global auto executive survey 2016

Global AutomotiveExecutive Survey 2016

How to use this onlineversion of our survey

Acknowledgements &Foreword

About the executivesurvey

Executive surveydemographics

Disruption ahead?Introduction

What are the key trendsuntil 2025?

Global AutomotiveExecutive Survey 2016







KPMG’s Global Automotive Executive Survey 2016

Dear readers,“The road to success is always under con-struction.” This simple sentence, from actorLily Tomlin, captures the current state of theautomotive industry.

Looking at this year’s survey results we recog-nize that executives now see definite disruptionahead. We have structured this survey into threechapters:– what kind of disruption we are talking about,– how to cope with the disruption and– whos best prepared.

Market growth in emerging markets, especiallyin China, has long been the number one answerof executives asked about key trends for thenext ten years. This year digitalization and con-nectivity has finally become number one on theexecutive’s strategic agenda until 2025, skyrocketing from #9 and #10 in the last two years.

With disruption arising from a new digitalizedand connected world, it seems the center ofgravity of the customer relationship in a con-nected car is rapidly moving towards tech giantsfrom Silicon Valley. Auto executives are far lessoptimistic that they can stay in the center of thecustomer relationship than before.

Why? As customers increasingly aim to be al-ways connected, relationships are shifting to amuch more service-oriented and new data driv-en business model for which the traditional auto-motive industry is rather unprepared comparedto other industries, like companies from the in-formation and communication technology sector(ICT). To be successful, data generated by thecar, the driver and other passengers in the carhas to be informationally engineered: if this isnot done by automotive companies, someoneelse will. Even more importantly, the resultsshow that almost across all regions the cus-tomers will become

more and more aware about the value of theirdata. They will look for someone to trust and thatoffers the most interesting benefits in return fortheir data. The companies that will be able toconvince the customer that they are a trusteddata hub will be the ones that succeed.

Does this new world have the same clockspeedas the world in which the existing business mod-el of auto companies is ticking? Definitely not.The industry has to recognize different clock-speed reflected in different product developmentcycles in the future. The results of our survey donot yet show it as clearly as I expected, but Ipersonally believe the era of one product devel-opment cycle for everything in the car is over.

Beside all these sky rocketing new trends for thenext years, executives have also recognized thatregulation is still playing a major role, puttingeven more pressure on technological develop-ments to achieve emission rules set. Therefore,as last year’s survey stated, regulator and cus-tomer centricity will be still the two scales whichhave to be balanced in the future.

I do believe in the positive aspects of change.Challenging but exciting times are ahead for theautomotive industry. I hope you enjoy readingthe study in paper or online. Please make use ofthe interactive version of KPMGs survey andcreate your own report!

In its 17th consecutive year, the Global Au-tomotive Executive Survey is KPMG Inter-national’s annual assessment of the currentstate and future prospects of the worldwideautomotive industry.

In this year’s survey, 800 senior executivesfrom the world’s leading automotive companieswere interviewed, including automakers, sup-pliers, dealers, financial services providers,rental companies, mobility services providersand, for the first time, companies from the in-formation and communication technology (ICT)sector.

As customer-focus and service-orientation willbecome ever more important for the automotivebusiness in the age of digitalization, we have,also for the first time, additionally interviewedmore than 2,100 consumers from around theworld to give us their valuable perspective andcompare their opinion against the opinion of theworld’s leading auto executives.The responses were very insightful and wewould like to thank all those who participatedfor giving us their valuable time.

Special thanks to Moritz Pawelke, Global Ex-ecutive for Automotive, KPMG International, forhis commitment to lead this study and the en-tire KPMG automotive sector team in Germanyfor their efforts.

Dieter BeckerGlobal Head of AutomotiveKPMG International

2

GlobalAutomotiv..






What are thekey trends un..


17 17

17 17

78 8

2 2

7 7

7 7

7 7

8 8

8 815 15

74 74

100 10037 3757 57

716

60

17

71

22

7

8 8

55 55

8 8

6 6

8 87 7

24

1 1

7 7

6

7 7

23 23

38 38

23

71 1

For the 2016 executive survey we asked 800 executives from 38 countries

Choose survey year:2016

Western Europe

Eastern Europe

North America

South America

Mature Asia

China

India & ASEAN

Rest of World

Note: Map shows number of respondents from each countrySource: KPMG’s Global Automotive Executive Survey 2016

6

How to usethis online ..






Countdown fordisruption ha..


22%

25%

13%

24%

17%

Respondents by job title

Choose survey year:2016

CEO/President/Chairman

C-level Executive

Business Unit/Funct. Head

Head of Department

Business Unit/Funct. Mgr.

Vehicle Manufacturers

Suppliers

Dealers

Financial Services Providers

Mobility Services Providers

ICT Companies 12% | 92

20% | 158

9% | 74

10% | 78

25% | 198

25% | 200

Respondents by company type

Upstream (product-driven) Downstream (service-driven)

Total = 800

Western Europe17% | 137

South America13% | 100

RestofWorld6% |51

North America13% | 100

Mature Asia12% | 94

India & ASEAN16% | 126

Eastern Europe12% | 92

China13% | 100

Respondents by regional cluster

40%

32%

12%

11%5%

Respondents by revenue

Less than $100 million

$100 million - $500 million

$500 million - $1 billion

$1 billion - $10 billion

Over $10 billion

For this year’s survey we have asked fourtimes more executives than in the previousyears to increase the relevance and informa-tive value of regional aspects in our analy-ses. Therefore, this year 800 executives, fromall parts of the world, answered our ques-tions, of whom around 50 percent are C-levelexecutives or CEOs, Presidents or Chairmen.

Around one-third of the respondents arebased in Western and Eastern Europe, while13 percent come from China and also each13 percent from North and South America. 16percent of the executives are located in India& ASEAN and 12 percent in matured Asiancountries of Japan and South Korea.

The respondents represent companies of allparts of the automotive value chain including ve-hicle manufacturers, Tier 1, 2 and 3 suppliers,dealers, financial services providers, mobilityservice providers and for the first time also com-panies from the information, communication &technology sector (ICT) that increasingly claim astake in future revenue streams around mobility.In the survey, 72 percent of all participants act incompanies with annual revenues greater thanUS$1 billion, of whom 40 percent even haverevenues of more than US$10 billion.

The survey was conducted online and tookplace between July and November 2015.Note: Percentages may not add up to 100% due to rounding

Source: KPMG‘s Global Automotive Executive Survey 2016

7

Acknowledgements & ..





Countdown for disruptionhas started

How likely is abusiness mod..


Staying connected has become abasic part of everyday life. Thisyear’s survey finally shows that autoexecutives have fully embraced con-nectivity and digitalization andranked it as the overarching keytrend disrupting the auto industryuntil 2025.Ranked #10 in our 2015 survey, exec-utives have moved connectivity up to#1 this year, with half of them rating itas extremely important.For the last three years, the top con-cern was growth in emerging markets,which has now dropped to #4. Alterna-tive powertrain technologies are highon the list of trends in 2016, with hybridelectric vehicles at #2, battery electricvehicles up from #9 to #3 and fuel cellelectric mobility staying fairly constantat #5.The aftermath of the ‘dieselgate’ scan-dal of unreliable emission test resultsfrom autumn 2015, alongside the in-creased importance of alternative driv-etrains, is shown in the results:

the formerly high-ranked trend ofdownsizing internal combustion en-gines has dropped from #2 in 2015 to#10 in 2016.The surveyed executives also givemore importance to autonomous andself-driving vehicles than one or twoyears before. Beyond that, the resultsreflect that executives recognize thatvehicle or customer related data will bea crucial success factor for the comingyears in the automotive industry. Morethan 40 percent estimate big data/userdata as a very important key trend.Generally, the ranking of this year’s keytrends reflects that the auto industry ismoving its focus increasingly towardsthe customer needs, rather than tradi-tionally product and technology-led in-ternal concerns, as the trend of ratio-nalization of production in Western Eu-rope dropped from #4 in 2015 to #11 inthis year’s survey.

8

About theexecutive ..





How likely is a businessmodel disruption?

BMW andToyota on the..


Surprisingly, if looking atstakeholder results, thesurveyed vehicle manufac-turers rank connectivityonly #4, while marketgrowth in emerging mar-kets followed by hybridand fuel cell electric vehi-cles are still the key trendson their strategic agenda.

This reflects that most OEMsare still focusing on chal-lenges caused by their tradi-tional business model (build-ing cars) instead of fully con-centrating on new challengesahead. However, there isone interesting regional dif-ference. Executives fromOEMs in China are the onlyones agreeing with the over-all opinion, also ranking con-nectivity as #1 key trend. Apossible explanation for thiscould be the fact that Chi-nese OEMs are certainlyless entrenched in traditionalprocess and might thereforebe able to adapt changequicker.

2013 2014 2015 2016

2013 2014 2015 2016

#

#1

#2

#3

#4

#5

#6

#7

#8

#9

#10

#11

#12

Ranking

#6

#5

#8 #8#8

#5

#11

#4#4

#6

#7#7#7

#4

#1#1#1

#8

#3

#2 #2

#5#5

#6

#2

#10

#2

#3

#4

#1

#10

#9

#6

#7

#3

#9

#10

#3

#9

#11#11

Connectivity & Digitalization

Hybrid electric vehicles

Battery electric mobility

Market growth in emergingmarkets

Fuel cell electric vehicles

Mobility-as-a-Service

Customer data / Big data

Platform strategies & modularproduction systems

Autonomous & self-driving cars

Downsized internal combustionengine

Rationalization of production inWestern Europe

29.1%

36.8%

37.6%

38.5%

41.1%

41.8%

45.0%

46.3%

46.5%

49.5%

50.1%

Percentage of execu-tives rating a trend asextremely important

2013 2014 2015 2016

n = 800200200200

Source: KPMG’s Global Automotive Executive Survey 2016

9

Filter by region: Filter by country: Filter by stakeholder group: Filter by value chain role:

Executivesurvey de..





