For the manufacturers itrsquos differentrdquo

Indeed for manufacturers it is essential to reach the target audience in the cities and Audi has developed a lsquometropolitanrsquo strategy especially for that purpose ldquoIt is crucially important for us to have a presshyence in major cities like Berlinrdquo says Mishychael-Julius Renz Audirsquos Head of Sales in Germany ldquoThatrsquos where trends are setrdquo That is why the manufacturer has its own dealerships in major cities if there are no authorized dealers present The competishytion is fierce and the customers are parshyticularly discriminating ldquoThere people expect even exclusive models such as an R8 and various RS versions to be available as demonstratorsrdquo says Renz ldquoThe exshypensive space at the dealership has to be of appropriately generous dimensionsrdquo

At the start of the year Audi opened one of Germanyrsquos biggest Audi Centers in Berlin-Adlershof and the manufacturer goes one step further in London There in the summer of 2012 Audi opened the first Audi City a type of virtual car dealership with personal customer advisers Customshyers can assemble their car on touch screens and ultimately view it from all sides in full size on a large screen Pershysonal advisers help them to configure their dream car

ldquoCustomers often donrsquot know about all the optionsrdquo says Renz Following the exshyample of Apple that means arousing needs that the customer has but that

The urban audience in his sights Michael-Julius Renz Head of Sales at Audi backs his companyrsquos presence in major cities

heshe is unaware of ldquoAt the same time many customers arrive at the dealership already well informedrdquo For that reason Audi is also upgrading its traditional outshylets Elements of the Audi City will in future be found in entirely normal dealershyships such as the full-height screen for the true-to-life presentation of a configured car ldquoWe want to turn the visit into a real experiencerdquo

Other manufacturers are also taking new approaches in order to lure customshyers into their dealerships Mercedes has smartened up its sales outlet in Roppongi a district of Tokyo into a lounge complete with cafeacute restaurant and bar On the ground floor Japanese urbanites drink their caffegrave latte within sight of the latest Mercedes models for the most part from the premium segment while on the first floor popular DJs do their stuff at the weekend till four in the morning

The fact that prospective customers at Chinese car dealerships first get a masshysage is nothing new What is new is that the manufacturers demonstrate their ecoshyfriendliness to customers on-site at the dealership In 2012 BMW established its first ldquogreenrdquo dealership in Beijing covering 22000 sq m with 30-percent reduced enshyergy consumption photovoltaic system and geothermal air conditioning with othshyers to follow Environmental awareness is on the increase in major Chinese cities It is in these especially eco-friendly dealer- Ph

otos

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cede

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-

ships that BMW intends to sell the elecshytric models from its i-family from 2013

Modified value-added chain In Germany too the dealers are upgrading to deal with the arrival of electric technolshyogy Audi for example recently trained up employees in the German retail trade as qualified high-voltage technicians Every dealership now has a specialist on the team who can repair hybrid Audis

While there are still no purely electric models available from the VW Group VW dealer Sven Strube is already one step ahead As the co-owner of ldquoLautlos durch Deutschlandrdquo [Soundlessly through Germany] the authorized dealer from Salzgitter supplies licensed dealers throughout Germany with electric vehishycles from various manufacturers and also sells the cars himself to end customers He has sent three of his mechanics to a high-voltage training course and to manushyfacturersrsquo training courses

The cost of the technical retooling of his workshops is not excessive When electric cars are eventually an everyday sight on the road he believes that someshything else will be the decisive factor ldquoThe value-added chain will changerdquo says Strube ldquoCustomers will no longer buy cars finance or service but will pay for the use of vehiclesrdquo Then dealers will have to get into the rental and car-sharing business in a bigger way Two more facshy

tors support this trend according to Strube The middle class is shrinking in Germany and in other important markets while the number of low-earners is rising At the same time driving a car is becomshying increasingly expensive

ldquoFor those reasons people will buy smaller and cheaper cars in futurerdquo foreshycasts Strube ldquoSo families will buy a small car and hire a large car for the two-week

ldquoCloseness to the customer demands distance from oneselfldquo1)

The traditional and locally organized business model of the independent car retailer is coming under increasing scrutiny The days of ldquoeasy sellingrdquo ie the time when new and used car sales and the sale of genuine spare parts were still a reliable source of profit are now nothing more than a distant memory from the last century in the markets of Western Europe and North America But this is by no means a trend that will only affect mature automobile markets There are also signs in emerging markets that the distribution networks that are only now being created will be faced with an era of ldquohard sellingrdquo sooner rather than later

Precisely with these markets in mind manufacturers must question whether the establishment of a traditional sales network can be a commercially correct and

Green greener BMW BMWrsquos climate-friendly showroom in Beijing

is intended to demonstrate how envi ronmentally aware the company is

annual holidayrdquo This in turn would acshycommodate the electric cars as currently available which cannot completely reshyplace vehicles with an internal combusshytion engine because of their lack of range Particularly as the ownership of a car as a status symbol is becoming less important for younger people Strube is an optimist ldquoI see this trend as more of an opportushynity than a riskrdquo

sustainable decision In the final analysis it is solely customers around the world who will decide on the basis of their purses and their emotional loyalty to the car as a product via which channel they want to buy their car in future or indeed purchase mobility as a service The question is Does the traditional car dealership have enough distance from itself to handle all future customer requirements 1) Prof Dr Hermann Simon ldquoGeistreiches fuumlr Managerldquo [Ingenious Ideas for Managers] Campus Verlag 2000

Dieter Becker Partner Consulting KPMG in Germany dieterbeckerkpmgcom


All rights reserved

Business partner Interview

ldquoGreat opportunities considerable riskrdquo Fewer and fewer people can or want to buy their own car Car-sharing is becoming increasingly popular and car dealers have to be flexible to take advantage of the change in the market says Salzgitter-based Volkswagen dealer Sven Strube Interview Christof Hus

Mr Strube in your opinion car dealers have to become more active in the rental and car-sharing business since customers are becoming more likely to pay to use a car rather than buy one How did you arrive at this view Firstly the social conditions The middle class is getting smaller and the number of low earners is rising Fewer people can or want to buy their own car In addition the number of young people between 20 and 29 with access to a car is falling According to a study by the Institute for Mobility Reshysearch this reduced from 83 to 72 percent between 1997 and 2007 Another reason is a shift in priorities Many people prefer to just use a car temporarily these days

Why do many people believe that it is no longer so important to own a car Figuratively speaking 20 years ago young people wanted to sit in the car and listen to the radio it was something desirable These days young people prefer to sit on the train with their Smartphone According to a study by the Center of Automotive Management people are better able to

imagine living in a world without cars than a world without the Internet Younger peoshyple in particular now prefer to spend their money on expensive mobile phones or tablet computers rather than to purchase and service a car

