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Automotive now oct-2010

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  • 1. AutomotiveNow Summer 2010 Value Chain Crash – New Business Models for the Automotive Industry Rethinking fleet management Exploring the trend towards environmentally- friendly mobility alternatives in travel management The US – the rise after the fall Automotive industry quickly adapts to the challenges of the new global economy
  • 2. Dear Readers, Flexible and mobile – that’s how we We look beyond the European horizon describe the current spirit of the times and, with our articles on the develop- and the pressure to change it brings ment of the Chinese car trade and the with it – if you don’t move, you get left US’s comeback as a competitive inter- No member firm has any authority to obligate or bind KPMG International or any other member firm vis-à-vis third parties, nor does KPMG International have any such authority to obligate or bind any member firm. All rights reserved. behind. national production site, we also show © 2010 KPMG International Cooperative (“KPMG International”), a Swiss entity. Member firms of the KPMG network of independent firms are affiliated with KPMG International. KPMG International provides no client services. that established structures in particu- In this issue we highlight the future lar offer more and more new opportu- changes in the automotive industry’s nities when seen from other perspec- value creation chain and focus our view tives. on the shaping of future business models in particular. Will mobility service pro- The foundation of an international viders with flexible usage and financing orientation must, however, be laid by packages meet the requirements of sustainable cash and corporate capital a younger target group better than management, because future challenges “traditional” car dealers in the future? can only be overcome with a sound Forward looking concepts and foresight and solid base. The magazine’s final on societal developments are now article shows the way to build that required. Anyone that is not caught up solid foundation. in their existing business model can score points where the readiness to be With this issue of AutomotiveNow we creative in competition was previously want to transparently, actively and lacking. insightfully inform you about current trends and events in the automotive Some of the discussion surrounding industry. the automotive value creation chain deals with the role of “brand manage- On that note then, I wish you an ment”. We took a look at Formula 1™ interesting and stimulating read, and and asked ourselves what role brand we hope this AutomotiveNow opens management might play in the future up new perspectives for you. for this business segment. Another area of focus: the requirements Sincerely, of corporate fleets of the future. What Dieter Becker are the future requirements for vehicle Global Head of Automotive, fleets? Should they become greener or KPMG in Germany. simply more efficient? In our country focus we discuss basic value creation chain changes in a global context.2 Automotive – Summer 2010
  • 3. Lead article Contents 09 Rethinking fleet management In Q1 2010 almost one in three new motor vehicle registrations in Germany was a company car. 12 The US – the rise after the fall The world economy is starting to show signs of recovery, but the economic landscape has changed dramatically. 16 Fast lane or hard shoulder? There are contradictory views on the pros and cons of a commitment 04 09 to Formula 1™.No member firm has any authority to obligate or bind KPMG International or any other member firm vis-à-vis third parties, nor does KPMG International have any such authority to obligate or bind any member firm. All rights reserved. 20 The future of China’s auto© 2010 KPMG International Cooperative (“KPMG International”), a Swiss entity. Member firms of the KPMG network of independent firms are affiliated with KPMG International. KPMG International provides no client services. dealership market Last year was a great year for auto Business Models on sales in China, as it overtook the US the Test Stand to become the world’s biggest car Your car is no longer as important market by sales volume for the first as it once was as a status symbol – time. But, paradoxically, it was far in the saturated markets at least. from the best of years for the coun- Both young and urban drivers in par- try’s auto dealers. ticular now prefer time-limited use of 25 Sustainable cash and working a car to meet their mobility needs. capital management Mobility service providers have an It is an understatement to say that opportunity to capture the previously the credit crunch has had a major car manufacturer-dominated individ- ual mobility market. 12 impact on the automotive industry. 28 Current Studies 29 Contacts 20 Automotive – Summer 2010 3
  • 4. 4Automotive – Summer 2010 Business Models previously car manufacturer-dominated individual mobility market. in the saturated markets at least. Both young and urban drivers in on the Test Stand particular now prefer time-limited use of a car to meet their mobility needs. Mobility service providers have an opportunity to capture the Your car is no longer as important as it once was as a status symbol – © 2010 KPMG International Cooperative (“KPMG International”), a Swiss entity. Member firms of the KPMG network of independent firms are affiliated with KPMG International. KPMG International provides no client services. No member firm has any authority to obligate or bind KPMG International or any other member firm vis-à-vis third parties, nor does KPMG International have any such authority to obligate or bind any member firm. All rights reserved.