BMW and Toyota on thefast track of innovation

Who is seenas leading in i..


Connectivity and digitalization will un-doubtedly have a strong impact, not onlyinfluencing the existing business model ofauto companies, but eventually leading to amajor business model disruption.This year’s survey results indicate that the au-tomotive business will face an unprecedenteddisruption over the next five years. The valuechain itself, product development cycles, salesand aftersales processes, the customer rela-tionship, the overall business model, as well asthe associated products, technologies and ser-vices, will have to transform significantly in or-der to keep up with the pace of digital innova-tions.Ubiquitous connectivity will pave the way fornew service- and data driven business modelsaround mobility and will, beyond that, enablethird party players from converging industriesto intervene in the customer relationship at thepoint of sale (PoS) as well as during the wholelifecycle of the car.

In our recent publication Metalsmith or Grid Master, welook at how business models need to change to devel-op their customer relationship.An OEM’s future business model will have to far moreaccurately reflect the lives of their customers, who arelooking to optimize their time, cost and quality of life inreal-time and depending on situation and application-specific needs.You will find interesting survey results on the futurecustomer relationship on page 14 that show that thecountdown for disruption has started and auto compa-nies must react quickly in order not to lose the valuablecustomer interface in a connected car to competitorsfrom outside the industry.

Source: Metalsmith or Grid Master, KPMG 2015

Disruptionahead? ..





Who is seen as leadingin innovation?

Who will retainthe customer ..


A major business model disruption is extreme-ly likely for almost 10 times more of the execu-tives surveyed compared to last year. An over-whelming 82% of the executives estimate abusiness model disruption in the next fiveyears to be extremely likely or somewhat likely.

Looking into the regional results in the interactiveversion of this survey, there is a distinct differenceof opinion between automotive executives in differ-ent territories. Those in the emerging markets ofChina, India & ASEAN (Association of South EastAsian Nations) and South America expect a busi-ness model disruption to be more likely. Mean-while, executives from the Triad of Japan, WesternEurope and North America are much more conser-vative, most often answering that a business modeldisruption is rather unlikely.

Just as in the ranking of key trends, it is execu-tives from the OEMs who have a conservativeview and were most likely to respond that majorbusiness model disruption is not likely at all orsomewhat unlikely.They still appear to be underestimating the im-pending changes predicted in the business modelcaused by the key trend connectivity. OEMsclearly want to keep their traditional role as keyplayer in the value chain,

and might not want to move out of the product-and technology-led comfort zone they have beenin for the past century. These different opinionsfrom different value chain players show the ten-sion currently in the automotive value chain. Nev-ertheless, there are huge differences betweenOEMs. As the following pages show, some are al-ready on the right track regarding how to copewith future challenges through innovation.

Note: Percentages may not add up to 100% due to roundingSource: KPMG’s Global Automotive Executive Survey 2016

Extremely likely

Somewhat likely

Somewhat unlikely

Not likely at all

Neutral

43%

14%

32%

3%

9%

28%

54%

15%

3%

2015 2016

n = 800200

2016

2015

Filter by region:All

Filter by stakeholder group:All

Filter by country:All

Filter by value chain role:All

What arethe key tre..





Who will retain thecustomer relationship?

Whichsegments will..


According to the surveyed executives,BMW and Toyota will be the leaders in thefields of e-mobility and autonomous driv-ing, and are also expected to generally bethe groundbreaking innovators in the nextfive years.

Although BMW and Toyota are expected to bethe most innovative players until 2025, otherOEMs like Honda, Ford and Tesla are follow-ing in their wake.

Interestingly, these two traditional players areeven seen as leading in electromobility aheadof Tesla Motors. The results are not withoutmerit, as BMW has established a strong e-mobility sub-brand with its i8 and i3 models.Toyota is currently building up a new future-oriented and innovative image with the fuelcell model Mirai.

Consequently, the survey respondents funda-mentally link both players to the developmentof future technologies.

On the other side, Daimler, former secondleader of self-driving cars, has lost ground inautonomous driving in the eyes of the execu-tives and is not any more positioned among thefrontrunners. However, the executives creditDaimler’s efforts in innovation, placing them at#6; mature Asian respondents from Japan andSouth Korea even see them at #3.

Being innovative is not only a necessity to im-prove the image of a brand and its reputation.Recent developments around the ‘dieselgate’scandal show that a clear strategy, especiallyregarding electromobility, will clearly influencea company’s future position among its com-petitors.

Countdownfor disrupti..





Which segments will beaffected by disruption?

KPMG InsightDieter Becker

0% 5% 10% 15% 20%

0%

5%

10%

15%

20%

25%

BMW Group

Toyota Group

Honda Group

Ford Group

Tesla MotorsDaimler Group

Hyundai Kia Automotive Group

Mazda Motors

Volkswagen Group

Renault-Nissan Group

Geely Group (incl. Volvo)

13KPMG’s Global Automotive Executive Survey 2016

Electric mobility leader(% of respondents rating an OEM as leading in electro mobility)

Self-driving technology leader

(% of respondents rating an OEM as leading in self-driving technology)

Note: Size of stars is based on the number of respondents ranking a company as ‘groundbreaking innovator’ | Only the top 14 OEMs rated are shown in the graph aboveSource: KPMG’s Global Automotive Executive Survey 2016

2016

n = 800


How likelyis a busine..






KPMG InsightDieter Becker..


OEMs and ICT companies will increasinglyfight for the valuable customer interface. Thesurvey results show that the executives arenot as sure as they were in the past that theOEM will still dominate the customer rela-tionship. According to one-fifth of all respon-dents, tech companies, especially from theSilicon Valley, could gradually take over thecustomer interface in the connected car.

We’ve seen that connectivity is becoming a keytrend, so it’s not surprising that 22% of execu-tives now see the relationship prospectively inthe hands of ICT companies, compared to only4% in 2015. That leaves only 33% of executivesbelieving ownership of the customer relationshiplies with OEMs – while in 2015 almost two-thirdswere still confident that OEMs will be able to de-fend the customer interface against third parties.Looking into the regional differences in our inter-active version of the survey reveals that con-sumers and executives in India & ASEAN, Chinaand South America believe most strongly thatthe customer relationship will shift to ICT com-panies.

Surprisingly, retailers and mobility servicesproviders are the two value chain players thatare seen less as the owner of the customer rela-tionship in future – which is surprising as theyare actually the ones owning the customer inter-face today and whose current business model iscompletely built around the customer.

Note: Percentage of respondents rating a company type as the one taking over the customer relationshipSource: KPMG’s Global Automotive Executive Survey 2016

Vehiclemanufacturers

2016

2015

ICT companies

2016

2015

Retailers / Cardealers

2016

2015

Mobilityservicesproviders

2016

2015

27%

33%

72%

18%

22%

4%

14%

16%

15%

8%

9%

8%

Consumer opinion | 2016

Executive opinion | 2016

Executive opinion | 2015

2015 2016

Executive n =

Consumer n = 2,123

800200





BMW andToyota on ..





KPMG InsightDieter Becker (contd.)

Establishing adata driven b..


It is clear that not all today’s automak-ers will develop into customer and ser-vice driven mobility services providers(grid masters). Many will retain a focuson a production and technology-ledbusiness model, not being able to copewith the demands of their connectedcustomers.The ones impacted the least by the disrup-tion will be low-cost manufacturers, astheir business model will most likely stayunchanged. The main business of low costmanufacturers is in less mature marketswhich still offer a huge potential for the tra-ditional auto business model as we know ittoday.Volume and mass market manufacturerswill be impacted the most as they are stuckin the middle between a cost- competitivemanufacturing and an entirely new andchallenging service-driven business model.Based on their brand heritage, those man-ufacturers cannot rely on the high trustcustomers have in their brands and highmargins at the PoS. They are prone to losethe customer relationship to new entrantsfrom converging industries like the ICTsector. Undoubtedly, premium manufac-turers will be impacted by the disruption aswell, but they will have the best prerequi-sites to cope with the upcoming changes.Their strong and trusted brands will allowthem to fight new entrants trying to takeover the customer interface at the PoS andduring the whole customer life cycle.

The survey results show a noticeable difference between theregions regarding the impact of disruption on the differentsegments. Compared to executives in North America andWestern Europe, executives in China see a significantly higherimpact of disruption for auto companies across all segments.

This goes along with the answers of the previous questions regard-ing the key trend connectivity, the possibility of a business modeldisruption and the position of ICT companies at the PoS.

Just as before, executives from China are the ones whoare more progressive and see a big change coming. Apossible explanation for this could be that China’s autoindustry and its structures are compared to e.g. coun-tries from the Triad relatively young and therefore muchmore flexible. Chinese executives are not as bounded in‘old’ structures and are not as reluctant to change astheir counterparts from more mature countries.


Low cost

China

North America &Western Europe

Volume

China


Premium

China


29%

60%

48%

37%

22%

18%

47%

49%

45%

31%

7%

18%

54%

49%

41%

32%

4%

Neutral / don't know

Not impacted

Impacted

Impacted most

2016

n = 237100



Who isseen as le..