What do car dealers need to do to react to this change If several family members share a car or donrsquot buy one at all and use public transshyport instead this is a threat to car dealers as it means that fewer cars are sold But car-sharing is also booming People rent a car for a short period and return it at a later date The car serves as a replacement for public transport Car-sharing providers obshyviously need vehicles for their fleets If car dealers can do business with these major customers this represents a great opporshytunity For example the authorized dealers of Mercedes and BMW already cooperate with Sixt and Europcar However these collaborations also have a flipside for dealshyers It involves considerable risk If a major customer breaks away this is virtually imshypossible to compensate in the short term

And what about the sale of additional products for electronic communication in the car If mobiles and the Internet are increasingly important to consumers this must surely open up opportunities for dealers Volkswagen for example has presented its ldquomodular infotainment systemrdquo last year which includes WLAN and various apps and even fits into compact cars The demand for these products is very restrained and is virtually zero for WLAN in cars or apps to access websites such as Facebook while driving These additional products are relatively expensive and often not at the cutting edge of technology since development times are quite long A product is obsolete before it even reaches the market But VWrsquos infotainment system is heading in the right direction the sysshytem is updated every two years and can be easily replaced with a plug-in module in the car But again as is the case for many additional products the question of safety plays an important role there is a huge difference between using the Internet on a PC and in a moving vehicle Many custom- Ph

oto

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Sven StruBe is Managing Director of the VW car dealership Strube in Salzgitter and the founder and head of corporate strategy of the ldquoLautlos durch Deutschland GmbHrdquo The dealer network established in 2009 specializes in electromobility Besides electric cars the company also sells e-bikes pedelecs and electric scooters Strube was born in Salzgitter in 1972 After completing his studies in mechanical engineering at the University of Braunschweig he studied transport engineering at Ostfalia University of Applied Sciences in Wolfenbuumlttel He then initially worked for the engineering company VWI Prof Dr Wermuth Verkehrsforschung und Infrastrukturplanung GmbH and then for Volkswagen AG He has been operating in the Strube car dealership since 1998

ers donrsquot want electronic communication products in their car since safety concerns are a key consideration

It sounds as if these types of additional products donrsquot represent a source of income for dealers yet Itrsquos not quite that bad There are definitely products that customers need for everyshyday use and which are in demand navigashytion devices are becoming increasingly important And many customers place a great deal of importance on a good hands-free device so that they can teleshyphone while driving I believe that there are also good future opportunities in proximity controls ndash these devices offer safety and reduce the burden on the drivshyer And at 350 euro they are relatively afshyfordable

However car dealers still live primarily from selling cars As a joint owner of ldquoLautlos durch Deutschlandrdquo besides conventional cars you also sell electronic vehicles and distribute them to licensed dealers Do electronic cars

currently represent a serious second pillar Electronic cars are currently still a niche product Any talk of a second pillar would be an exaggeration But this may soon change Electronic cars are well suited to city traffic Only people that live in the country or have to frequently drive longer distances and want to be flexible remain dependent on cars with combustion enshygines

Are there innovations adapted to the low earners you mentioned earlier and which allow them to purchase a new car Or does this customer group primarily buy used cars Many low earners prefer to buy a used car than a new one This market segment will thus remain an important source of revshyenue In the new car segment so-called ldquolow costrdquo cars ie very cheap and plain models offer an opportunity to generate additional sales Dacia already provides a low-cost car for 7000 euro And other manufacturers will follow It is also the fishynancing options such as installment payshy

ments that make new cars more attractive to purchase Seventy-five percent of cars that I sell are financed or leased Forty pershycent of these are purchased with VW inshysurance This means that apart from the monthly installments for the vehicle an additional sum of about 60 euro covers liability warranty extension and compreshyhensive insurance among other things

Is the change in car dealerships that you described also changing the demands on your employees Training for car salesmen and saleswomen has become much more comprehensive Extensive technical knowledge is now reshyquired especially with regard to financing options and optional features Car dealers who are already qualified are constantly faced with internal training opportunities manufacturers are also quite active in this area For example VW offers regular trainshying for its authorized dealers Our employshyees are required to constantly expand their knowledge as a matter of course Vehicle technology has been constantly changing for decades


All rights reserved

Know-how Capital management

Successful liquidity management In difficult times like these the management of liquidity is more important than ever for car manufacshyturers Cash optimization programs can help overcome difficult financial phases ndash as long as comshypanies follow certain rules during implementation Text Dominic Carter Senior Manager KPMG in the UK

The European automotive sector has faced significant challenges in reshycent years and continues to opershyate in a testing environment illusshytrated by recent announcements of

restructuring plans New car registrations fell by more than 16 percent in December the culmination of a period which saw the largest year-on-year drop for two decades

Some manufacturers are bucking the trend and the sector is punctuated with examples of optimism and promise parshyticularly in the UK a market all but written off a decade ago where registrations rose by 53 percent in 2012 This upturn has been led by Jaguar Land Rover which inshycreased its Halewood workforce by 1000 and opened the plant around the clock for

the first time in its history to boost producshytion of the Evoque Nissan and BMW also increased output and announced inshycreased investment at their UK sites as they look to expand their model ranges

Effective sources of financing The majority however are finding trading conditions difficult which has resulted in some well documented activity in the marshyket There has been a recent spate of temshyporary plant shutdowns by the likes of Fiat in Naples and Opel in Russelsheim who cut shifts and sent workers home to curb production and reduce stock in line with demand More ominous have been the announcements by PSA Peugeot Citroen and Ford of their high-profile planned site Ph

otos

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all F

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closures in France and Belgium respecshytively to deal with the overcapacity issue that is widely acknowledged

With such a sensitive backdrop manshyaging cash has never been so important for automotive manufacturers Cash manshyagement a term traditionally associated with credit ratings as well as covenant breaches and debt restructurings is often overlooked as an effective source of fundshying to support growth or rationalization opportunities particularly while bank appeshytite to lend remains constrained

As Dominic Carter a Senior Manager within KPMG in the UKrsquos Cash and Workshying Capital team notes ldquobolstering cash balances by improving working capital practices within an organization is the cheapest form of finance around Manushyfacturers who achieve this most effectively can give themselves a firmer footing to not just protect but to create and ultimateshyly maximize value for shareholdersrdquo

Once organizations have addressed the basics such as payment terms overshydues management and reduction of exshycess stock it is critical that the core proshycesses receive attention as these set the tone throughout the business