  • 5. T he car has been the symbol appropriately satisfy people’s mobility of mobility and indepen- requirements. On the whole this dence for more than a trend towards increased mobility will hundred years now. It gives continue – because, for example, us access from our front workers will always be asked to pro- door to a global road network. And vide more spatial flexibility. Technical the car is not merely a means of innovations do not solve problems, transportation – it also represents an even if micro-cars and the generally emotionally populated brand world. smaller electric cars can alleviate con- so to consumers in the emerging Every car driver that can afford it finds gestion and environmental impacts in markets. a suitable brand for their personality. cities. Nowadays it is far more about a Can a mobility service provider that Or at least that’s how it used to be! basic reorientation that sees the car as offers the customer a usage and Climate change, traffic problems in part of a complete solution for mobility, financing package satisfy mobility urban centers and new social values and also incorporates alternative requirements better than a car dealer? have changed the car’s image and modes of transport and new financing This kind of service menu could use. Having one’s own car no longer and usage concepts. This includes include the use of one or two city cars means that one has such an exclusive realignment of the car brands. during the week, a sports car at the claim to flexibly and cost-effectively A look beyond the scope of one’s weekend, and an SUV for vacations. meeting one’s own personal mobility own sector is always worthwhile in the The package would then also be sup- requirements. This applies in particu- search for solutions. Buyer behavior in plemented by combination optionsNo member firm has any authority to obligate or bind KPMG International or any other member firm vis-à-vis third parties, nor does KPMG International have any such authority to obligate or bind any member firm. All rights reserved. lar in cities where traffic chaos and the mobile communications industry, with other modes of transport, such as© 2010 KPMG International Cooperative (“KPMG International”), a Swiss entity. Member firms of the KPMG network of independent firms are affiliated with KPMG International. KPMG International provides no client services. parking problems turn many people for example, shows that in the bottom public transport, rail and air. Billing off driving. The German pollution to middle price segment at least, the would then be at a flat rate for the city, badge or London congestion charges complete package of mobile communi- fuel included, and a time tariff for the are the frontrunners of regulatory inter- cation services and device applications weekend. ventions to restrict car use in the is more important for the customer If these kinds of offers establish future. Paris is also planning a city toll, than a specific mobile phone model. A themselves on the market, this will and parking spaces for new commer- mobile phone or netbook contract with influence business models and estab- cial properties will only be approved flat rate, fast Internet access, Facebook lished automotive industry brands. there in exceptional cases. So can we networking and music subscription is As with mobile phone makers, manu- actually be more mobile in the future the new status symbol. To satisfy their facturers could lose their interface to without our own cars? communication requirements the cus- the customer to direct sales in the car “The car is no longer necessarily a tomer does not turn to the manufac- fleet business and the associated sale part of the family today, and nor is it a turer and their sales department – but via the car dealer. This of course has symbol of freedom and independence,” rather to a mobile service provider. effects on the manufacturers’ entire says Jörg Plathner, Automobile Division Is the automotive industry on the value creation chain. They could, how- Head at Motor Presse Stuttgart. Your threshold of a similar development? ever, position themselves as mobility first car has lost some of its significance A Vocatus survey of 500 car buyers service providers – with or without for personal development. The number from Germany, France, Italy, Spain and cooperation partners. Branding and of people that choose not to own a Sweden shows that the car brand is brand management are important suc- car is growing in northern Europe in replaceable for every second buyer. cess factors here. particular. In Stockholm it is consid- One in three said that the car’s func- The trend towards complete solu- ered chic not to do your driving test. tionality is more important to them tions for automobility was started by Martin Verrelli, Head of Remarketing than its appearance. Nonetheless, the manufacturers themselves – at VW: “The car is losing its hold on having one’s own car is still considered together with their internal finance ser- young people.” Experts believe the indispensable for flexibility reasons. vice providers. Financing and service future is in new mobility concepts, But this could change if there are packages, which, in addition to a leas- combined with new ing contract or technologies that draw »The car is no longer necessarily a part of car credit, also people away from car include usage ownership through the family today, and nor is it a symbol of services such classic financing freedom and independence« as mainte- options. In southern nance, insur- Europe, and in Asia’s emerging mar- attractive alternatives to car ownership. ance, damage management and refuel- kets in particular, your own car and Trend researcher Peter Wippermann: ing, have been on offer for many the car brand still play a more central “It is not the product as such, but years now. The private driver is offered role than in the mature markets of the rather its benefits for the ‘life feeling’ everything that is the norm in fleet industrial states. that determine our relationship with management. Manufacturers’ advertise- Car manufacturers and suppliers ownership.” This also applies to Japa- ments therefore frequently focus on must find new answers to continue to nese consumers, for example, but less monthly car costs instead of purchase Automotive – Summer 2010 5
  • 6. prices. Car drivers are steered long term. Car sales today are already towards asking themselves: “How driven by discounts – at least in the much car do I want to allow myself mature markets. And the suppliers’ each month?” value creation and innovation share Mobility service providers such as has also been growing for some carsharing companies have ad- years now. With most vehicles it has dressed this trend. “Carsharing and already reached 75 percent, if not similar mobility concepts are becom- more. Suppliers develop into system ing more influential,” says brand providers; the step towards the com- expert Michael Trautmann. The im- plete car is no longer so great. proved offering in rail and air travel Magna International Inc.’s ambitions and public transport networks provides with Opel proved the point here. Car attractive alternatives to the car – for makers would evolve such that sup- specific mobility requirements at plier relations management became a least. German Automotive Industry core competency. Model and brand Association (VDA) President Matthias management and sales could shift Wissmann emphasizes: “There is no towards mobility service providers. longer any antagonism between the Similarly, mobile phone manufactur- “Mu” brand, Peugeot Motor Company car