Establishing a datadriven business model

How will thebusiness mod..


We all know that our clocks are running around the worldin the same clockspeed, operating in different time zones,but it does not mean, that everyone has the same speed ofoperating on his culture, business model or process level.So, you could say we work and deliver in different clock-speeds, creating a clockspeed dilemma. First we have toelaborate the question, where this kind of difference inclockspeed is coming from and second how to tackle thatsituation in the automotive industry.Connectivity and digitalization will change the world. For us,there is no surprise this year: executives have changed theiropinion. In comparison to 2015, executives now see connec-tivity and digitalization as the number one key trend until 2025.It is rising at an unimaginably fast pace and fundamentallychanges the way we live our lives, interact, consume or travel– with the result that nothing will be the same as it was before.Innovative products and even more services are capturing themarket in a much faster speed (clockspeed) than in the past,new players are entering the automotive ecosystem, industriesare converging and the future of mobility will face a new era ofaccelerated innovation.What does this mean for the automotive industry? The auto-motive industry is experiencing big pressure from all sides andis facing an unthinkable disruption ahead – a disruption a sig-nificant amount of executives are more aware of in this year’ssurvey. The travel mentality is transforming towards mobility-on-demand services, consumer behavior is changing and cus-tomers will increasingly demand the car is equipped with ser-vice-oriented functionalities that enable efficient use of theirdriving time so they are online any time and anywhere. And fi-nally, the customer is changing his priority of switching from aproduct-driven culture to a service and TCO-driven culture,where classical car product features are losing the gameagainst technology features that customers know from otherindustries.How does this impact the business model? The business mod-el of today is outdated and will not enable all traditional OEMsto generate sustainable revenue streams and stay ahead

tomorrow. In a ubiquitously connected future, it becomes evermore important for automakers to detach themselves frombeing merely product and technology-driven, and it means anew premium segment will be defined. To differentiate andgenerate premium prices, it will be necessary to develop abusiness model that is service and consumer-oriented and inwhich data is the fuel. Only then cantraditional OEMs become the grid master, meaning that byproviding vehicle-dependent and independent products andservices, OEMs can manage the mobility grid and dominatethe valuable customer relationship along the entire customerlifecycle in and around the car. This way they do not need toleave valuable market share to rising players from the con-verging ICT industry, who are all striving to break new groundin the auto industry. What does that mean in practice? Differ-ent industries have different clockspeeds. This becomes clearcomparing the likes of the ICT industry, start-ups and PEcompanies with the auto industry. The cultural differencesbetween industries have to be taken into account now as theyoperate in the same value chain.Furthermore, different components require different productdevelopment processes. For example, this requires decou-pled and more flexible product development cycles for vehi-cle-independent hardware and software features that arefaster than the traditional cycle and have the ability to keepup with the speed of innovation. The era of one PDC (productdevelopment cycle) is over, it has to be split up into a mini-mum of three: long term (3-5 years) metalsmith-based, midterm (1-2 years) software/exchangeable components-based,and short term (one month to one year) release on demand-based.Finally, the automotive industry will need new human re-sources with different thinking and who have lived in differentclockspeeds to succeed in today’s fast-paced global and digi-tal environment.

Dieter BeckerGlobal Head of Automotive | KPMG International

Who willretain the ..





How will the businessmodel of an OEM look?

How is databeing used al..


Whichsegments ..





How is data being usedalready today?

KPMG InsightInformational ..


Service and data driven businessmodels pave the way towards own-ing the customer relationship.In a ubiquitously connected age withthe trends connectivity and digitaliza-tion sky rocketing, business modelsthroughout numerous industries areswift to change disruptively. Con-sumers in automotive will increasinglydemand digital products and servicesin and around the vehicle, which cre-ates the need for OEMs to detachthemselves from their merely product-and technology-driven past. In order togenerate additional revenue streams infuture, OEMs need to transform intobecoming consumer oriented serviceproviders (Grid master).The results of this year’s survey showthat executives have different opinionswhen it comes to the business modelof traditional auto companies in 2025.The core question is if traditional au-tomakers,

or rather players from the convergingICT industry such as Google or Apple,will become the main player at the cus-tomer interface. When creating a busi-ness model that aims to manage thecustomer interface, data becomes thefuel. Consumers are, next to them-selves, most likely to trust their data oreven give data ownership to an OEMrather to an ICT player, if they can buildtrust to the brand behind it.Self-driving technology could becomeone of the biggest challenges for thetraditional business model, and OEMsshould aim to develop strategies toserve customers of self-driving vehicles.The results of the survey show that con-sumers are most attracted by a reflec-tion in TCO – an incentive OEMs canoffer by offsetting the total cost of own-ership driving a car, but ICT companiesare surely not in the position to.

KPMGInsight..





KPMG InsightInformational engineering

Who is theowner of the ..



The majority of executives (36%) see the productionand sale of an automobile including technologicaladd-ons (e.g. connected multimedia devices) as themost likely business model for traditional automakersin 2025. Ranked second by the executives of OEMs,25% still see their business model as production andsale of an automobile alone.This leaves the impression that more executives findthemselves at home in the traditional automotive busi-ness model. So they simply continue to harness their coreproduct and technological competencies as a competitiveadvantage by supplying outstanding vehicles to cus-tomers and ICT companies such as Google or Apple. Al-though this may sound a far-fetched scenario at first, theresults of this survey reflect this observation:

almost 20% of all executives, especially those comingfrom the growth markets China and India & ASEAN,could imagine that by 2025 the OEM will become thecontract manufacturer for an ICT company. This couldimply them simply becoming the metalsmith, a promis-ing avenue that could especially suit OEMs in the lowcost and volume segments with fewer strong brandsand lower potential for customer retention.Overall second and only ranked third by OEMs (23%),executives believe that automakers are developingtheir business model towards becoming the grid masterby producing and selling a vehicle to a customer, andhaving a direct relationship over the entire lifecycle.

If OEMs aim to defend the customer interface andgenerate freely scalable revenue streams in fu-ture, it becomes ever more important to extendtheir previous product- and technology-focusedbusiness model to a much more service-orientedmodel.In order to meet the real-time reality of future cus-tomer needs in a highly digitalized age, becoming aconsumer-oriented service provider is the key. ForOEMs, this entails developing a business model thatdoes not only include the mere production and sale ofan automobile/mobility service. More important thanever in a new business model is to manage the directcustomer relationship with a high degree of serviceorientation enabled by connectivity (grid master sce-nario). This is, according to the survey results, some-thing consumers already expect today (35% believethis to be the most possible business model in 2025).Interestingly, a high number of executives (19%) seethe most risky business model for an OEM (becomingthe contract manufacturer) as the most likely. We aresurprised that OEMs do not show more confidence intheir own business model as we believe OEMs, espe-cially those in the premium segment, have the abilityof becoming the grid master. Next to providing out-standing vehicles, if OEMs can also provide vehicle-independent product features and services, they havethe best chance to extend their business model with adirect customer relationship along the entire customerlifecycle. This means they must develop capabilitiesthat go way beyond the traditional automotive busi-ness. It requires automakers to reinvent their businessmodel and develop competencies that are far awayfrom their home turf, relying on their brand strength.

OEM is the contractmanufacturer for an ICT

company

Production and sale of acar

Production and sale of acar including

technological add-ons

Production and sale of acar and direct customer

relationship

19%(#4)

20%(#3)

36%(#1)

26%(#2)

Metalsmith scenario Stuck in the middle Grid Master scenario

2016

n = 800


KPMGInsight..





Who is the owner of thevaluable data?

Who willconsumers tr..



The majority of executives state that the use of dataand the application of informational engineering isstill at the very beginning.Already today, traditional OEMs have access to atremendous amount of data generated in or by a car, butdata ownership as such creates only little additional val-ue. It will rather be the collection and intelligent combi-nation of the vehicle and environment-related data gen-erated by the car itself (upstream data) and the cus-tomer-related (downstream data) generated by the driverthat build the foundation of a future automotive businessmodel. OEMs have two tasks: firstly, they have to elabo-rate on the upstream data, as today it is not easily avail-able in one system. Secondly, they have to build on theirtrusted brand image and customer relationships; other-wise the access to downstream data will not be availableas well.Our survey results reveal that most executives are awareof the importance of data as one-third ofexecutives state that a high use is already executed in allfields of expertise. However, the potential of data has notyet been captured; around 70% of the executives statethat across all corporate functions, data use is at an ear-ly stage, or even desired, but its realization and applica-tion is to be defined. And some go even further, statingthat it is not in use at all. If OEMs focus on the collectionand intelligent combination of vehicle and consumer datathat they already have access to today (meaning to ap-ply informational engineering), they shall defend theirstrong position by creating a competitive advantage overplayers from the converging ICT industry.

Research &development

Supply chain /logistics /

procurement

Production

Retail & sales

Marketing &brand mgmt.

After sales &CRM

Connectivityrelated services

27%

32%

33%

29%

33%

33%

33%

73%

68%

67%

72%

67%

67%

67%

Currently no usage, usage desired or in very early stage High usage

2016

n = 800





Establishinga data driv..





Who will consumers trustwith their data?

What makesmobility servi..