There is a common misconception that working capital management is the reshyserve of a companyrsquos finance function which consequently can be left to set up steer and deliver a program Success in driving cash improvement in the European automotive sector is underpinned by leadshying fully cross-functional programs and drawing on participation and investment from the business as a whole It is essenshytial that the operational and commercial functions are engaged at an early stage as their input is invaluable not least in the imshyplementation of the selected cash generashytion initiatives

The most recent examples of successshyful cash optimization programs required full alignment of all functions within the cash operating cycle namely between procurement manufacturing supply chain

sales and finance It is only when these functions are fully aligned awareness of cash is raised and a collaborative approach to cash management is adopted that it is possible to realize the full working capital potential

Maintaining long-term benefits Delivering comprehensive working capital projects involves all corporate stakeholdshyers and is extremely challenging particushylarly in the automotive sector where cash flows are complex Working capital proshyjects have the added challenge of ensuring benefits achieved are preserved in the

➊ Process ndash working capital is embedded in core business processes both operational and financial

➋ Strategy ndash the working capital impact of strategic options is evaluated before decisions are taken

➌ DNA ndash working capital focus is ingrained within the organization which generates cash improvements naturally as part of business as usual

The sequential evolution from 1 to 3 requires ongoing focus and takes time but is vital to guarantee new processes ldquostickrdquo in the organization once introduced The

ldquoManufacturers who achieve this most

effectively will give themselves a firmer footing

to not just protect but to create and

ultimately maximize value for shareholdersrdquo

long term by designing and embedding appropriate KPIs processes and controls to sustain the benefits As Mark Raddan Head of Cash Management at KPMG in the UK says ldquoat KPMG we have delivshyered huge cash savings for global manushyfacturers that have underpinned their reshycovery but the most valuable outcome for them has been the way in which we have embedded cash disciplines throughout their businesses which will continue to yield benefits in years to comerdquo

There are countless examples of comshypanies who have had early successes in working capital programs only to struggle to embed process improvements Slipping back into old habits can reverse the cash benefits realized during the program very quickly From our experience there are three stages which must be reached to embed sustainable cash management within a business

end goal is to fully embed working capital disciplines to ensure cash performance is maximized permanently Success can quite literally change an organizationrsquos fortune Take Jaguar Land Rover for example plunged deep into crisis in 2008 the enshyforced refocus on cash management not only enabled it to survive but also laid the foundations for its subsequent turnaround and transformation

About the author

Dominic Carter joined KPMG in the UK in 2004 where he is the Senior Manager in the Cash and Working Capital Team He specializes in leading complex working capital programs for various industries including the automotive sector


All rights reserved

Country focus Japan

ReboRn Record production and high profits ndash a good year after their most difficult crisis Japan confirms its reputation as one of the leading automobile nations in the world Text Martin Koelling

Friday March 11 2011 a port in northeast Jashypan Waves lap quietly against the quayside Suddenly the earth erupts in Iwaki Streets rip open houses collapse At the Nissan enshygine plant machines weighing several tons

shift like toy building blocks And a few hundred meters away a hole big enough to swallow a small truck opens up in a side road into a factory making paint pigment for the automobile industry belongshying to the German chemical company Merck

An earthquake with a magnitude of 90 on the Richter scale shakes the island kingdom This is just the beginning of a tragedy which will cost the lives of 19000 people the homes of 320000 people and will see the Japanese automobile industry brought to its knees for months and then rise again to be a world leader since shortly after this a monshyumental tsunami destroys villages and cities along 350 kilometers of coastline and the harbor facilities in Iwaki One day later 50 kilometers to the north of the harbor the first nuclear reactor at the Fukushishyma Daiichi Nuclear Power Plant explodes two more will follow

The production lines at one of the biggest autoshymobile plants in the world which builds ten million motor vehicles per year suddenly stop Thatrsquos beshycause hundreds of components which are mostly manufactured by small suppliers in the structurally weak region are missing But the speed with which Japan rises like a phoenix from the ashes

ldquoIt has of course taken a lot of effort on their part but the speed with which they have recaptured the markets they lost in 2011 is highly commendablerdquo

Herbert Hemming Head of Bosch Japan

commands respect from even experienced managshyers in the automobile industry ldquoIt has of course taken a lot of effort on their partrdquo says Herbert Hemming head of Bosch Japan ldquobut the speed with which they have recaptured the markets they lost in 2011 is highly commendablerdquo

As early as the first half of 2012 Toyota Honda and Nissan sped from production record to production record With 975 million cars sold Toyota just missed out on being the first manufacshyturer in the world to produce more than 10 million cars per year In the summer quarter of 2012 the worldrsquos biggest car maker actually achieved an operating profit margin of 68 percent even though a strong yen put pressure on profits Despite the advantage of a weak euro Volkswagen achieved just 63 percent

Over the course of the rest of the year the Japshyanese balance sheets suffered as a result of poorer business on the growing US market Here in its operational business Toyota made a loss of over 17 billion yen (136 million euro) between October and the end of December The company had genershyated a profit of 90 billion yen a year previously As business at home and in the rest of Asia was betshyter than the previous year and even the low profits in Europe remained constant the operating profit only fell across the company by a little more than 16 percent to almost 125 billion yen Market observers had expected considerably more In Ph

otos

AFP

Get

ty Im

ages

Bos

ch


All rights reserved

Welcome to Toyota New employees of the automobile manufacturer during the welcoming ceremony on April 1 2013 in the headquarters in Aichi Japan

contrast the overall quarterly profits increased by nearly a quarter to almost 100 billion yen because Toyota had to pay less tax a year before In fact turnover increased by around 9 percent to all of 53 trillion yen What makes the Japanese so strong despite the sales crisis on the US market

The resurgence is due to an ancient virtue Hemming thinks ldquoOne of the great strengths of the Japanese is that they learn their lessons and they also actually implement them in corporate proshycessesrdquo ldquoAnd this strength is demonstrated across the businessrdquo adds Chris Richter auto analyst of the CLSA Asia-Pacific Markets in Tokyo ldquoThe Japashynese are crisis-proof world champions in continushyously reducing costs and always innovativerdquo

Toyota is just one example of the strong desire to learn of Japanese companies Just three hours after the earthquake the crisis committee started work at the headquarters in Toyota City ldquoOur chief executive Akio Toyoda established the plan of acshytionrdquo recalls Masami Doi who as Director of the Communications Division was a member of the committee Initially production lines across the country were stopped because the whole comshypany and all the suppliers had to concentrate on helping the affected people the communities and finally their own factories and those of their supplishyers Then the crisis plan took effect