and public transport networks. ers have lost a degree of their impor- PLC, for example, uses authorized The car is still important, but net- tance in recent years. dealers as pick-up and drop-off sta- No member firm has any authority to obligate or bind KPMG International or any other member firm vis-à-vis third parties, nor does KPMG International have any such authority to obligate or bind any member firm. All rights reserved. working with other transport means With the introduction of electric tions. This could be supplemented by © 2010 KPMG International Cooperative (“KPMG International”), a Swiss entity. Member firms of the KPMG network of independent firms are affiliated with KPMG International. KPMG International provides no client services. is also important.” cars the suppliers’ value creation additional cooperation partners to guar- The approaching electrification of potential increases significantly, as antee full-coverage mobility. Mu cus- road traffic, in which, for example, the electrics industry has a clear tomers can download “mobility electricity suppli- units” on the Internet ers, suppliers of and book a convertible big components »The car is still important, but networking with ride, a moving truck or a and mobile com- other transport means is also important« rooftop box for their munication vacations. operators Alternatively, companies invest, will competitive advantage over combus- could also realign their business mod- increase the tion engine manufacturers. Coopera- els and brands to become mobility competition tion projects with electricity suppliers service providers that offer their cus- pressure from and other infrastructure companies tomers comprehensive solutions as non-automo- will contest car makers’ business globally as possible. Car production tive industry interests. Ex-SAP Board Member would then no longer be a core activ- companies. Shai Agassi shows how this is done ity. Supplying complete systems, or With the elec- with the “Better Place” brand: The even final assembly, could be out- tric car in particular, the mobility service company provides a complete service sourced. The new business model’s consisting of car use, power supply for electro mobility. With the aid of core element is service quality – high and battery change is a key decision- sophisticated software the customer availability, flexibility and benefit- making criterion. High procurement only pays for kilometers traveled, a oriented prices for mobility offers costs mean that, at first, only very pricing model that is similar to mobile across and beyond all modes of few users will choose to buy an elec- phone contracts. And Renault pro- transport. And since cooperation proj- tric car. The car therefore becomes a vides the cars for this. ects are success-critical for mobility mobility carrier – similar to Amazon’s To offer mobility services in addi- offers, manufacturers could integrate Kindle reading device for books: it is tion to the existing value creation, car their existing expertise in managing about the content and the brand. makers must first expand their ser- supplier networks. The automotive industry’s tradi- vice expertise. Internal financing Car makers have practically no tional business model is therefore companies and brands such as the competition in today’s individual called into question at several points, Volkswagen Bank GmbH or BANQUE mobility brand world. They can easily and the manufacturers are faced with PSA FINANCE are good examples of transfer their brand strengths to new the challenge of repositioning. Should this. Their range of offers can be model families, or even to neighbor- they leave their current value creation beefed up with carsharing, short- ing product segments, such as bicy- chain untouched; should they extend term leasing and renting, as well as cles or car financing services. But them with mobility services; or must combi packages in cooperation with how will car brands assert them- they redefine their key competencies other modes of transport. The exist- selves in the new mobility services and adjust their branding policy? ing authorized dealers could possibly competition? They might very well In the first case the manufacturers’ come in as points of sale. With its see competition from new mobility value creation would shrink in the prepaid mobility offering with the brands and from service brands in6 Automotive – Summer 2010
  • 7. towards individualization, which has even taken hold in Asia, may also produce a wide variety of mobility brands. The challenge will be to bundle sub-brands into strong brand families. The manufacturer brand has brand features: the customer joins in, a lighthouse function here. uses the car as long as they want, These features are decision-critical and returns it at any parking space in for the long term, as shown by the the business district. The provider iPhone success. takes care of refueling and cleaning. New drivers are the first important Unlike classic carsharing there are target group. Favorable introductory neither basic charges nor membership prices and environmentally friendly contributions. Billing is per minute – means of transport are important mileage, fuel and insurance are in- brand features. In Ulm every third cluded. The Smart models used are driver’s license holder between 18 especially low in emissions, which is and 35 is already a car2go customer – why car2go 2009 won the ÖkoGlobe the users identify with the brand other transport areas, and less so for mobility projects and visions. image. Combination offers of driver’s from the suppliers. Even the brands CEO Robert Henrich intends to ex- license and mobility are conceivableNo member firm has any authority to obligate or bind KPMG International or any other member firm vis-à-vis third parties, nor does KPMG International have any such authority to obligate or bind any member firm. All rights reserved. of major system integrators such as pand after the successful test phase to stimulate reluctant car users such© 2010 KPMG International Cooperative (“KPMG International”), a Swiss entity. Member firms of the KPMG network of independent firms are affiliated with KPMG International. KPMG International provides no client services. Robert Bosch GmbH, Continental AG in Ulm: “Market launch in other coun- as those in Stockholm. The Swedish or Magna have, so far, represented tries is the next logical step.” automobile association, Motorbran- technology more so than mobility. If expectations on the mobility mar- schens Riksförbund, is already con- Car rental agencies, rail companies ket are met and an image change can sidering a subsidy program for driver’s and airlines or automobile clubs have be introduced in parallel, many manu- licenses. a significant head start here. facturers won’t have to do without A premium brand in this respect But car makers excels with optimum must also realign »High technical quality and good design are availability, best pos- their brand manage- sible flexibility and ment, which has so part for the course today and products can first-class service. far mostly been therefore be replaced, with one exception: Included is the use of based on technical specific road sections, differentiation. High the ‘Green’ factor ...