Moritz PawelkeGlobal Executive for AutomotiveKPMG International

When driving a car in a ubiqui-tously connected world – be it theown premium vehicle, the mobilityservice vehicle or even a visionarymobile capsule – without doubt atremendous amount of data isgenerated in or by a car. Speakingin simple terms: when driving andinteracting with people and theenvironment, the vehicle is a gi-gantic data generating engine andwill become even more so in thefuture.It is important to differentiate be-tween vehicle upstream and con-sumer downstream data. The cargenerates data directly throughmovement and interaction with othervehicles or the infrastructure, such aslocation, road conditions and crashinformation.Meanwhile, the consumers are alsogenerating data, including informa-tion from their everyday life, frompersonal gadgets and apps that arein the vehicle with them. All thesedata such as media usage, calendarentries or navigation information en-able valuable insights about the cus-tomer and his/her entire lifecycle.

In this highly digitalized world, a realdata explosion is taking place andconsumers are increasingly aware ofthe value of the data they generate.They will be unwilling to share theirdata with any third party without re-ceiving an attractive benefit in ex-change. Consequently, OEMs willneed to understand their customersbetter, sense their individual prefer-ences, their unmet needs and rewardthem in a more personal and cus-tomized way.For many years, OEMs have focusedon technical engineering of outstand-ing vehicles but the future demandsinformational engineering, meaningthe implementation of informationsystems and NextGen business ana-lytics tools, as a top priority. Manufac-turing companies need to be able tocreate value fromthe already existing data and theunimaginable quantity of data gener-ated in future in and around thevehicle in real-time. If OEMs do nottake action now, aggressive competi-tors emerging from the ICT industrywill step in and take over as the onesmanaging their customers’ data. Source: KPMG Automotive Institute, 2015

How will thebusiness ..





What makes mobilityservices attractive?

Do consumersstill prefer ow..



In order to be able to establish asustainable service and data drivenbusiness model the key question is whoactually is or even will be the owner of theup- and downstream data generated inand around a vehicle. To date, automotiveand tech companies take for grantedthat consumers will be willing to givetheir data ownership away in return forcomparably low benefits and rewards,but our results give a slight hint intowhat actually is reality. Although 39% ofexecutives believe the owner/driver ofthe vehicle to be the sole owner of thegenerated consumer data, the confidenceof OEMs is unexpected high: a significantamount of executives (35% of OEMs)believe themselves to be the owner ofconsumer data – does this truly reflectreality or is this only wishful thinking?Although consumers may want tobe the exclusive owner of their dataand perceive data security, especiallyin the European countries, as a verysensitive issue, consumers with thetarget of reducing their total cost ofownership can hardly create value fromtheir own data alone. In comparison,when applying informational engineering,OEMs can create value for both parties,for themselves and for consumers.Therefore it is advisable for OEMs to dealwith the flow of data, meaning to sensepossibilities of how to best gather vehicleand consumer data. For vehicle data thisentails to technically be able to collect

and combine the data generated by thesensors in a car. In terms of consumerdata automakers need to developstrategies of how to best gain informationabout the customer, preferable valuabledata Google or Apple do not have accessto today.For OEMs, it therefore becomesan absolute necessity to establishbusiness models that contain incentiveschemes that make the whole processattractive for consumers. This meansto create a win-win situation for both:the consumers provide their data to anOEM and the OEM in exchange offersattractive incentives, benefits and rewardsfor the consumers. As the results indicate,OEMs should hereby not forget toconsider individual markets and regionaldifferences in the application of theirbusiness model.More importantly, the results alsoshow that this does not allow an OEMto lean back and observe the situation.His position can fade away faster thanhe expects: already 14% of executivesbelieve that by 2025 ICT companieswill become the sole owner of thevaluable consumer data. In the – not tobe underestimated Chinese market –this figure rises up to nearly 32% andin general the respondents from theBRIC countries have the most promisingexpectations when it comes to ICTcompanies owning vehicle and consumerdata by 2025.

Executive opinion Consumer opinion

Consumer Data

Vehicle Data

7%

5%

12%

9%

6%

6%

8%

8%

7%

7%

7%

6%

4%

4%

9%

8%

12%

14%

18%

12%

29%

23%

48%

57%

30%

39%

Owner / driver of the car

Vehicle manufacturers

ICT companies

Government

Mobility services providers

Retailers / Car dealers

Suppliers

2016

Executive n =

Consumer n = 2,123

800





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How is databeing used..





Do consumers still preferowning a car?

Attractivebenefits in ex..


Based on the assumption that consumers will not giveaway their data without any reward or incentive one im-portant question is whom consumers would trust mostmanaging their data. The results clearly show: no one butthemselves. An astonishing 32% of executives howeverexpect most consumers to trust the OEM on first place,which indicates that OEMs today believe to have a highertrust function than consumers actually reflect. In order togain more trust of consumers, auto companies can makeusage of their strong brands they already have today. Thisentails to accompany their customers and focus on be-coming a trusted data hub that customers will provide theirpersonal data in real-time rather than keeping it to them-selves.

Consumers already today exchange loyalty points for cashoff their shopping at the checkout and rewards are person-alized. They will expect similar rewards for their loyalty toan auto manufacturer. Only if auto companies leveragetheir customers’ loyalty and the trust function of their brand,they could have a significant competitive advantage overthird parties from the tech sector such as Google or Apple.According to this year’s results, this is not just empty talk:ICT companies are ranked on third place by both execu-tives and consumers – will we find ourselves in a world inwhich consumers rather trust Google instead of their per-sonal retailer around the corner? What is certain is that itdepends on the customer relationship and brand trust theyhave today.

A clear majority of all consumers(54%), especially those from NorthAmerica, Eastern and Western Eu-rope, as well as from South Ameri-ca, respond that especially con-sumer data should belong to theowner or driver of the vehicle.Over the coming years a mind- shiftwill take place. Consumers are in-creasingly carrying reward cards andusing retailer apps to collect points inreturn for loyalty. Tomorrow’s cus-tomers will be increasingly aware ofthe value of their data and will not bewilling to provide it to third partieswithout receiving an attractive incen-tive or reward. If OEMs integrate at-tractive benefits into their strategy to-day, they could evolve as the pre-ferred data hub whom consumers aremost likely to trust their data. In com-parison to the results for ICT compa-nies, consumers trust ICT companiesmore than suppliers, retailers andother mobility providers.


No one except ofhimself / herself /

myself

Vehiclemanufacturers

ICT companies Retailers / Cardealers

Suppliers Mobility servicesproviders

Government

54%

28%

21%

32%

14%

7% 4%8%

11%6% 4% 6% 4%

1%

Consumer opinion

Executive opinion

2016

Executive n =

Consumer n = 2,123

800








Filter by living circumstances:All

KPMGInsight..





Attractive benefits inexchange for data?

KPMG InsightBrigitte Roma..


Note: Percentages of respondents rating a reason for using mobility services with ‘yes/no’Source: KPMG’s Global Automotive Executive Survey 2016

The share economy as a growing megatrend suggests thatglobal prosperity will rise with collaborative consumption.Shared mobility services, especially in mature markets andmegacities, are becoming more attractive and show a powerfuland especially increasing presence in the modern environmentof big cities. Next to providing more flexibility, comfort andlifestyle, they are enabling a significant reduction of TCO forthe ever more sophisticated and highly informed customercontinuously striving for an optimization of his cost, time andquality of life in real-time. The use of the car (whethercity/country/short and long distance) will grow in importance t..

a major role. There is no simple answer to the question,whether the time of car ownership will be over soon.With increasing transparency enabled by connectivity the con-sideration of the total cost of ownership (TCO) will play the mostimportant role in the customer’s decision whether to own a caror not – and that is the opinion of both executives and con-sumers. In contrast to the past, where the customer paid for tra-ditional vehicle ownership even if the car was unused much ofthe time, future consumers will tend to pay for using mobility ondemand, depending on the individual real-time situation and ap-plication.

30% 40% 50% 60%

40%

50%

60%

70%

Eco-friendliness

TCO

Reduced importance of image of a car

Lifestyle

Flexibility

Comfort


10% 15% 20% 25% 30% 35%

70%

80%

90%

Flexibility

Reduced importance of image of a car

Lifestyle

Eco-friendliness

Comfort

TCO

Yes(% of respondents rating a reason for using mobility services with yes)

Yes(% of respondents rating a reason for using mobility services with yes)

No

(% of respondents rating a reason for

using mobility services with no)

No

(% of respondents rating a reason for

using mobility services with no)

2016

Executive n = 800

Consumer n = 2,123


Filter by respondent age: Filter by car ownership:

Filter by education: Filter by living circumstances:

Who is theowner of t..





KPMG InsightBrigitte Romani

How importantare self-drivin..


Note: Percentages of respondents from the respective regional cluster answering to prefer owning a car instead of using mobility servicesSource: KPMG’s Global Automotive Executive Survey 2016

When analyzing both charts on page 24 in de-tail, the axis labeling indicates that both execu-tives and consumers judge the value of a pur-chasing decision differently. In nearly all cate-gories, executives show a more positive atti-tude towards the attractiveness and reason formobility services – as the results show, whichis almost twice as high of the executives (e.g.63% of executives responding TCO to be areason consumers prefer mobility services) incomparison to the consumers (only 36% see-ing TCO as a reason but still ranking it on top1). This observation however does not holdtrue for the reasons attached to lifestyle andimage. Surprisingly, the ever-so-importantthought of image attached to a car seems tolose significant

importance in a future dominated by sophisticat-ed mobility services. In a world in which con-sumers continuously strive for an optimization oftheir time, cost and quality of life in real-time,TCO is all that counts and both image andlifestyle only play a minor role in the heads of theconsumers.This again shows that at a current stage theOEM still is in the driver seat when it comes tocollecting valuable vehicle and consumer data:the main motivation for consumers to give theirdata to an OEM is the fact that he can enable areduction in TCO – a capability a player such asGoogle does not have any power over or has tocompensate from other business they do withconsumers already.

