A recent study from KPMG indicates that the Chinese market will continue to expand considerably with it expected to account for 30% of global automotive sales by 2020 alone.
The study, carried out by KPMG as part of its fifteenth annual Global Automotive Executive Survey highlights many key points in the development of the Chinese auto industry which will coincide with the development of other BRIC markets which KMPG believes will benefit the top ten OEM manufacturers in China and to a lesser extent to the following ten.
Andrew Thomson, Asia Pacific and China Head of Automotive and a Partner at KPMG China, says: “Chinese auto consumers have high expectations and are increasingly keen to have more options available to them in their vehicles, a wide variety of products to choose from and good service from enhanced dealer networks. China offers a relative ‘greenfield’ environment to exploit a wide range of opportunities for auto manufacturers.”
The highly comprehensive survey also touches on Chinese design tastes where it was found that Chinese consumers ranked urban vehicle design as their top priority when choosing a new vehicle. Thomson explains: “The phenomenal expansion of cities in China is putting pressure on infrastructure and our prediction is that there will be greater demand for solutions such as improved connectivity, lightweight materials, alternative powertrains and even, eventually, self-driving cars to avoid congestion and pollution.”
Chinese automotive exports may have slipped slightly in 2013 owing to poor economic conditions in key international markets such as Brazil and other South American markets. Respondents to KPMG’s survey are confident that China will boost its automotive exports to over two million vehicles in the next two years, a majority of respondents (over 47%) indicated that the Chinese market will exports 2 million units within the next 3 to 5 years. Thomson added: “It does not seem likely that China can match such bold expectations, as a big export push – especially into the more mature auto markets – would require significant efforts to improve not only quality, but also brand perceptions and distribution networks.” The current top export destinations for Chinese cars are Russia, Brazil, Iran and Venezuela, as well as North African and Middle Eastern markets where there is a current economic boom in ‘Post Arab Spring‘ markets.
Meanwhile, a significant majority of respondents see emerging markets as a major growth engine for the auto industry: 85 percent say that growth in the BRICs and other potentially high-growth markets is the biggest single industry trend until 2015, according to the survey.
Although Chinese auto brands long planned goal of entering Western mature markets may have stumbled, their own domestic markets seem to have plenty of potential remaining which is reflected in the high proportion of companies planning to increase of decrease their investment within China. China is still rated as the number one investment destination attracting positive sentiment from 73% of respondents within BRIC nations.
Separately, the survey notes that organic growth has overtaken joint ventures and partnerships as the most favored business strategy. In 2013, respondents placed joint ventures and alliances as the main approach, while organic growth now tops the list; 84 percent of OEMs from the TRIAD countries (NAFTA, EU, Japan, South Korea, Hong Kong and Taiwan) list organic growth as their main business strategy.
This significant response may be a result of challenges that are being experienced in current partnerships, such as effective integration and finding synergies. However, respondents indicate that joint ventures, alliances and mergers and acquisitions are most likely in China, the rest of Asia and Central and South America in the 5 years up to 2019. These observations reflect the evolving nature of these geographies, as new and existing players strive to gain leadership positions.
Thomson concludes: “Once again, our survey highlights the dynamic and challenging nature of the automotive industry. China continues to be a key focus for almost every OEM and prospects continue to look bright for the future. Whilst Chinese OEMs continue to make progress, questions remain in respect of their future development. Meanwhile, their foreign counterparts continue to lead the Chinese market. As the auto industry becomes more global, it will be interesting to see who emerges as China’s winners and losers”.
The full report can be read as attachment.