« such as in the US or technical quality and even in big cities such good design are par for the course strong car brands in their mobility as Bangkok, convenient parking today and products can therefore be offers. In the growth phase it is options and waiting lounges at mobil- replaced, with one exception: the about occupying market segments ity interfaces. Furthermore, the vehicle ‘Green’ factor or the vehicles’ envi- and securing your position for future must provide comfort, but in special ronmental friendliness, which is cross-selling offers with a strong situations the requirements can be totally different, at least for now. In brand. The specific mobility features better met by small models. Individu- the future, services, especially mobil- are success-critical, as demonstrated alization options, such as seat set- ity services, will be far more image- by the incredibly successful iPhone: tings, air con and infotainment sys- building than technology. A combina- design, operability and innovation tem, for example, are a matter of tion of sustainability and service were the driving forces during its course – and can be easily retrieved quality is provided to attractively market launch and growth phase. via electronic customer cards. Sus- boost brands. For many manufactur- “Apps” will mostly ensure sales with tainability can be added as a further ers this means a new beginning, increasing market saturation. Apple ®’s element – with its “Efficient Dynam- especially when they cooperate with crystal clear branding is the driving ics” BMW AG (BMW) has created a other companies. The introduction of success factor in both product lifecy- platform from which suitable mobility a new mobility brand reduces the risk cle phases. services can be built up, such as of diluting the resident brand or of The model families and the associ- flights with low emission planes, a damages with the offer’s failure; can- ated brand features play a pivotal role feeder service for an electric vehicle nibalizing the existing car sales. with manufacturers‘ mobility offer and points of sale with modern, effi- Daimler AG is testing a mobility features. The organization of new cient building technology, for example. offering under its Mercedes-Benz services must be adjusted to this Corporate customers will be the label with the Smart in Ulm and in branding – sustainability, premium, most important growth drivers when Austin,Texas but under the new driving fun, sportiness, family-friendli- mobility applications are running reli- brand, car2go. Environmental friendli- ness, discounts and combinations of ably. These customers are already ness and service are the load-bearing these, for example. The social trend familiar with fleet management from Automotive – Summer 2010 7
  • 8. their experience of car manufacturer the US first, because the car still plays But the change could be completed service offers, and generally have a greater role as a status symbol in rather quickly due to the acute traffic extensive mobility requirements the Asian and South American mar- problems in the big cities. Public across and beyond all modes of trans- kets. The German Institut für Automo- transport networks with electro mobil- port. The range of offers must, how- bilwirtschaft (Institute for Automotive ity, for example, are probably a lot ever, be expanded significantly. Research), for example, expects China closer to reality in China than many The mobility service market’s focus to be the biggest consumer of pre- western experts think. The massive will probably be Europe, Japan and mium brand vehicles up to 2015. support by the Chinese Government has generated a head start. “In five years,” says Shai Agassi, “the Chi- nese will no longer be accepting cars »The organization of new services must be with combustion engines.” And it is in adjusted to this branding – sustainability, premium, the emerging markets in particular that manufacturers have the opportu- driving fun, sportiness, family, discounts and nity to experiment with new mobility combinations of these, for example.« concepts – and quickly produce major scale effects. By Eric Czotscher, Head of the “Branchen- und Managementdienste” department of the F.A.Z. Institute No member firm has any authority to obligate or bind KPMG International or any other member firm vis-à-vis third parties, nor does KPMG International have any such authority to obligate or bind any member firm. All rights reserved. © 2010 KPMG International Cooperative (“KPMG International”), a Swiss entity. Member firms of the KPMG network of independent firms are affiliated with KPMG International. KPMG International provides no client services. Comment Automotive industry at the crossroads T here can be no doubt that the automotive industry has reached a water- shed point. Increasing vehicle electrification and drastic changes in con- sumer behavior in the saturated markets will result in a redistribution of the automotive value creation chain. Exactly what this will look like – whether OEMs will be the mobility providers of the future or whether suppliers in the module sector will develop into mass providers as part of a concentration wave, and what business model will be the most successful in the future – all remains to be seen. One thing, however, is already clear today: whoever welcomes these changes as an opportunity and positions themselves early on, will push to the fore in the long term. The ability of the automotive indus- try to learn from other industries that have already undergone similar changes will be critical to its success. Direction could be taken, for example, by busi- ness models from the IT or tele- communications industries, which have already shown how success- Dieter Becker is Global Head of Automotive, ful brand management boosts KPMG in Germany. leadership in a highly developed technological market.8 Automotive – Summer 2010
  • 9. Rethinking fleet management In Q1 2010 almost one in three new motor vehicle registrationsNo member firm has any authority to obligate or bind KPMG International or any other member firm vis-à-vis third parties, nor does KPMG International have any such authority to obligate or bind any member firm. All rights reserved.© 2010 KPMG International Cooperative (“KPMG International”), a Swiss entity. Member firms of the KPMG network of independent firms are affiliated with KPMG International. KPMG International provides no client services. in Germany was a company car. Within the medium to luxury classes, every second car was registered by a company. Incor- porating green strategies in corporate vehicle fleet management therefore poses new challenges for the automotive industry. I n Germany the company car is Audi AG (Audi), this is an invaluable regarded as a problem in 2006 and still an important status symbol benefit for high-end vehicle manufac- 2007 against the backdrop of explod- used to attract employees to turers. The situation is most compara- ing fuel costs as the price of regular higher positions. Ultimately the ble in Belgium; whilst in other Euro- gas rose to EUR 1.40 per litre. “This company car provides indisput- pean countries the company car is far allowed cost reduction measures to able benefits for both employer and less widespread due to lower social be nicely ‘green’ packaged. Over the employee. Employers save on their security contributions for salaries and course of the financial crisis the vehi- labor costs and the associated high luxury taxes on high-end vehicles. cle downsizing issue was tackled, social security contributions, and at “Germany is the manufacturing coun- without company-internal discussions,” the same time also secure a powerful try with the largest premium seg- says Thilo von Ulmenstein, Managing price leader into the bargain. The ment, which is why the employee’s Director of FleetCompany GmbH, a employees save on taxes and social image is so closely connected with TÜV SÜD subsidiary, which presents security contributions – and can also their company car. In other European the annual ‘Green Fleet Award’ to use their company cars for private countries such as the Netherlands or companies with especially ecofriendly purposes. France, the car is far less image- vehicle fleet management. bound than it is in Germany,” says A large-scale changeover of com- The car – truly a German Marketing Manager Bettina Heinen pany fleets to vehicles with alternative status symbol from LeasePlan Deutschland GmbH. drives is, however, still a long way off. The figures are impressive proof of “Of the approx. 