When asking the consumers fortheir opinion about mobility ser-vices, the results of the con-sumer survey demonstrate thatstill 32% of all consumers in totalprefer owning a car instead ofusing mobility services – not as-tonishingly does this figure in-crease for consumers with ahigher age.The results also show, that this es-pecially holds true for consumerscoming from the mature markets

such as from North America, West-ern and Eastern Europe, as well asfor those coming from South Ameri-ca. In comparison, consumers fromthe dynamic and emerging marketssuch as China as well as India &ASEAN show significantly less emo-tions attached to car ownership.This observation clearly supportsthe general impression that the con-sumers from these markets notablyshow more openness towards newforms of innovative mobility serviceconcepts.

North America Western Europe Eastern Europe Rest of World South America Mature Asia China India & ASEAN

19%Yes

20%Yes

23%Yes

33%Yes

36%Yes

38%Yes

40%Yes

50%Yes

2016

Consumer n = 2,123

Filter by respondent age: Filter by car ownership: Filter by educational level: Filter by living circumstances:

Who willconsumers..





How important areself-driving cars?

Does using theautopilot mea..


82% of the consumers through-out all age groups and acrossalmost all regional clusters, ex-cept for those coming from India& ASEAN, give evidence that di-rect monetary benefits is ex-tremely or somewhat interestingto them. This underlines the factthat consumers are driven ratherby their wallet than their con-sciousness. Thereby consumerssee incentive schemes in termsof rewards, better service or theaccess to exclusive communi-ties, on second position with al-most 75% rating these benefitsas extremely or somewhat inter-esting.

Note: Percentage of respondents rating a benefit as ‘extremely or somewhat likely’ | Ranked descending by number of executives rating a benefit as most attractiveSource: KPMG’s Global Automotive Executive Survey 2016

Consumers are aware of the value of their data andin future, they will undoubtedly expect attractivebenefits in exchange. However, do executives ac-tually know which benefits consumers find mostattractive?In this year’s survey, we have therefore been interest-ed in what customers are most likely to request in ex-change for their data. The results show that, whereasexecutives think they can attract consumers with indi-vidualized services and incentive schemes, reducingtheir total cost of ownership with direct monetary bene-fits would be the most

interesting offer for customers in exchange for theirdata. The large majority of the executives have identi-fied individualized services, incentive schemes and di-rect monetary benefits as extremely or somewhat likelyto be an attractive offer for customers. This shows thatexecutives are back on track and are making a greatleap ahead in terms of understanding their customers.It is simply the order that needs to be adjusted to theconsumers’ mind, meaning that direct monetary bene-fits need to be on top of the executives’ agenda interms of attractive benefits in a

future service- and consumer-oriented business model.The survey results also clearly show that receiving noth-ing in exchange for data is no viable solution, although43% of the executives have still voted for this option. Insummary, both executives and consumers have shownan understanding of the value of data. The results revealmore than double the number of respondents believe inbenefits rather than receiving nothing. This clearly showsthat benefits in exchange for data will become an abso-lute necessity.

88%(#1)

88%(#2)

82%(#3)

43%(#4)

Executive opinion

Individualized service &customer experienceover entire customer

lifecycle

Consumer incentiveschemes (e.g. rewards,better service, access toexclusive communities)

Direct monetary benefits(e.g. reduced monthlycosts for the car)

Nothing

71%(#3)

75%(#2)

82%(#1)

30%(#4)

Consumer opinion









Filter by living circumsta..All

2016

Executive n =

Consumer n = 2,123

800

Whatmakes mo..





Does using the autopilotmean losing sight?

Long or shortdevelopment ..


Car manufacturers are facing new challenges.Connected car technology and new services area steadily growing demand from consumers.Whereas this demand ranged at a lower end inKPMG’s Global Automotive Executive Survey2015, the overarching key trend until 2025 dis-rupting the auto industry as we know it today isconnectivity and digitalization.Connected cars provide among others the possi-bility for music downloads, parking assistanceand activation of additional car equipment. Froma tax point of view various challenges are trig-gered by these virtual services for OEMs. If forexample a customer obtains any virtual serviceon his holiday trip in Italy, such as a softwaredownload of a preinstalled navigation system, itmight be questionable who the service provideris – the German parent company, who sold thecar, or the Italian subsidiary. In this regard, VATis certainly the most important issue in particularsince the place of supply for telecommunicationservices as well as electronically supplied ser-vices to customers have been newly regulatedwithin the EU. Other tax issues as transfer pricesor custom obligations are no less important andneed to be considered. The awareness of taxchallenges attached to connectivity and digital-ization in the automobile business has risen re-cently. A few years ago most tax

departments treated the connected car and tax is-sues related as still up in the air. However, realityhas caught up with OEMs. For instance, we recentlydiscussed with a client how the SIM card installed bythe manufacturer can be used to demonstrate theplace of supply for virtual services for tax authorities.This example shows that beside their tax technicalknowledge tax specialists need some technicalknow-how as well, in order to face the new chal-lenges.Even if most tax topics around connected cars arenew for the automobile industry it does not meanthat these tax topics are new at all. Rather, tax spe-cialists from other industries like the telecommunica-tion industry have already been confronted with thetreatment of electronically supplied services fortax purposes. Accordingly, there has already beendevelopment of a set of solutions, which could beapplied in the automobile industry, as well, if theright people are brought together.However, it is necessary to implement processesthat the tax department is involved in connectivityand digitalization projects right from the beginning toset up the new services and business models as taxefficient as possible. The involvement of the tax de-partment should be supported by the managementusing internal guidelines in order to secure the taxcompliance of the company.

Brigitte RomaniGlobal Automotive Tax Leader | KPMG in Germany

Doconsumers..





Long or shortdevelopment cylce?

KPMG InsightClockspeed d..

BRIC

Rest ofWorld

TRIAD

18%

22%

27%

15%

18%

25%

48%

46%

39%

19%

15%

9%


Note: Percentages may not add up to 100% due to rounding | Right graph is ordered descending by ‘it will be an absolute purchasing criteria’Source: KPMG’s Global Automotive Executive Survey 2016

Autonomous driving vehicles will givepassengers the chance to use their timeefficiently while commuting. 62% of exec-utives expect self-driving technology tobecome a more important purchasing cri-terion to consumers in the next 15 years.With the ability to drive autonomously, vehi-cles will transform to mobile data rooms,making virtual product features and services– uber- functionalities – increasingly relevant.These have not been core competencies forauto companies until today. It will be vehicle-independent and customer behavior-oriented

services such as customized online shop-ping or health checks that OEMs can tailorto consumers’ needs by possessing theirbehavioral data (internet of behavior).Being a very new and futuristic feature, theself-driving car is still highly product andtechnology based. Therefore the OEM willbe the one pushing this technology to anew level while the ICT sector will mainlyobserve, waiting for the right moment totake over the customer interface. Eventhough Google is building a self-drivingcar, the main purpose is testing and finding

out more about additional revenue streams.Consequently, Google will not compete withOEMs in building or selling cars but rather forthe vehicle and consumer data generated inor by a car.This presents challenges to the new businessmodel as traditional OEMs need to increas-ingly integrate ICT hardware and softwarecomponents into their vehicles.As self-driving capabilities do need a certaininfrastructure, it is not surprising that con-sumer respondents around the world do havea different perspective.

With autonomous cars becomingpresent and constantly availablein our daily life, the decision ofchoosing a car will present newpriorities. Instead of being fo-cused on brand image, total costof ownership will become evenmore influential. Product featuresthat are important to us whileowning a car will be overtaken bythose important when using a car.Although half of consumers sayself-driving cars will become moreimportant or even an absolutepurchasing criteria in the next15 years, consumers are morereluctant (20%) than executives(9%) actually expect. This couldbe due to customers’ respect forunaccustomed technology that isnot yet integrated into their dailylife and regulatory system. Con-sumers from Triad markets (es-pecially mature markets such asNorth America, Western andEastern Europe) are less keen onself-driving cars than thosein BRIC markets. 24% of con-sumers from China and 22% fromIndia & ASEAN see self-driving asan absolute purchasing criteria.Does this indicate high growthpotential for self-driving vehiclesin emerging markets?

11% 9%

62%19%

It will be an absolute purchasing criteria

Expect it to become more important

With reluctance

No importance

Executive opinion Consumer opinion by maturity cluster





Filter by respondent age: Filter by car ownership:

Filter by education: Filter by living circumstances:

2016

Executive n =

Consumer n = 2,123

800

Attractivebenefits in ..





KPMG InsightClockspeed dilemma

Eco-friendlytechnologies ..


KPMGInsight..





Eco-friendly technologies& products

Whatpowertrain te..


The major issue for automakers will be tosolve the clockspeed dilemma. Thismeans significantly different clockspeedsexist between the innovation and productdevelopment cycles of car hardware, ICThardware components and ICT software.

Solving the clockspeed dilemma will mean agiant leap for automakers. They are current-ly unequipped with the necessary organiza-tional processes, teams and innovationalculture to synchronize their own clockspeedwith the faster clockspeed of innovative ICTplayers, such as those from Silicon Valley.In our survey, few respondents show an un-derstanding that some components require ashorter product development cycle. Morethan 40% of executives from OEMs still saythat IT hardware and software componentscan be developed in the longer product de-velopment cycle, which at the end is notsolving the clockspeed dilemma.