Huge effort in record time So that relief supplies did not get blocked on the way like during the Kobe earthquake in 1995 elevshyen cars set out in the night to look for clear road access to communities with Toyota plants Then truck after truck rolled northwards with water food and fuel closely followed by buses full of employshyees who wanted to help the local people despite the threat of a nuclear disaster

The automobile industry also seamlessly put another lesson to use from a different earthquake in the remote Niigata Prefecture In 2007 Japanese car makers jointly rebuilt the most important supshyplier of piston rings in record time This time they accomplished the feat at record speed Even a badshyly damaged factory run by chip manufacturer Reneshysas which manufactures semi-conductors for the global car industry was operational within a few weeks ldquoEven we were impressed by thatrdquo recalls Doi ldquoWe originally thought that we would produce two million fewer cars in the 2011 financial year In the end we only fell 400000 cars short of our goalrdquo

The reconstruction was barely half done when the Japanese learned more lessons making them better prepared for future crises In analyzing their


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Country focus Japan

on the production line A Nissan employee assembles the Leaf electric car in the Oppama factory in the Tokyo suburb of Yokosuka

supply chain they established that the old safeshyguard strategy was not sufficient to always have an alternative source of supply for important comshyponents from principal and secondary suppliers This was because many of the suppliers deemed to be of strategic importance themselves obshytained important components from a small specialshyized company at the third fourth or fifth levels of the chain which were previously not considered important

ldquoWe now try to standardize the relevant parts so that if necessary production can be quickly carshyried out by another manufacturerrdquo says Doi And the Japanese are thereby also demonstrating their second strength squeezing cost savings out of the production processes through continuous improveshyments Standardization of components simultaneshyously results in lower costs due to increased comshypetition The ability to make savings through conshytinuous improvements is so strong that the Japanese word for this has been part of the vocabshyulary of the global automobile industry for decades kaizen Usually it is small ideas that result in large savings For example workers had the idea of usshying gravity and not conveyor belts to transfer comshyponents onto the production line Rather than beshying electrically driven they glide down sloping runshyways This saves on electricity costs

There are occasionally also major steps In its model factory Motomachi in Toyota City for examshyple Toyota has reinvented the conveyor belt Rather than having car bodies hanging from rails moving through the assembly shop they roll on platforms On the one hand this saves on capital investment costs The elaborate ceiling constructions are no longer necessary the assembly shops can be built lower On the other it increases flexibility The outshyput can be increased or decreased more quickly and economically than before simply by connectshying or detaching the platforms

breathing factory The stimulus for this production line ndash known in Toyota-Jargon as the ldquoaccordion-linerdquo ndash was the collapse of the global economy in 2008 after the ldquoLehman Shockrdquo the bankruptcy of the US bank Lehman Brothers Toyotarsquos Vice President Atsushi Niimi called for a breathing factory ldquoWe can no longer assume that sales will always increaserdquo says a Toyota engineer explaining the core idea The line developed in Japan has since been rolled out worldwide

However the Japanese car manufacturersrsquo tershyrific eagerness to save also produces new challengshyes for Japanrsquos economy and the automotive indusshytry itself They follow the motorization of the Ph

otos

AFP

Get

ty Im

ages

KPM

G


All rights reserved

emerging markets and build new factories almost exclusively abroad Until recently the high yen exchange rate further amplified this trend because exports became more expensive and export proshyduction was no longer profitable

As a result since 2007 Toyota has reduced its production in Japan by over a quarter to just three million cars but promises to maintain this figure Nissan and Honda want to make one million cars at home on an ongoing basis But radical steps are necessary to maintain even this base production level in the country

In fact led by the foreigner Carlos Ghosn Reshynaultrsquos partner Nissan began purchasing composhynents on a large scale from suppliers in South Koshyrea and China for factories in Japan Since then Toyshyota and Honda have also emulated this ndash and in doing so have left domestic companies high and dry ldquoJapanrsquos industrial base is in danger of becomshying undermined at the grassrootsrdquo warns Nissanrsquos Vice President Toshiyuki Shiga He fears that with each supplier that goes bankrupt the innovative strength of the corporate giants will also dwindle

But the car makers see themselves in a quanshydary ldquoGlobalization is kingrdquo says Nissan Board Member Hitoshi Kawaguchi ldquoAs a company as well as a country we thus face the challenge of how to globalize while retaining our original identity more specifically our strength in lsquoMonozukurirsquo making thingsrdquo

barrage of new technologies The suppliers are also feeling this change ldquoWe have noticed that Japanese manufacturers want to strengthen their global presence considerablyrdquo exshyplains Hemming Head of Bosch Japan This means the suppliers must move abroad with them That is why Bosch an important partner of the Japanese car makers with 8000 employees in Japan is tendshying to cut production and expand research develshyopment and services

The new division of labor looks like this The deals are forged in Japan for factories overseas too ldquoThe Japanese still favor close collaboration at homerdquo says Hemming Besides Japan is still the think-tank for the Japanese ldquoAt home we want to utilize the well-established innovation processes of all those involved in the supply chainrdquo Toyotarsquos Doi explains this tactic Manufacturers want to beat the competition in developing new technologies ndash not only in the factories but also for cars in the near and distant future

Japan is already a leader when it comes to gasshyoline engines and to a lesser extent diesel engines In addition they are world leaders in new drive trains No country produces as many hybrid and electric cars as Japan They are also among the worldrsquos leading producers of fuel cells which genshy

erate electricity from water and oxygen ldquoYou must ungrudgingly admit that the Japanese are incredibly advanced in terms of electrificationrdquo Hemming emshyphasizes At the same time with a barrage of new technologies they are trying to win back their role as trendsetters from German manufacturers Autoshymatic parking and braking and the worldrsquos first electronic individual wheel control from Nissan are just a few examples of new ideas that Japan was the first ndash or among the first ndash to implement At the same time they are pushing for ward with new low-cost cars in emerging markets ldquoJapanrsquos industrial