87,000 vehicles that the real incentive of a company car for How “green” will fleets become? we provide to companies, only 37 of many employees – it allows them to “The climate change debate won’t them are natural gas, and a couple are drive a car that they couldn’t normally spare the so highly valued company electric vehicles,” says Bettina Heinen afford in their private life. In a country car in the long run,” says a quite con- from LeasePlan. To date practicality in that is primarily defined by its premium vinced Bettina Heinen. Vehicle fleet daily use is still the main missing ele- brands, Mercedes-Benz, BMW and consumption in companies was first ment. “Alternative drives can only be Automotive – Summer 2010 9
  • 10. “Whoever gets into gear here the quickest will be able to achieve real competitive benefits,” says Bettina Heinen. “Employees will also attach more importance to the fun and image factor connected with choosing the company car than they will to environ- mental protection. Companies will restrict the selection with appropriate CO 2 limit values to match their hierar- chy. Those who want to stay in the running must be able to offer the right kind of vehicles.” A review of the changes in new company car registrations between Q1 2009 and Q1 2010 shows who the current winners and losers are. While used on a large scale by companies Fuel is provided by a local supplier upper medium class and luxury class when the right maintenance and filling who extracts biodiesel from various new registrations remained stable, the station network has been put in place. waste sources from within the three bottom segments (mini, small No member firm has any authority to obligate or bind KPMG International or any other member firm vis-à-vis third parties, nor does KPMG International have any such authority to obligate or bind any member firm. All rights reserved. And of course alternative drives are region. The fleet’s CO 2 emissions car and compact class) enjoyed signifi- © 2010 KPMG International Cooperative (“KPMG International”), a Swiss entity. Member firms of the KPMG network of independent firms are affiliated with KPMG International. KPMG International provides no client services. mostly installed in small cars, and not were consequently reduced by more cant increases in places of up to 30 in the higher vehicle class model than 50 percent from 910 to 435 percent. SUV new registrations also series that are most attractive to tons between 2006 and 2008. A goal increased by 17.2 percent. Large vans employees.” of saving 75 percent of CO 2 for the and medium class cars, on the other entire company over 3 years by the hand, both fell by 13 percent. Sustainability grows in importance end of 2010 was announced, of To date very few companies are which 57 percent has already been A market for mobility providers? changing over their vehicle fleets achieved. “Total Cost of Ownership” – the total because of a clear sustainability strat- purchase price and running costs over egy, instead of purely economical rea- Challenges for manufacturers the entire service life – remains the sons. One example is the global US These two examples clearly show key sales argument for manufacturers chemical group, DuPont™, which that sustainable strategies are not when selling company cars. And yet it made its name back in the day with about new materials in car manufac- is precisely here that lower gas con- products such as nylon and Teflon ®, turing – it is actually about reducing sumption and therefore lower costs and now intends to improve its image CO 2 emissions with thriftier models and reduced CO 2 emissions go hand- with a green vehicle fleet. With its and alternative drives. “A growing in-hand. In addition to downsizing ‘Fleet Fuel Efficiency Program’, the number of companies with a highly engines, technical advances are there- group has obliged itself to change all developed CSR are implementing fore especially important for sales in of its vehicles to leading technologies sustainability in their fleets, too. And this area. “Employees are loath to with combustion motors and alterna- with absolute conviction! Companies accept reductions in their vehicle’s tive drives by 2015. This will help sup- are therefore increasingly setting performance, but on the other hand port the right kind of innovations, CO 2 upper limits for their vehicles,” must make their contribution to meet- while reducing the fleet’s consump- says Thilo von Ulmenstein. And this ing the company’s climate protection tion levels. has effects on model ranges. targets, it really is all about being able The English office furniture manu- “Manufacturers in particular have to to provide lower consumption vehicles facturer, ‘The Commercial Group’ in adapt their range of models towards with the same performance,” says Cheltenham near Gloucester, has also achieving CO 2 reduction due to this Alexander Bilgeri, BMW Group Busi- introduced a series of measures with changing behavior patterns of fleet ness and Financial Communications. its vehicle fleet to achieve the compa- operators. This is already in full The trend towards more environmen- ny’s ambitious climate protection swing, and is very necessary, tal friendliness within fleet manage- objectives. An elaborate system con- because the trend towards sustain- ment at companies is matched at stantly monitors the company fleet’s ability is currently being spearheaded BMW, as the Munich-based manufac- mileage and gas consumption. by big companies and is emanating turer has a good sales pitch for fleet Drivers and employees are also outwards more and more all the managers with its ‘Efficient Dynamics trained how to drive more economi- time. Without alterations manufac- Program’. “In some companies cally, which results in gas savings of turers will no longer be able to place employees are rewarded by a bonus up to 20 percent. Various options entire model series in company scheme when they contribute to were tested before the decision was fleets, where the most important achieving the company’s climate pro- made in favor of biodiesel vehicles. sales market is right now.” tection objectives and stay below the10 Automotive – Summer 2010