Note: Sorted descending by percentage of components that can still be developed in a longer development cycle | Percentage ofrespondents answering for long/short development cycle.Source: KPMG’s Global Automotive Executive Survey 2016

Engine & transmission

Axle, steering, break, drivetrain &suspension system

Chassis, body & exterior

Physical interior (e.g. panels, instruments,airbag systems)

IT Software Components (e.g. operatingsystems, apps)

IT Hardware Components (e.g. networkingtechnologies, touch displays, USB

connections)

80%

75%

68%

48%

46%

40%

20%

25%

33%

52%

54%

60%

Long development cycle Short development cycle

Filter by region: Filter by country:

Filter by stakeholder group: Filter by value chain role:

2016

n = 800

Howimportant ..





What powertraintechnology to invest in?

KPMG InsightDieselgate


Gary SilbergThe Americas Head of AutomotiveKPMG in the US

Changes in consumer behavior and in the competitive balanceare accelerating the pace of innovation in the auto industry.Having a sexy, dynamic experience is not purely for smart-phones.

An accelerated pace of innovation is occurring at different rates inkey areas of mobility-on-demand, autonomous vehicles and con-nectivity.Consumers expect a safe, reliable, fault-tolerant car and the newsense of good they feel when their tablets or smartphones upgradeduring the ownership cycle. There are different clockspeeds forthose expectations and the auto industry must work within them all.Speed of innovation in the auto industry in the last century includedmass production and automatic transmissions and now we haveadded sensors, cameras, radar and lidar remote sensing technolo-gy. It is clear executives understand the speed of change is notslowing.Customers are increasingly demanding Six Sigma quality in theircar, together with innovation, flexibility and availability. The auto in-dustry ignores their demands and the need for varied clockspeedswithin the production and service process at their peril.

Source: The clockspeed dilemma, KPMG 2015

Does usingthe autopil..






Analysis | Theimpact of dies..


Although connectivity and digitalizationis the overarching and most disruptivefactor transforming the automotivebusiness over the coming years, thisdoes not mean that the technologicalchallenges resulting from the pressureput on the auto sector by legislationand regulation has reduced.A high proportion (80%) of automotiveplayers across all regional segments andstakeholder clusters see legislation andregulation as having a high or very highimpact on the development of the automo-tive industry in their home country. Con-sidering stakeholder segmentation, mobili-ty services providers and vehicle manufac-turers feel the highest impact of regulation.


0%

29%

51%

17%

2%

Very high influence

High influence

Average influence

Low influence

No influence





2016

n = 800

Long orshort devel..





Analysis | The impact ofdiesel 2010-2020

Conqueringnew spheres ..


Legislation has a significant impact on the future ofthe automotive business. In particular, the strict en-forcement of the introduction of more eco-friendly andsustainable alternative powertrains to lower the envi-ronmental impact of cars will need heavy investment.Recent events have shown that regulating the worldwideautomotive industry is also a necessity. The ‘dieselgate’scandal has revealed that downsizing the internal com-bustion engine may not be sufficient to meet the strict en-vironmental regulations in the key auto markets. In theface of these strict efficiency and emission standards, ICEdownsizing has significantly decreased in importance fromfirst to fifth priority since the corresponding 2015 survey.

Although fully electric vehicles like the Tesla Model S/X havereceived a lot of attention in the past year, the total number offully electric vehicles and their application for daily use is stillfar from the mainstream needs of today’s customers.In fact, pure battery electric vehicles rank last for consumerswhen asked which powertrain technology they would chooseif they were to buy a car in the next five years. Meanwhile,the automotive industry sees future innovation in pure batterye-mobility as #2 priority. This shows that many consumersseem to be reserved towards the concept of pure batteryelectric vehicles. Reasons could be low distance ranges,fragmented charging infrastructure, long charging times andhigh total cost of ownership.

Hybrids, in contrast, offer the benefits of electrification whilestill being appropriate for daily use. Emphasizing the hybridpowertrain technologies as #1 investment priority, OEMs cor-respond well to consumers’ demand. They rank hybrid electricvehicles #1 as the next purchasing choice, combining alterna-tive powertrain with a common internal combustion engine(ICE).Moreover, consumers prefer hybrids over downsized ICEcars, probably because they cater to their needs for fuel effi-ciency and environmental friendliness.In particular, their rating of vehicles with a downsized ICE canchange in the future, if regulation affects consumers.

Note: Sorted descending by percentage of ‘high investment’ in powertrain technology | Percentages may not add up to 100% due to roundingSource: KPMG‘s Global Automotive Executive Survey 2016

Hybrid electricvehicle

Pure batteryelectric vehicle

Battery electricvehicle with range

extender

Plug-in hybridelectric vehicle

Downsized internalcombustion engine

Fuel cell electricvehicle

60%

55%

54%

53%

51%

46%

33%

36%

36%

39%

42%

45%

10%

10%

7%

8%

7%

9%

No investment Low investment High investment

#6

#5

#4

#3

#2

#1

Executive opinion Consumer preference

#6

#5

#4

#3

#2

#1 Hybrid electricvehicle

Downsizedinternal

combustion en..

Fuel cell electricvehicle

Plug-in hybridelectric vehicle

Battery electricvehicle withrange extender

Pure batteryelectric vehicle

34%

24%

15%

14%

7%

6%

Ranking Ranking





2016

Executive n =

Consumer n = 2,123

800

KPMGInsight..





Conquering new spheresremains in focus

Where tolaunch new p..


Stephanie GöringEMA Executive for Automotive | KPMG in Germany

In last year’s survey, we identified the gap betweenthe regulator and the consumer vision, with the OEMin the middle. Until this year, consumers relied onthe framework of different regulators. There was nooverriding necessity for them to understand howthese regulations had been set or met.The main reason for this attitude was that customersnever questioned certification processes, they justtreated a car the same as other consumer products.They wanted to understand in which category it wasclassified (for example, classifications in energy effi-ciency levels) and whether there was a financial con-sequence reflected in the vehicle tax.At the same time, customers are constantly movingfrom seeking a technology focused perspective todemanding a much more service oriented businessmodel.How should we respond? Which focus has to be setnow in the era after ‘dieselgate’? Do customers haveto understand how a test cycle or a certification pro-cess has been set up and rolled out? If so, whywould this only be valid for the automotive industryand not for other consumer goods? It is crystal clearthat customers cannot be involved in the certificationprocess if there are no consequences to bear.Consumers must rely on a regulatory process that istransparent and secure. For the regulator, this meanstest cycles will never reflect reality. There is not onesole reality. Rather, conditions are different from dayto day, driving behavior is different, people are differ-ent. Therefore, to ask for adoptions in test cycles willnot lead us to better and more reliable results. It hasto be accepted that test cycles have their limits.

The more interesting question is now the impact we seeon the technology roadmap of OEMs: downsizing tothree or fewer cylinders, double and triple charged, willlimit technological solutions as the bandwidth of techni-cal adoptions and less cost intensive solutions will belimited.Consequently, the pressure on OEMs is increasing.Currently, downsizing is the only choice OEMs have toachieve the set goals on CO2 emissions in the shortterm. In the long run, consumers will have to pay for it.OEMs will prefer to offer CO2 neutral technical solutionsand accelerating the path to hybrids, BEVs and fuel celldriven vehicles. This matches the ranking of key trendsat the very beginning of this survey.Downsizing the internal combustion engine has beenranked only as #10 key trend compared to #2 last year.As only developed markets will be able to pay for CO2neutral latest technologies, we will again generate a twoclass system.On the one hand, high regulations with strict CO2 ruleswill be reflected in mature and developed markets. Onthe other hand, we will find low price segments in biggrowth markets where the ratiobetween technology built in the car and total sales priceneeds to fit earnings and income models.This leads us to the final question, whether the dieselera is over? Latest test cycles already have shown thatin combination with high mileages, the diesel engine stillwins the game.The matrix on the next page presents a more detailedinsight into how far manufacturers will really focus on theproduction of vehicles equipped with diesel engines.

Eco-friendlytechnologi..





Where to launch newproducts & innovations?

Where toinvest in the f..


The following graph analyses the accumu-lated production of diesel and gasoline en-gines of various manufacturers between2010 and 2020. It considers the previousfive years as well as a forecast for the nextfive years.In terms of volume, Volkswagen Group has thehighest number of diesel engines in its portfolioamong all manufacturers worldwide. Looking atthe overall diesel share, Volkswagen actuallyhas a significant lower share than the IndianTata Group with a diesel share of 65%, whichincludes JLR.The Daimler Group has the second highestdiesel share and 41% of its vehicles will beequipped with diesel engines over the courseof this decade.In contrast, other well-known high volumemanufacturers such as Toyota and GeneralMotors clearly focus on gasoline engines andhave a comparably low diesel share.The same is true for the Asian manufacturerswith Hyundai, Honda, Suzuki and Mazda allhaving a comparably low diesel share.