This is why Hemming is convinced that Japanrsquos base is in danger of

manufacturers will also cope with any future crises becoming undershy ldquoJapan reinvents itself again and againrdquo he says mined at its rootsrdquo and the Japanese car makers too Just nine months Toshiyuki Shiga after the triple disaster in December 2011 at the Nissan Chief Operating Tokyo Motor Show Toyota summed up the indus-Officer tryrsquos strength most strikingly in one word ldquoRebornrdquo

was written in big letters above the stand

Japanese automakers revived ldquoAbenomicsrdquo has been the driving with uncertainties that could still force behind the weakening of the adversely affect the performance of Japanese yen in recent months the industry Little certainty on the prompting five out of the eight stability of the Japanese currency largest Japanese automakers to unclear directions around the nuclear revise financial forecasts for the fiscal policy the high Japanese effective year ending March 31 2013 in early tax rate the delay in the settlement February This raises the question ndash of the Trans-Pacific Partnership and ldquocould foreign exchange be the uncertainty about the government overarching reason affecting higher policy over free trade the unclear performances of Japanese auto- future direction of new electro-mobilshymakersrdquo ity technology and the expected raise

in the consumption tax are just a few Japanese automakers have been points of issue forced to adopt various measures to re-gain their competitiveness in dire These challenges continue to lie times To counter the super-strong ahead and it remains to be seen Japanese yen extensive reviews what solutions can be implemented were undertaken to restructure global by Japanese automakers to achieve supply chain networks and innovate full revival and sustainable growth production technologies Cost structures were scrutinized and every effort was made to reduce cost particularly the fixed components Expansion of production facilities in emerging countries enabled Japashynese automakers to increase cost-competitiveness whilst adopting flexible work-shifts was essential to cope with power shortages in Japan Through these many efforts Japanese automakers were able to emerge more competishytive compared to five years ago Megumu Komikado

Partner Head of Automotive Whilst the worst appears to be Japan KPMG in Japan behind the road ahead is still filled megumukomikadokpmgcom


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Turning Point For decades the financing and leasing business has developed in the shadow of OEMs But a KPMG study published at the end of 2012 shows that given the increasing electrification of vehicles saturated markets in many established industrialized nations and the growing importance of developing countries the financing and leasing industry is now also being forced to drastically reinvent itself Text Florian Flicke

Expertise Financial Services

The history of car purchases fishynanced by credit is almost as old as the history of cars itself in 1919 General Motors (GM) was one of the first car manufacturers

worldwide to offer their customers an alshyternative to cash purchases by establishshying a financing division The idea was a reshysounding success and the financing and leasing business has long since become an integral component of the global autoshymotive industry especially in the three markets of Japan North America and Western Europe ldquoThe financing and leasshying providers associated with the manufacshyturers ndash the so-called captives ndash represent on average half of all investments in the balance sheet and account for ten percent of the sales of OEMsrdquo says Mathieu Meyshyer Global Head of Automotive at KPMG

Yet market participants ndash including capshytives banks and independent financing and leasing specialists for cars and trucks ndash are finding that they canrsquot just rest on their laurels The automotive financing and leasing industry has been undergoing a fundamental change for some time as the classic business models in the essentially saturated Western markets increasingly

reach their limits New ideas are needed to succeed in markets in emerging countries such as China India and Russia And the regional business shift towards emerging markets is not the only challenge Financshying and leasing providers also have to find a solution for the increasing electrification of car engines and the growing demand for innovative mobility concepts such as car-sharing if they want to remain sucshycessful in the market in the long term

Separating battery and car The study published in September 2012 by KPMG investigates how all these factors are changing the industry how individual markets are developing and how captives and non-captives are reacting to the changshyes The studyrsquos title ldquoGlobal automotive finance and leasing The role of product diversification and emerging markets in future growthrdquo

For the study KPMG interviewed decishysion-makers from leading leasing and fishynancing providers from China France Gershymany India Japan Russia and Britain Mathieu Meyer recorded the results of all the interviews and analyses ldquoOur research shows that the auto finance industry

remains a globally diverse sector Just as there is no single global standard for cars there is no standard suite of financing productsrdquo

The KPMG study explicitly focused on the future prospects for financing and leasshying providers in the USA Western Europe China India and Russia Since growth opshyportunities with classic services in the mashyture Western industrial markets are limited according to KPMG expert Meyer captives should focus primarily on two mainstays new mobility offers and full banking licensshyes The automotive bank subsidiaries of OEMs will then be able to merge the best of both these new worlds and potentially develop innovative products for leasing car batteries for example It is obvious that conventional leasing is reaching its limits with respect to electric cars The technoshylogical evolutions and the risks in financing them are high

As a result the residual value of elecshytric vehicles after three or four years canshynot be reliably determined by the usual term of a leasing contract One solution could be to separate the battery from the vehicle and draw up two separate leasing contracts This strategy would also allow


All rights reserved

the captives to stand out from their comshypetitors as banks and independent financshyers only offer leasing for the entire vehicle not for individual components Renault in fact already offers its customers separate battery leasing for its Twizy electric vehicle

Waiting is a mistake Captives also face completely different challenges in emerging countries first they have to get a foot in the door to the mega market In the past consumers in China or India have been critical of new forms of financing and leasing and also remain loyal to their local banks if they deshycide on financing using credit In China local banks finance roughly four out of eveshyry five car purchases financed using credit One possibility of accessing the market could thus be cooperation with national providers BMW is leading the way and has been issuing a cheap credit card to higher earners (potential new customers) together with China Minsheng Banking Corp since 2011

Markets with the biggest growth potential

Additional vehicle services

New mobility

Additional banking services

Full banking

services

services

SERVICE

1 China 2 India 3 Russia 4 USA 5 EU

BANKING

1

2

3

4

5

Traditional FampL services

Source KPMGlsquos Global automotive finance and leasing study 2012

Bold new business models are also the key for the future success of the captives in mature as well as young markets ldquoAnyshyone who takes a wait-and-see approach and hopes that the traditional markets will recover will face severe losses in market share ndash and will be passed by more active competitorsrdquo warns Meyer

Download the KPMG study

How do top managers in the leasing and financing industry rate the sectorrsquos development Find the answers in the KPMG study ldquoGlobal automotive finance and leasing The role of product diversification and emerging markets in future growthrdquo wwwkpmgcom ldquoIndustriesrdquo ldquoAutomotiverdquo as free PDF


All rights reserved

Best Practice Lightweight construction

Losing weightis never easy The most important concepts in automobile construction share the same challenge In order for modern automobiles to be economical and climateshyfriendly or even to use hybrid or electric drive systems they have to become lighter This is being achieved thanks to intensive research ndash and a mix of long-familiar and newly developed materials Text Christian Raschke

The first VW Golf that came onto the market weighed 780 kilograms At 1320 kilograms a Golf VI built in 2012 weighs in at a full 540 kilos heavier And the Opel Corsa has

put on a similar amount of lsquoflabrsquo between the original model and todayrsquos version ABS ESP air conditioning airbags electric windows and sat-nav ndash the increase in comfort and safety equipment is having a significant effect in all the automobile manshyufacturersrsquo model series which are on avshyerage 300 to 500 kg heavier than their anshytecedents