  • 11. Facts and figures Approximately 50 million vehicles are approved for road use in Germany, of which 5 million are registered to legal entities. Arranged according to fleet size, approximately 80 percent of company cars are in fleets with less than 10 vehicles; 5 percent are in fleets between 10 and 49 vehicles; and 15 percent are in fleets with more than 50 vehicles. In large-scale companies, more than 80 percent of the vehicles are from German manufacturers. 8.1 % New registrations Other 12 % 7.7 % Vans Mini and small cars 2009 11.7 % 23.4 % SUVs and Medium class sports cars 28 % 10.1 % Company cars Upper medium class and luxury classNo member firm has any authority to obligate or bind KPMG International or any other member firm vis-à-vis third parties, nor does KPMG International have any such authority to obligate or bind any member firm. All rights reserved. 27 %© 2010 KPMG International Cooperative (“KPMG International”), a Swiss entity. Member firms of the KPMG network of independent firms are affiliated with KPMG International. KPMG International provides no client services. Source: German Federal Ministry of Finance Compact class set CO 2 limits. This allows them to management issue – and considering choose more optional extras, which mobility options other than the car – is they might otherwise have done with- also a very important factor.” Thilo von out because of cost reasons.” Expen- Ulmenstein also sees a future here: sive vehicles will remain placeable “The trend in the travel management within companies and their employees area is headed towards environmen- in the future, as long as they can tally friendly mobility alternatives. score fuel consumption points. Travel option comparisons will increase It is not only manufacturers who are in the future on the basis of the com- faced with challenges in view of the pany’s CO 2 performance. But a certain growing importance of sustainability amount of individual mobility in com- strategies for companies. Fleet man- panies will always remain – wherever agement service providers are also the vehicle holds status.” The Germans challenged; “To date we haven’t really certainly won’t bid adieu to their status noticed any trend in this direction,” symbol that easily! points out Bettina Heinen, “but for By Christoph Neuschäffer, fleet managers, the mobility and travel Freelance Journalist Automotive – Summer 2010 11
  • 12. No member firm has any authority to obligate or bind KPMG International or any other member firm vis-à-vis third parties, nor does KPMG International have any such authority to obligate or bind any member firm. All rights reserved. © 2010 KPMG International Cooperative (“KPMG International”), a Swiss entity. Member firms of the KPMG network of independent firms are affiliated with KPMG International. KPMG International provides no client services. W here low-cost sourcing in emerg- ing markets was once the mainstay of OEM manufac- turing strategies, the appeal of these long, multi-tier supply chains is wan- ing. Leading OEMs are now taking a total cost and quality view of their manufacturing operations. They scru- tinize everything including product lifecycle costs, customer needs, qual- ity control and risk to improve effi- ciency and cost effectiveness without sacrificing quality. One of the key components of this process has been a reappraisal of the viability of tradi- tional business models, and some of the outcomes have been surprising.12 Automotive – Summer 2010
  • 13. The US – the rise after the fall The world economy is starting to show signs of recovery, but theNo member firm has any authority to obligate or bind KPMG International or any other member firm vis-à-vis third parties, nor does KPMG International have any such authority to obligate or bind any member firm. All rights reserved. economic landscape has changed dramatically from what it was© 2010 KPMG International Cooperative (“KPMG International”), a Swiss entity. Member firms of the KPMG network of independent firms are affiliated with KPMG International. KPMG International provides no client services. less than 24 months ago. In the wake of the severe economic crisis, the automotive industry is undertaking a critical re-appraisal of the way it does business. Economic recession leaner manufacturing processes and ness Report, is re-emerging as a dramatically restructuring activities. competitive manufacturing destina- drives business With national economies (and their tion for automakers. The world’s larg- evolution currencies) in a state of constant flux, est car market in sales terms up until the ability to remove or minimize the recession hit, the US offers stra- Since the economic recession that external risk factors has become a tegic advantages as a manufacturing began in December 2007, consumer competitive advantage. From soaring location that traditional low cost loca- demand in the automotive sector has oil prices to natural disasters the tions cannot. In addition to gaining significantly declined and manufactur- impacts of both financial and opera- direct access to a large and relatively ing overcapacity has reached unsus- tional risks on business operations prosperous consumer base, US man- tainable levels. Standing at the brink can be catastrophic. ufacturers benefit from: of insolvency, many of the world’s Considering these and a variety of leading automotive manufacturers other risk factors, it makes sense for Reduced vulnerability to foreign were forced to make unprecedented many companies to move manufac- currency fluctuations cutbacks and re-evaluate all areas of turing closer to their target markets. Access to highly developed infra- their operations. Perhaps more than The United States, consistently rated structure/transportation networks any other industry, the automotive as one of the world’s most produc- Access to skilled labor at competi- sector was quick to adapt to the chal- tive markets in the World Economic tive wages lenges of the situation by adopting Forum’s annual Global Competitive- High-performing capital market Automotive – Summer 2010 13
  • 14. Intangible benefits include protection the move even more attractive for of intellectual property and continuity VW, proposing to support the plant of business operations, which are sig- and surrounding development with nificant factors that, although difficult government infrastructure, training and to measure, have real value for busi- other incentives, the value of which nesses. could top $500 million over the next The Wall Street Journal recently 30 years. 3 highlighted this trend of “onshoring or reshoring” in light of a decision being contemplated by Caterpillar Inc. Government incentives whether to consolidate overseas pro- sweeten the deal duction of its heavy equipment into the US. A Caterpillar spokesman Volkswagen was not the only OEM to shared his insight into the factors benefit from new tax incentive plans motivating the possible change: being offered by US local, state and “Meeting anticipated demand in the federal governments in an effort to US will outweigh other considerations, attract investors. Kia Motors Corpora- such as the strength of the US dollar,” tion (Kia), for example, built its first comments Jim Dugan, adding, “It North American manufacturing facility really is a long-term look at where we in West Point, Georgia. The selection think this market and this product is of the location of the new US$1 billion No member firm has any authority to obligate or bind KPMG International or any other member firm vis-à-vis third parties, nor does KPMG International have any such authority to obligate or bind any member firm. All rights reserved. going globally and how can we best plant was attributed to its proximity to © 2010 KPMG International Cooperative (“KPMG International”), a Swiss entity. Member firms of the KPMG network of independent firms are affiliated with KPMG International. KPMG International provides no client services. position ourselves.”1 parent Hyundai Motor Company’s (Hyundai) facility in the neighboring increasingly necessary to facilitate a state of Alabama. According to West quicker response to market needs as Currency hedging Point mayor Drew Ferguson, federal, well as reducing the overall logistics state, and local incentives supporting cost and risk. Kia, Hyundai, BMW and moves supply nearer to the plant totaled US$ 430 million. 