Note: Size of bubbles represents the share of vehicles equipped with diesel engines in the period between 2010 and 2020 | 2015-2020 numbers are estimatesSource: KPMG Automotive Institute, LMC Automotive 2015

0M 10M 20M 30M 40M 50M 60M 70M 80M 90M

0M

5M

10M

15M

20M

25M

30M

Daimler Group(Diesel share: 41%)

BMW Group(Diesel share: 35%)

Volkswagen Group(Diesel share: 26%)

Ford Group(Diesel share: 23%)

Renault-Nissan Group(Diesel share: 22%)

Hyundai Group(Diesel share: 19%)

Suzuki Group(Diesel share: 17%)

Toyota Group(Diesel share: 12%)

General Motors Group(Diesel share: 10%)

Honda Group(Diesel share: 3%)

Diesel share: 0-10% 11-20% 21-30% 31-40% >40%

Produced vehicles equipped with gasoline engines(running total 2010-2020)

Produced vehicles equipped with diesel engines

(running total 2010-2020)

Filter by production region:All

Filter by production country:All

Filter by diesel share:All

Whatpowertrain..





Where to invest in thefuture?

Where are thenext emergin..


Business models, technologies andproducts are changing. So, too, arestrategies and potential in foreignmarkets. Market growth in emergingmarkets has been ranked #1 trend inour last three surveys and has onlymarginally dropped in importancewith the growing trend of connectiv-ity.Even if digitalization is conquering theindustry, the pressure put on automo-tive companies by the regulator hasnot vanished at all and the presence inemerging markets is also still funda-mental to the success of auto compa-nies.For most manufacturers, China hasbeen important for volume, but that isno longer the only reason and driver.China has become the biggest marketfor most global automakers

and the primary place to pilotnew innova-tions, launch new products and invest inthe future.However, even if China remains the mostattractive country for futureinvestments, it can no longer be regardedas emerging.A second wave of growth will thereforetake place in new emerging countries asthe global automotive market is still farfrom being saturated. Millions of potentialcostumers are waiting in what are nolonger ‘underdeveloped’ countries.According to this year’s respondents,Southeast Asia – especially Thailand andIndonesia – seem of high interest. Otherregions, like South Africa, will also becomemore important for the automotive industrydue to increasing political and social stabil-ity and sales potential.

KPMGInsight..





Where are the nextemerging markets?

Which macrofactor will affe..

China Germany USA India Japan AustraliaCanada France Brazil Austria

16%

11%

9%

8%

5% 5% 5% 5% 4%3%


The Triad is dead – but this does not mean that those countrieswill disappear from the automotive world. Rather, the resultsshow the Triad needs to be newly defined as there will not be justthree regions – North America, Western Europe and Mature Asia– dominating the market. They will be joined by China. More pre-cisely, China has not only become the hugest market for mostglobal manufacturers, it has even become the number one placeto pilot new innovations or launch new products according to 16%of this year’s executives – easily overhauling Triad countries likeGermany (#2), the US (#3) and Japan (#5). Those results showthat the Triad in its old definition as the major driver of the autobusiness has become obsolete.

China clearly needs to be included, forming agroup of four – some call it quadriga. It can nolonger be considered as an emerging countryas it has developed to a highly dynamic mar-ket, which is outperforming the whole industry.The bet on India is still unclear, but executiveskeep it in their top five list in anticipation thatthe country’s potential is realised.On the other side, former high potential stateslike Russia – currently on a downward slopedue to economic downturn and sanctions –seem to have lost in attractiveness for

launching new products, being ranked by theexecutives far behind on 22nd place. Countrieslike Austria, however, which have never playedan important role in the automotive industry, canbe found within the top ten. Eastern Europeanrespondents especially tend to see Austria asan ‘automotive hub’ and as the ‘entry country’ tothe European market, by rating it as third mostattractive country for launching a product or aninnovation, as well as for future investments(please also see page 38).

Note: Percentage of respondents rating a country as Top 1 country for piloting a product or an innova-tion in descending order | Some ranks are assigned several times due to an equal number of respon-dentsSource: KPMG‘s Global Automotive Executive Survey 2016

#29 Vietnam

#3 USA#38 Uruguay

#38 Ukraine

#13 UK

#27 Turkey

#29 Thailand

#23 Taiwan

#36 Sweden

#36 Spain

#31 South Korea

#31 South Africa

#38 Slovakia#23 Saudi Arabia

#22 Russia

#38 Poland

#31 Philippines

#38 Nigeria

#38 Morocco

#21 Mexico

#38 Malaysia

#31 Kazakhstan

#5 Japan

#23 Italy

#38 Israel

#27 Iran

#19 Indonesia

#4 India

#17 Hungary

#2 Germany#8 France

#13 Finland#16 Ecuador

#20 Czech Republic#11 Colombia

#1 China#7 Canada

#31 Bulgaria

#9 Brazil #15 Belgium

#17 Belarus

#10 Austria#6 Australia#11 Argentina

#23 Algeria


2016

n = 800

Analysis |The impac..





Which macro factor willaffect strategies?

Who is bestprepared?


Globally, executives surveyed this year plan to in-crease their investments – in terms of production– in China (16%) and Germany (11%). India is just fol-lowing right away with 9%. Nevertheless, the less sta-ble markets of Australia, Argentina and Colombia alsoappear in the top 15 of most interesting countries forinvestment.But opinions differ from a regional perspective. Mostexecutives also see high investment potential in coun-tries from their own wider region due to their geo-graphical proximity.Almost a third of the respondents from India & ASEAN,for example, rate India as #1. Most executives fromSouth America, on the other hand,

are planning to invest in Brazil (21%), and also rankedArgentina in third place.By taking a closer look at the opinions of the differentstakeholder groups participating in this year’s survey,only ICT companies (#1 Brazil), financial and mobilityservices providers (#1 Germany) see countries otherthan China on top.However, the Chinese market also seems to be verypromising, especially for mobility services providers(#2). Even if the Chinese population still prefers own-ing a car, ideally one from the premium segment, theneed for alternative mobility solutions is obvious, dueto massive traffic problems in their numerous megaci-ties.

Note: Percentage of respondents per region rating a country as ‘most attractive for investment’Source: KPMG‘s Global Automotive Executive Survey 2016

China can no longer be regarded as emerging. It’s oneof the world’s most dynamic markets and in the nexttwo years will experience rapid changes. China’sgovernment is keen to modernize the auto industryand create flexible opportunities for consumers.Regulation is traditionally strict in China and today’s gov-ernment is helping foster new technologies and innova-tions that can leapfrog the traditional technological paththat has taken years in the rest of the world.Connected cars and New Energy Vehicles will be a focusin the coming decades and consumers buying electriccars or those with lower car emissions will benefit fromsavings direct from the government.Despite alternative mobility options helping reduce trafficissues in this increasingly urbanized society, car owner-ship remains a priority and a status symbol for Chineseconsumers.The control of license plates – and hence car ownership –is challenging, especially in Tier 1 and 2 cities. Whereasanother Asian city, Bangkok, runs a lottery, Shanghai hasa fiercely competitive bidding system. But new mobility willenrich the mobility landscape in urbanizing China.Chinese OEMs are finding their place in the local marketand across Southeast Asia. German, Japanese, Koreanand American auto manufacturers have their own priorityregions. The future is wide open, but Chinese OEMs mayfocus on the increasing demand for electric cars, espe-cially in large cities. They are becoming more aware of theneed for ICT and financial services, developing their busi-ness models to benefit China’s connected consumers.

Huu-Hoi TranHead of Automotive ChinaKPMG in China

Western Europe

Germany China France

20%

14%10%

Eastern Europe

Germany China Austria

15%13%

9%

North America

China USA Germany

17% 16%12%

South America

Brazil Germany Argentina

21%

11% 9%

Mature Asia

China India Japan

27%

9% 7%

China

China Germany Australia

30%

10%6%

India & ASEAN

India China Australia

29%

14%

8%

1 2 3

China Germany India

16%

11%9%

All regions



2016

n = 800

Conqueringnew spher..





Who is best prepared? Who willsuceed in the..


The auto industry has witnessed enormousgrowth within the last few years – predomi-nantly in the BRIC economies.However, with the global automotive marketstill far away from being saturated, a newwave of growth will take place in new emerg-ing countries in the coming years.Executives view those countries as being mainlylocated in Southeast Asia – with Thailand (47%)and Indonesia (43%) of particular.However, other regions will also become moreimportant for the automotive industry. SouthAfrica, for example, has been ranked #2 due toincreasing political and social stability as well assales potential in this highly-populated country.But also countries from South Eastern Europe,like Turkey (39%), the Middle East, like SaudiArabia (36%), and also South America, like Ar-gentina (38%), have regained the attention of theexperts.Despite this, fewer than 20% of executives be-lieve that other Sub-Saharan countries,like Namibia, Botswana, and very surprisinglyNigeria, will become high potential countries.The Nigerian automotive industry has witnessedserious interest from global and local automotivebrands in setting up and doing business theresince the National Automotive Industry Develop-ment Plan (NAIDP) was announced by the Fed-eral Government.Also, Iran does not seem to yet be of interest forthe executives, with only 23% expecting it to beone of the next emerging markets. But this mightchange soon as the embargo which was imposedover Iran has been set aside. As the country hasbeen completely closed in recent times, a consid-erable backlog – and therefore an enormous pot..

Note: Percentage of respondents rating country as next emerging marketSource: KPMG‘s Global Automotive Executive Survey 2016

South Africa46%

Turkey 40%

Thailand 48%

Saudi-Arabia 36%

Nigeria 18%

Namibia 11%

Morocco 31%

Malaysia 35%

Iran 23%

Indone-sia

43%

Egypt 28%

Colombia 26%

Chile 28%

Botswana 12%

Argentina 39%

Algeria 18%

11% 48%

% of respondents expecting countryto be a next emerging market:

#1Thailand48%

#2South Africa46%

#3Indonesia43%

#4Turkey40%

#5Argentina39%


Filter by country: Filter by stakeholder group:All


2016

n = 800

Where tolaunch ne..