This increase in weight conflicts with ever-more important efforts to reduce enshyergy consumption Whether hybrid elecshytric or conventional internal combustion engine the same applies The lighter you are the further you go For that reason the industry has long held the aim of slimming down its vehicles still further while mainshytaining the same levels of comfort and safety but only the arrival of strict EU regshyulations gave their efforts more urgency As of 2015 the entire new automobile fleet of the European manufacturers is set to emit only 130 grams of CO2 per kilomeshyter on average for 2020 the legislators are actually targeting a limit of 95 grams Along with improvements in rolling resisshy

tance aerodynamics and the drive train lightweight construction plays a crucial role in the efforts to comply with these figures

Depending on driving style a weight saving of just 100 kilos brings down fuel consumption by 03 to 05 liters as a rule of thumb and CO2 emissions accordingly by seven to twelve grams per kilometer ldquoThe lighter a car is the less mass has to be accelerated and deceleratedrdquo says Prof Dr Ulrich Huber Head of the Lightweight Construction Laboratory at the University of Applied Sciences in Hamburg ldquoLightshyweight construction thus pays for itself particularly in urban trafficrdquo

Itrsquos the mix that matters As the biggest subassemblies the manushyfacturers concentrate their weight-saving efforts primarily on the body chassis and drive train but the engineers also question every gram of weight in the interior and the materials used accordingly They have a choice of steel aluminum magnesium glass and carbon-fiber reinforced plastics (CFRP) Magnesium and other plastics will play a supporting role Materials experts like Huber expect that future automobiles will be built of a mix of these materials ldquoWhat will be used and where is among other things a question of philosophy

There are two sides to everything Advanshytages often have to be bought with disadshyvantagesrdquo says Huber CFRP has the greatest lightweight construction potential This composite material is around 50 pershycent lighter than steel and 30 percent light-er than aluminum At the same time it is twice or four times as strong and conseshyquently very suitable for load-bearing strucshytures However it can only support loads in one direction it is brittle and its breaking strain is significantly lower in comparison to metals So CFRP is not a cure-all In the engine and gearbox for example where there are particular requirements in terms of heat-resistance and frictional strength the engineers tend to go for aluminum magnesium and iron ldquoWe consider the topic of lightweight construction in a multishydimensional way and employ an intelligent mix of high-strength steels alloys and plasshyticsrdquo says Stefan Kienzle Head of Reshysearch and Preliminary Development for lightweight construction at Daimler

ldquoWe now know the strengths and weaknesses of the various lightweight construction materials very precisely and we can calculate in our model where which of the materials offers the greatest lightshyweight construction benefit and can be used to greatest economic and ecological


All rights reserved

Source VW 2013

Where the pounds are shed Body 230 kg Weight savings on the Golf VII in comparison

to its predecessor Front and rear seats 70 kg

Air conditioning 27 kg

Modular cross-brace 14 kg effectrdquo adds Dr Karl Durst lightweight

Dashboard 04 kg construction ambassador from competitors Audi citing the B-pillar of the Audi A8 as an

120 kg

220 kg

260 kg

30

370 kg

Other 25 kg

divided into Electrics Special equipment Engine and drive train Chassis

kg

Bodywork

example On the latest model this is no longer made of aluminum but out of highshystrength steel because the material is betshyter suited at this point for the extreme loads which arise in an accident ldquoCurrently this is the best choice But our aluminum specialists are already working on developshying an alloy with the same or even better propertiesrdquo says Durst No solution is conshysidered conclusive in fact the materials ndash steel aluminum magnesium CFRP and other plastics ndash are in competition with one another Durst calls that ldquoa competition between the materials which repeatedly produces new innovationsrdquo

Sturdy and cost-effective As light as possible as sturdy as necesshysary and the whole thing as economical as feasibly possible These are the demands that continuously confront the engineers and which all the manufacturers try to satshyisfy in their own way At VW for example despite all their lightweight construction efforts profitability still has top priority Lightweight construction with extremely expensive materials such as aluminum magnesium or even carbon fiber is not an

option if an automobile is to remain affordshyable for millions of people This was the message at the launch of the new Golf VII in August 2012 and for that reason Volksshywagens will continue to be built primarily of steel for the next few years although of high-strength alloys enabling the thickshyness of the panels to be reduced

They achieve further savings in Wolfsshyburg by optimizing the profiles and strucshytures and by using modern welding proshycesses The new Golf is 100 kilograms lighter than its predecessor ndash above all as a result of improvements to the body and chassis Mazda has put all the models that have come onto the market since mid 2012 on the same weight-loss diet Just like VW the Japanese are relying less on high-tech materials in their ldquoSkyactivldquo proshygram than on detailed improvements to all the components which make a noticeable difference in the final analysis

Only use materials where they are necessary for the rigidity and safety of the body ndash the engineers frequently approach this objective by allowing themselves to be guided by nature Their models include

grass and corn stalks for example with their astonishing ratio between cross-secshytion wall thickness and rigidity As long ago as in 2005 Daimler presented its conshycept car the ldquoMercedes-Benz bionic carrdquo The four-seater was modeled on the tropishycal boxfish and had not only a very aerodyshynamic shape but also a lightweight conshystruction concept following its natural proshytotype with a skeletal body structure The construction of the bionic car also included the development of the SKO process (Soft Kill Option) In this Daimler uses a complex computer program to check in which areas forces occur for example in the event of an accident ldquoWe can then selectively poshysition materials at these points Those points where there is at no time any flow of forces are identified by the program as areas which we can cut out in productionrdquo says Kienzle ldquoThis saves on materials costs and weightrdquo

With its ldquoSpace Frame Technologyrdquo Audi is already following the example of nature in series production In many modshyels the body acquires its stability from a three-dimensional framework made up of


All rights reserved


Audi ultra-lightweight construction The body of the Audi A8 is created using the Audi Space Frame construction principle (ASF) is comprised largely of aluminum and weighs about 40 percent less than a comparable steel body

cast nodes and extruded profiles ndash similar to the structure of a birdrsquos skeleton It is above all the inner values that the engishyneers work to refine The basic layout of the automobile such as the position of the A and B-pillars windows and headlights will hardly be changed at all The key innoshyvations are played out beneath the metal panels If they are made of metal at all and not of a composite material

Evolution of materials The most important argument against CFRP is currently still the price Parts made of the ldquoblack stuffrdquo cost around six times more than the same components made of steel One reason for this is the low level of automation Many procedures have to be carried out entirely by hand or need manual finishing In addition epoxy resin-impregnated fiber matting has to harden and be baked in autoclaves This takes hours and is not suitable for a mass production process in which several thoushysand components are needed every day For this reason only super sports cars like the Bugatti Veyron or the Lamborghini Aventador can currently afford to have entire bodies made of this lightweight composite material