4 Nissan Motor Company (Nissan) have demand Local government incentives aimed steadily increased their capacity in the at retaining jobs are even discouraging US over the past 10 years, whereas In a market where affordability OEMs from consolidating employees companies like Toyota Motor Corpora- becomes one of the biggest consumer in-state. In the case of General tion (Toyota) and Honda Motor Co. influencer factors, vehicle manufactur- Motors, the city of Detroit is said to (Honda) have been producing vehicles ers cannot afford the risk of foreign have offered as much as US$221 mil- in the US for nearly 30 years. As currency fluctuations and transporta- lion in incentives to keep GM’s global recently as December 2009, Daimler tion costs taking their vehicle above headquarters and 5,000 associated announced plans to join the ranks of their consumers’ price point. This workers in the city rather than “reset- OEMs expanding production capacity becomes vital for a company like Volks- tling” these employees in a nearby in the US with its 2014 Mercedes- wagen AG (Volkswagen), Europe’s suburb. 5 Benz C-class. It is a move not solely largest automaker, which has identi- Domestic OEMs also see the cur- focused on alleviating Euro/US cur- fied the US as a key market in its long- rent economic environment as an rency vulnerability, but also aimed at term growth strategy. To access the opportunity to invest in their own improving responsiveness to custom- US market, Volks-wagen has invested country. In fact recent changes to ers. “The decision to produce the US$ 1billion in a new plant in Chatta- union labor rates helped enable Ford C-Class closer to the [markets in nooga, Tennessee, which is set to to upgrade some of its existing plants which it is sold] will make Daimler begin production of a new mid-size in order to accommodate production more independent of exchange rates, sedan specifically engineered for the of the 2011 Focus compact. Ford’s will optimize its profitability in this US market in 2011. “This plant repre- CEO Alan Mulally believes the com- price-sensitive segment, and will sents a milestone in Volkswagen’s pany can profitably build small vehicles allow it to fulfill regional customer growth strategy,” says Volkswagen AG in the US, indicating that labor “isn’t a requirements even faster and more CEO, Prof Winterkorn. “We will be competitive disadvantage for us.”6 flexibly,” said the company in a press selling 800,000 Volkswagen a year in release.7 the US by 2018, and this new site will Being able to respond to customer play a key role.” Volkswagen says the Increasing responsive- needs is one of the steps that helped plant will help to permanently alleviate BMW avoid laying off permanent exchange-rate fluctuations. “This, ness while decreasing workers at their US plant in 2009. along with our growth strategy, is a cost “Flexibility allows BMW to match pro- prerequisite for the company’s eco- duction to customer demands, says nomic success in the dollar region.”2 More and more leading OEMs are find- President of BMW Manufacturing Co., The state of Tennessee helped make ing that manufacturing in the US is Josef Kerscher. Customers can make14 Automotive – Summer 2010
  • 15. Comment Short transport routes increase competitiveness T he ability for an automaker to be responsive to consumer trends relies on greater responsive- ness and flexibility in the supply chain. OEMs cannot do this if their vehicles have to travel halfway around the globe before reaching their target markets” says Gary Silberg, National Automotive Leader for KPMG in the US “With manufacturing capacity in the US, automakers will be able to anticipate and adapt to Gary Silberg the continuously evolving is an Advisory Partner needs of their consumers – and Head of Automotive this will be the key to suc- Network at KPMG in cess in a highly competi- the US tive market.No member firm has any authority to obligate or bind KPMG International or any other member firm vis-à-vis third parties, nor does KPMG International have any such authority to obligate or bind any member firm. All rights reserved.© 2010 KPMG International Cooperative (“KPMG International”), a Swiss entity. Member firms of the KPMG network of independent firms are affiliated with KPMG International. KPMG International provides no client services. changes to orders or add options in as connected infrastructure, as well as little as five days before the vehicle is sizable incentives from state and local built, he adds and points out: “This governments, it becomes clear that level of flexibility is the best in the not only is the US a key automotive auto industry.”8 BMW has recognized consumer, it is also a competitive the success of its US production strat- manufacturer. egy and has committed to making a While few might have expected further US$750 million dollar invest- this development, recent OEM invest- ment to expand its Spartanburg/South ments clearly show that this trend is Carolina plant to accommodate manu- here to stay. facturing of the BMW X3, X5 and X6 By Gary Silberg, Partner, KPMG in the US models for world markets by 2012. “Centralizing our know-how for BMW 1 “Caterpillar Joins ‘Onshoring’ Trend”, Article, The Wall X models in Spartanburg will enable Street Journal, March 12, 2010. 2 “Volkswagen Builds Fac- us to work even more efficiently going tory in Tennessee, US”, Press release, Volkswagen AG, July forward,” says BMW AG Board Mem- 15, 2008. 3 “Chattanooga: VW Incentives, Investment Records ber Frank-Peter Arndt. 9 In State”, Article, Chattanooga Times and Free Press, August Global automakers have been chal- 23, 2008. 4 “Kia Opens New Car Plant in Georgia”, Article, lenged by the financial crisis to take a Just-auto.com, March 1, 2010. 5 “Tax breaks sweetened to fresh look at the perceived benefits of keep GM at RenCen”, Article, The Detroit News, February 5, low-cost sourcing across long and 2010. 6 “Ford’s Renaissance Man”, The Wall Street Journal, complex supply chains. Now more February 27, 2010. 7 “Daimler to Shift C-Class Work to than ever, the risks of these business Alabama From Germany”, Article, Bloomberg, December 2, models (both operational and financial), 2009. 8 “Exports, flexibility help BMW’s US plant avoid lay- outweigh the rewards. offs”, Article, Automotive News, June 15, 2009. 9 “BMW The resurgence of automotive man- Group Invests US$ 750 million in US plant”, Press release, ufacturing in the US is another step in BMW Group PressClub USA, October 3, 2008. the on-going restructuring of the industry and its supply chain. Creating capacity in key markets is a natural hedge against the impacts of external events that might potentially cause business disruptions. When we add to this the extensive benefits of operat- ing in a market where companies have access to a deep resource pool of skilled laborers, extensive and well- Automotive – Summer 2010 15