Who is best prepared? Who will suceed in themarket place?

Have vehiclemanufact-ure..


One could assume that the low interest in the Nige-rian market of the executives is a reflectionof the terrorism and riots in the country. But de-spite unrest around the world, more than 56% ofexecutives rated the most influencing macroeco-nomic change to a company’s strategy– for example, when considering moving or ex-panding to another country – to be financial or eco-nomic crises.This shows that the last crisis that had enormous im-pact on the automotive industry is still present and inthe minds of the executives. However, as thissurvey took place before recent terrorist acts, a higherevaluation of the influence of war and terrorism couldbe expected now.Generally, most concerns seem to be caused bychanges that might affect production, like instability inraw material costs (44%) and oil price volatility (40%).Fluctuating oil prices are especially ableto disrupt the whole production and development planof an OEM who might have been forced by the regula-tor to increasingly focus on alternative powertrain pro-duction. The customer’s purchasingdecision, however, is mostly driven by the total cost ofownership that comes with driving a car and not by theCO2 emission of the vehicle.Changes related to the customer, on the other hand,are fairly underestimated by the executives, with only30% rating demographic developments as highly influ-ential on a company’s strategy. This shows that, al-though the customer clearly should become the centerof interest in a successful business model in the future,focusing on the customer has still not become an over-all motto for the executives.

Note: Percentage of respondents rating ‘high influence’ of a macroeconomic changeSource: KPMG’s Global Automotive Executive Survey 2016

War and terrorism

27%

Political changes

28%

Natural disasters

26%Demographicaldevelopments

30%

Oil price volatility

40%

Raw material costs

44%Financial / economic crises

56%


2016

n = 800

Where toinvest in th..




Have vehiclemanufact-urers lost conf..

Who will beground-breaki..


One thing is clear now: the auto indus-try is changing and the countdown fordisruption has already started. In orderto keep the control of the customertouchpoints, and not to lose them tonew industry entrants, manufacturersneed to change their business modelsat the very core. Premium manufactur-ers might be able to cope best with theupcoming changes due to their strongand trusted premium brands.Theymight also have the most power to seekinnovations and cope with the regula-tors’ vision of future mobility in termsof e-mobility and autonomous driving.

But will they also be the companies withthe highest increase in market share?Independent of whether they are or not,the question that arises is: Will the highestmarket share still be the key to success forauto manufacturers, as data and revenuesgenerated by the customer while driving infully connected vehicles will become moreimportant than just selling cars on a highvolume basis?

However, as former results show, BMWand Toyota are in good shape for the fu-ture, according to the executives, and theyalso expect both of them to be the biggestrisers in market share, led by Toyota. Ingeneral, they are very optimistic and only afew expect a decrease in market domi-nance of the top 20 OEMs – for most ofthem it might just remain as it currently is.Anyway, even if their market share mightremain stable, that doesn’t mean they areimmune from competition for futuregroundbreaking innovations. OEMs seemto be aware of that fact, as even if they arebasically expected to be the innovators inthe next years, they do not see themselvesas having the leading position, nor bestprepared to hold that position.The industry will be increasingly penetrat-ed by a new and fresh culture dominatedby start- up companies, which will not fo-cus on just building a car, and are – justbecause of that – until now not seen as bigentrants or threats in the market.

Where arethe next e..




Who will beground-breaking innovat..

About theconsumer sur..


Our survey responses make it clear thatmarket share is a constantly changing fac-tor in the auto industry. That’s not going tochange, but is market share based on vol-ume still the best measure of success?In times of digitalization and connected vehi-cles, the customer, their data and revenuesgenerated while driving a connected vehicleand using personal gadgets and apps arelikely to be more significant than market sharebased on sold units. That means that in thefuture, 5,000 connected cars could be morevaluable than 50,000 traditional, unconnectedvehicles due to valuable revenue streams thatcan be generated in a connected car by cus-tomers providing information about their entirelifecycle.Nevertheless, considering traditional businessmodels, Toyota has made the biggest leapahead and the executives of this year’s surveyexpect the company to be the big riser in mar-ket share in the next five years, after beingranked #9 in 2015. Toyota’s innovative newmodels and increasing sales in Europe seemto have convinced the executives of its futuresuccess. BMW and Volkswagen just follow onsecond and third place.Last year’s winner Hyundai is falling on fourthplace in this year’s survey, with 50% of re-spondents expecting an increase in marketshare, followed by Ford on #5 with 49%. Ingeneral, most executives are optimistic andonly a few expect a decrease of market shareof the listed companies. Most of them expectthem to either increase or remain at least sta-ble, like, for example, Daimler with 53%. Alsothe new player Tesla (#11) is expected by52% of the respondents to remain fairly static.Note: Percentages may not add up to 100% due to rounding | Sorted descending by percentage of ‘increase in market share

Source: KPMG’s Global Automotive Executive Survey 2016

#1 Toyota Group

#2 BMW Group

#3 Volkswagen Group

#4 Hyundai Group

#5 Ford Group

#6 Honda Group

#7 General Motors Group

#8 Renault-Nissan Group

#9 Mitsubishi Motors

#10 Suzuki Group

#11 Tesla Motors

#12 Fiat Chrysler Automobiles

#13 Mazda Motors

#14 BAIC Group

#15 Geely Group (incl. Volvo)

#16 Daimler Group

#17 Tata Group (incl. JLR)

#18 Chery Group

#19 FAW Group

#20 Changan Automobile Group

58%36%6%

57%40%

56%38%6%

50%41%9%

49%41%10%

49%44%8%

45%46%10%

42%48%10%

40%48%12%

39%48%13%

37%52%10%

37%51%12%

36%53%11%

35%57%8%

34%51%15%

34%53%13%

34%51%15%

32%53%15%

30%55%15%

30%56%15%

Increase

Remain stable

Decrease




2016

n = 800

Whichmacro fact..




About the consumersurvey

Your contactsat KPMG


In the big picture, the executives are opti-mistic that traditional manufacturers will bethe groundbreaking innovators in the fu-ture. However, as they are facing a newhighly digitalized and connected age withnumerous new players, OEMs seem to beaware that these developments are not(yet) sufficiently reflected in their businessmodels. Or why are they expecting ICTcompanies to be the big innovators amongnew market entrants in the future – and notthemselves?More than one-third (35%) of all respondents,however, expect traditional auto companies tobe the groundbreaking innovators within theindustry in the next five years. They are fol-lowed directly by ICT companies on secondplace with 30% of respondents, predominantlynaming Google andApple in this context. Other players, includingmobile payment providers, new financial ser-vices providers and start-ups, are only seen byfew executives as the overall future innova-tors.

However, by having a closer look at the viewof the different stakeholder groups participat-ing in the survey, it is most surprising thatOEMs expect ICT companies (35%) to be themost groundbreaking innovators in the future,rather than traditional automotive companies,and therefore not themselves. Are they losingconfidence in not being able to compete withthose new market entrants?The executives from the ICT companies, onthe other hand, are convinced that they them-selves will be the leaders in fields of innova-tion over the next five years (53%) – far aheadof all other players or market entrants.An interesting fact is: When it comes to re-gional differences, Triad respondents most of-ten think that only traditional automotive com-panies will be leading innovators, while theexecutives from the BRICs and from the restof the world see innovations coming mainlyfrom ICT companies.





Your contacts at KPMG



Traditionalautomotivecompanies

ICTcompanies

Insurancecompanies


Mobilepaymentproviders

Newfinancialserviceproviders

Start-Ups

35%

30%

13%

11%

7%

3%

1%


ICTcompanies

Insurancecompanies



New financialserviceproviders

Start-Ups

31%35%

15%

9% 7%3%

1%


ICT companies Insurancecompanies


Mobile paymentproviders


26%

53%

7% 8% 5%1%


ICTcompanies

Insurancecompanies




Start-Ups

39%

23%

16%10%

7%3% 2%

Stakeholderview

OEM

ICT

Other

Filter by region: Filter by country:

2016

n = 800







As customer-focus and service-orientationbecomes ever more important for the auto-motive business in the age of digitalization,we have for the first time additionally inter-viewed 2,123 consumers from around theworld to give us their valuable perspectiveand compare their opinion against the opinionof the world’s leading auto executives.

We have asked consumers with various edu-cational backgrounds, throughoutall age groups, living circumstances and re-gional clusters.

Note: Percentages may not add up to 100% due to roundingSource: KPMG‘s Global Automotive Executive Survey 2016

2%15%

45%

13%

25%

Respondents by education

Ph.D.

Master's degree

Bachelor's degree

Apprenticeship

High school graduate

Western Europe17% | 360

South America12% | 260

RestofWorld

North America13% | 281

Mature Asia12% | 261

India & ASEAN16% | 340

Eastern Europe11% | 240

China12% | 261

Respondents by regional cluster

Total = 2,123 18-24 25-30 31-40 41-50 51-65 > 65

56% 73%84% 83% 81%

78%

44%27%

16% 17% 19% 22%

354383 383 383 380

240

Respondents by age & car ownership

Yes, I own a car No, I do not own a car

In a city with > 1.000.000inhabitants

In a city with 500.000 -1.000.000 inhabitants

In a city with < 500.000inhabitants

In a town / village / suburb closeto a city

In an independent town / village

In the country side

13% | 278

19% | 403

20% | 416

39% | 820

6% | 129

4% | 77

Respondents by living circumstances