But Audi lightweight construction ambassador Durst is convinced that the material will catch on in the long term ldquoTwenty years ago aluminum was considshyered to be a totally high-tech material from the areas of motor racing and aircraft construction unthinkable for mass producshytionrdquo he says drawing a comparison ldquoWe are now building 1000 Audi A3 models

with a multi-material body every day using aluminum in the vehiclesrsquo structure but also for the fenders and the hoodrdquo The industry has learned to understand and overcome technical obstacles and to esshytablish a cost-effective production process with the new material And that is preciseshyly what it is now learning with fiber comshyposite materials

Premium manufacturers such as Daimshyler Audi and BMW have started to proshyduce individual components for their cars from CFRP ldquoComposite and sandwich mashyterials are of course of great interest with regard to their lightweight construction potential and have been employed relashytively cost-effectively for some time for smaller production series incurring lower tool costsrdquo says Eckart Ruban Head of the Automotive Industry Team at Evonik Indusshytries The specialist chemical company proshyduces high-performance polymers various resin-hardener systems and lightweight foams among other things and collaboshyrates intensively with OEMs to produce plastic components cost-effectively even in medium numbers

New production processes The Fraunhofer project group ldquoFunctionally integrated lightweight constructionrdquo estabshylished in 2009 as a satellite of the Fraunhofer Institute for Chemical Technolshyogy ICT in Augsburg also intends to make CFRP fit for series production ldquoIt is our aim to reduce the manufacturing costs of CFRP components by 90 percent Above all we want to achieve new production processes which are also suitable for

mass productionrdquo says Prof Klaus Drechsler head of the project group and occupant of the Chair for Carbon Composshyites at Munich Technical University One preliminary highpoint of the development is the production of the BMW i3 electric car The first model of the BMW ldquoirdquo subshybrand which is to come onto the market in the middle of the year carries a passenshyger compartment made of CFRP and plasshytics on its aluminum chassis This producshytion start-up is the first in the automobile construction sector in which carbon fibers are used on an industrial scale

Reserve the weight spiral Itrsquos worth the effort ndash especially with elecshytric cars They have to be especially lightshyweight in construction in order to compenshysate for the additional weight of the elecshytric motor and the batteries Ideally it will actually be possible to reverse the weight spiral Because once a start has been made the kilos simply tumble off of their own accord A lightweight car with lower fuel consumption gets by with smaller batshyteries or a smaller fuel tank Because there is less mass to be accelerated and decelershyated a smaller engine or motor is enough to make driving fun and the brakes can be slightly lighter too

At the same time the slimmed-down accessories also help partially compensate for the price premium for lightweight mashyterials which will doubtless exist Because no customer buys a new car because it is especially light The decisive factors are still price efficiency range and perforshymance Ph

oto

Aud

i AG


All rights reserved

rsquo

rsquo

Exit

Life in Athens goes on Itrsquos Friday afternoon Vassilis Maragakis has been sitting in his taxi at Syntagma Square in the heart of Athens waiting for customers for three hours The square is packed People are talking laughing and trying to see the humor in their situation They have lost a lot much of it was taken from them Text Angelos Moschovas photo Georgia Panagopoulou

In Athens a city in crisis money is an extremely imporshytant topic but people are still optimisticrdquo says Vassilis who

has been a taxi driver for 20 years ldquoEvery day my customers talk about their everyshyday life They pour their hearts out to me As a taxi driver you are also a sort of conshyfessorrdquo adds Vassilis Most of these peoshyple have lost their jobs while others have had to accept a huge drop in their salary Older people worry about how they will make do on the drastically reduced penshysions ldquoWe have lost many things but we have held on to what is most important our identityrdquo

ldquoWersquoll make itrdquo Vassilis uses these inspiring words to try to encourage his colleagues every single day Even if they have up to 60 percent less work than beshyfore the crisis ldquoWe work 14 hours a day in order to make a decent livingrdquo The taxi drivers donrsquot believe in a magic bullet or in the proposals put forward by politicians ldquoAfter all the politicians made the mistakes which drove our country into this crisisrdquo They strongly believe that they can

overcome the crisis by hard work and persistence But the economic collapse has also changed the conditions in their industry ldquoOur customers are predomishynantly middle class and they are precisely the ones who no longer have any moneyrdquo explains Vassilis

Waiting for better times Four years ago a taxi license cost 160000 euro Now it is only worth 65000 euro Many taxi drivers have cancelled their fee of three to five euros that they used to charge for each booking and in the past two years they have even stopped chargshying Christmas and Easter surcharges There are about 20 taxi companies in Athens Even the owners of the taxis work as drivers ndash previously absolutely unthinkable ldquoWe are grateful for every dayrsquos incomerdquo says Vassilis Until now the crisis has not caused owners to sell their licenses They are waiting for better times But many have large debts with insurance companies since they have not made any contributions for the past two or three years

Time passes and half an hour later Vassilis is finally first in line in the long taxi queue at Syntagma Square An American couple jump in and want to go to Piraeus Dusk has already set in but the square is still teeming with people The first lights come on Athens once again has elecshytricity And life in the city goes on hellip

Although Greek law provides for the establishment of taxi dispatch centers it recommends rather than mandates that drivers work together Taxi owners normally hold one or two licenses The taxi industry in Greece is dominated by private small businesses The taxi system as well as the ownership rights and the formation of companies were to be liberalized in 2010 but taxi owners successfully blocked this reform In Greece there are around 25 taxi owners associations called Radio Taxis Members operate under the same umbrella association but do not form a company The driver interviewed is the owner of one taxi and member of a taxi owners association

AutomotiveNow 23


Mathieu Meyer Global Head of Automotive KPMG in Germany T +49 711 9060 41730 mathieumeyerkpmgcom

Magdalena Simonji-Elias Global Executive Automotive KPMG in Germany T +49 711 9060 41191 msimonjieliaskpmgcom

Martha J Collyer Senior Marketing Manager Global Automotive KPMG in Canada T +1 416 777 3505 mcollyerkpmgca

Contacts

kpmgcom

The information contained herein is of a general nature and is not intended to address the circumstances of any particular individual or entity Although we endeavor to provide accurate and timely information there can be no guarantee that such information is accurate as of the date it is received or that it will continue to be accurate in the future No one should act on such information without appropriate professional advice after a thorough examination of the particular situation

copy 2013 KPMG International Cooperative (ldquoKPMG Internationalldquo) a Swiss entity Member firms of the KPMG network of independent firms are affiliated with KPMG International

KPMG International provides no client services No member firm has any authority to obligate or bind KPMG International or any other member firm vis-agrave-vis third parties nor does KPMG International have any such authority to obligate or bind any member firm All rights reserved Printed in Germany

The KPMG name logo and ldquocutting through complexityrdquo are registered trademarks of KPMG International

Publication number 130201

Regional Automotive Contacts

ASPAC Andrew Thomson KPMG in China T +852 2143 8875 andrewthomsonkpmgcom

AMERICAS Gary Silberg KPMG in the USA +1 312 665 1916 gsilbergkpmgcom

EMA Mathieu Meyer KPMG in Germany T +49 711 9060 41730 mathieumeyerkpmgcom

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04

Editorial

Dealers must act For the average automobile dealer from one of the traditional markets the good years are long over Many small dealerships have already had to throw in the towel Outside of the boom countries of the Near and Far East buyers are holding back Profit margins have been shrinking worldwide for years And manufacturers are obligating their authorized dealerships to remodel their point of sale or add new buildings with a regularity that the latter find difficult to finance lsquoGrow or diersquo could be their motto But itrsquos not that simple Today larger sales areas can t promise success sales do not guarantee profits

If you want to survive in the race for profits you should read the signs of the times and get business moving again by means of improved services modern marketing concepts and flexible financial services Dealersrsquo workshops must be equipped for the lightweight construction materials and drive technologies of the future provide appropriate machinery and train staff At the same time the customer demands a fulfilling experience when buying an automobile especially in the top price segment The sales room becomes a lounge with a DJ mixing desk The wheel of fortune and barbecue parties have had their day

Above all consideration should be given to the question of whether the dealer s role is really only to make sales Many experts see traditional car ownership as a relic of the past If you live in the Cloud you don t buy a car but hire one as and when needed And why should a dealer not be able to engage in car-sharing

Yours

Mathieu Meyer Partner Global Head of Automotive


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Proc

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cede

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2

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Source VW 2013






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omot

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bH A

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cede

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i AG

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ty Im

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Full banking

services

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SERVICE


BANKING

1

2

3

4

5







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Source VW 2013






120 kg

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260 kg

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cede

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ty Im

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KPM

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Full banking

services

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SERVICE


BANKING

1

2

3

4

5







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Source VW 2013






120 kg

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370 kg

Other 25 kg


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DH

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About the author



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ty Im

ages

Bos

ch


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Country focus Japan







otos

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ty Im

ages

KPM

G


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All rights reserved













All rights reserved





New mobility


Full banking

services

services

SERVICE


BANKING

1

2

3

4

5







All rights reserved












All rights reserved

Source VW 2013






120 kg

220 kg

260 kg

30

370 kg

Other 25 kg


kg

Bodywork









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oto

Aud

i AG


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all F

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About the author



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ty Im

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ch


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Country focus Japan







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ty Im

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New mobility


Full banking

services

services

SERVICE


BANKING

1

2

3

4

5







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All rights reserved

Source VW 2013






120 kg

220 kg

260 kg

30

370 kg

Other 25 kg


kg

Bodywork









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Aud

i AG


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ch


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ty Im

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KPM

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New mobility


Full banking

services

services

SERVICE


BANKING

1

2

3

4

5







All rights reserved












All rights reserved

Source VW 2013






120 kg

220 kg

260 kg

30

370 kg

Other 25 kg


kg

Bodywork









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oto

Aud

i AG


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ty Im

ages

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ch


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Country focus Japan







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ty Im

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KPM

G


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services

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SERVICE


BANKING

1

2

3

4

5







All rights reserved












All rights reserved

Source VW 2013






120 kg

220 kg

260 kg

30

370 kg

Other 25 kg


kg

Bodywork









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oto

Aud

i AG


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all F

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ty Im

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SERVICE


BANKING

1

2

3

4

5







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All rights reserved

Source VW 2013






120 kg

220 kg

260 kg

30

370 kg

Other 25 kg


kg

Bodywork









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i AG


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ty Im

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G


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New mobility


Full banking

services

services

SERVICE


BANKING

1

2

3

4

5







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All rights reserved

Source VW 2013






120 kg

220 kg

260 kg

30

370 kg

Other 25 kg


kg

Bodywork









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oto

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i AG


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ty Im

ages

KPM

G


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All rights reserved





New mobility


Full banking

services

services

SERVICE


BANKING

1

2

3

4

5







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All rights reserved

Source VW 2013






120 kg

220 kg

260 kg

30

370 kg

Other 25 kg


kg

Bodywork









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i AG


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New mobility


Full banking

services

services

SERVICE


BANKING

1

2

3

4

5







All rights reserved












All rights reserved

Source VW 2013






120 kg

220 kg

260 kg

30

370 kg

Other 25 kg


kg

Bodywork









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oto

Aud

i AG


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G


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New mobility


Full banking

services

services

SERVICE


BANKING

1

2

3

4

5







All rights reserved












All rights reserved

Source VW 2013






120 kg

220 kg

260 kg

30

370 kg

Other 25 kg


kg

Bodywork









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oto

Aud

i AG


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rsquo

Exit









AutomotiveNow 23





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All rights reserved













All rights reserved





New mobility


Full banking

services

services

SERVICE


BANKING

1

2

3

4

5







All rights reserved












All rights reserved

Source VW 2013






120 kg

220 kg

260 kg

30

370 kg

Other 25 kg


kg

Bodywork









All rights reserved












oto

Aud

i AG


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rsquo

Exit









AutomotiveNow 23





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All rights reserved





New mobility


Full banking

services

services

SERVICE


BANKING

1

2

3

4

5







All rights reserved












All rights reserved

Source VW 2013






120 kg

220 kg

260 kg

30

370 kg

Other 25 kg


kg

Bodywork









All rights reserved












oto

Aud

i AG


All rights reserved

rsquo

rsquo

Exit









AutomotiveNow 23





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New mobility


Full banking

services

services

SERVICE


BANKING

1

2

3

4

5







All rights reserved












All rights reserved

Source VW 2013






120 kg

220 kg

260 kg

30

370 kg

Other 25 kg


kg

Bodywork









All rights reserved












oto

Aud

i AG


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rsquo

rsquo

Exit









AutomotiveNow 23





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All rights reserved

Source VW 2013






120 kg

220 kg

260 kg

30

370 kg

Other 25 kg


kg

Bodywork









All rights reserved












oto

Aud

i AG


All rights reserved

rsquo

rsquo

Exit









AutomotiveNow 23





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Source VW 2013






120 kg

220 kg

260 kg

30

370 kg

Other 25 kg


kg

Bodywork









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oto

Aud

i AG


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Exit









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