  • 16. Fast lane or hard shoulder? There are differing views on the pros and cons of a commitment to Formula 1™. While three of the big car manufacturers have turned their back on the racing circuit, Mercedes-Benz have launched a massive offensive with their Silver Arrows and Michael Schumacher. No member firm has any authority to obligate or bind KPMG International or any other member firm vis-à-vis third parties, nor does KPMG International have any such authority to obligate or bind any member firm. All rights reserved. AutomotiveNow examines the effect the different strategies have © 2010 KPMG International Cooperative (“KPMG International”), a Swiss entity. Member firms of the KPMG network of independent firms are affiliated with KPMG International. KPMG International provides no client services. on brand image, and how brands can benefit from car racing events. F ormula 1™ – crème de la presence and an enormous multipli- Formula 1™ versus crème or dead end? The cation factor,” says Professor Willi answer seemed quite clear Diez, Head of the Institut für Automo- sustainability? in late fall of 2009: Honda, bilwirtschaft (Institute for Automotive Naturally enough the Bavarian car BMW and Toyota bid adieu Research) in Geislingen (southern maker gave different reasons for its to Formula 1™, and even Renault Germany). “Added to this of course is withdrawal – for which it earned plenty was ready to leave. Further negative the glamour factor and the sport’s of applause up and down the country. headlines followed including scandals emotional hero content.” The fact BMW CEO Norbert Reithofer surrounding the President of the that Formula 1™ is extremely victory- announced a step consistent with the FIA (Fédération Internationale de oriented can, however, have adverse company’s realignment course. “Pre- l‘Automobile). But on 16 November effects. Even if you are second or mium is also being increasingly defined 2009 Mercedes-Benz surprised the third you are treated as a loser. “The by sustainability and environmental motor racing world with a coup that positive image is then gone, and at compatibility.” Commitment to For- seemed to say: “If you’re going to do best you are left with a neutral mula 1™ therefore no longer corre- it, do it right!” The news of its first effect,” says Mr. Diez. Lutz Fügener, sponded with the companies’ main own Formula 1™ team after 55 years, Professor for Transportation Design objective and the freed up resources the return of the legendary Silver at the School of Design in Pforzheim, flowed into the development of new Arrows, raced around the globe. This who also recognizes the problem of drive technologies and projects in the was then surpassed when Michael being subjected to the win-lose mind- sustainability area. Willi Diez puts it Schumacher’s return gained interna- set in the sport. “BMW saw that it into perspective: “I don’t see any tional headlines. So is Formula 1™ could neither win the world champi- major conflict between environmental really “hip” again? onship nor win races. So they hit the compatibility and Formula 1™ participa- “This is the crème de la crème of emergency brakes to avert damage tion. It is a straightforward sporting racing sport with the biggest media to the company.” event that does not seriously damage16 Automotive – Summer 2010
  • 17. © 2010 KPMG International Cooperative (“KPMG International”), a Swiss entity. Member firms of the KPMG network of independent firms are affiliated with KPMG International. KPMG International provides no client services. No member firm has any authority to obligate or bind KPMG International or any other member firm vis-à-vis third parties, nor does KPMG International have any such authority to obligate or bind any member firm. All rights reserved.Automotive – Summer 201017
  • 18. the company’s eco-audit.” The fuel Cologne, but – mass didn’t equal Sporting image can consumption of all of the racing cars class. “Death of a dinosaur” com- added together over an entire season mented Spiegel Online. Toyota failed also be transferred equals about as much fuel as a Boeing in particular because it didn’t manage across other racing 747 making a transatlantic flight. to set up the necessary structures to By contrast Frankfurt-based analyst enable quick decision making. After series Jürgen Pieper from Bankhaus Metzler eight years they still hadn’t had a sin- Audi’s 25-year plus commitment to underscores the Bavarian company’s gle win, despite the biggest annual rallying shows how a sporting image position: “Broadly based companies budget in the sport with an estimated doesn’t always have to be obtained such as BMW or Mercedes-Benz can’t EUR 400 million. via Formula 1™. Audi is active in the get away from the environmental trend, Mercedes-Benz sports boss Haug’s German Touring Car Championship which plays an especially big role with recipe for success, by contrast, is (DTM) and the Le Mans 24 Hours, young people.” BMW have already called “lean management”. A small where two of the four car classes are managed to achieve what Mercedes- control center with flat hierarchies and the LMP1 and LMP2 prototype series Benz still needs to do here: “An un- tight teamwork has been based in with specific technical guidelines, mistakable brand image that unites Stuttgart-Fellbach for 20 years now. with which new drive technologies driving pleasure and an ecologically Mr. Haug prepared his coup right in the (and others) can be used. Because clear conscience, is precisely what the middle of the wave of pullouts, in con- sportsmanship, progressive technol- customer wants.” “Basically, BMW sultation with and supported by Group ogy and emotional design form the and Mercedes-Benz work with the boss, Dr. Dieter Zetsche. Together with core of the Audi brand, motor sport No member firm has any authority to obligate or bind KPMG International or any other member firm vis-à-vis third parties, nor does KPMG International have any such authority to obligate or bind any member firm. All rights reserved. same motto,” says Mr. Fügener, “but major shareholder, Aabar, they bought commitment is also far more than © 2010 KPMG International Cooperative (“KPMG International”), a Swiss entity. Member firms of the KPMG network of independent firms are affiliated with KPMG International. KPMG International provides no client services. with different conclusions.” It is about 75.1 percent of the 350-strong Brawn just a marketing tool. “Truth in Engi- the brand image for both of them. GP team, which had just been pro- neering” was the secret behind the BMW considered itself to be endan- claimed world champion, for an esti- company’s motor sport successes gered; Mercedes-Benz wanted to pol- mated EUR 120 million. For the icing often enough, whereby the technical ish up its world class star – make its on the cake, Mercedes also secured developments that this involved were image fresher and more dynamic. world record champion Michael also implemented later on in series Paolo Tumminelli, Professor for Design Schumacher for the bargain price of production. Examples include the at Cologne University and Head of the another seven million EUR (which the quattro transmission, which revolu- Goodbrands Institute, is not, however, main sponsor paid anyway). “The fact tionized the rally world at the begin- thinking about an immediate correla- that Aabar is also on board as an inves- ning of the 80s, or the TFSI technol- tion between Formula 1™ activity and tor,” says Mr. Zetsche, “only goes to ogy introduced in 2001, a combination manufacturers’ car sales: “Series cars show how advantageously we share of turbocharging and direct injection, are just too far away from Formula 1™ risks. Above all it is a signal of how which is now standard in Audi’s machines. And this didn’t function at money should be earned with a For- sporty series models. “In 2006 we BMW either; or at Toyota and Renault mula 1™ team.” were the first car manufacturer ever for that matter.” Industry expert Willi Diez says that the Ferrari sports car stable is a special marketing-policy case: “Formula 1™ is part of the brand value here. When we ask students what comes to mind when they think about Ferrari, they say: ‘red, motor sports, Formula 1™.‘ If Ferrari were to leave Formula 1™, it would lose part of its brand value. There’s no way they can leave!” Lean management instead of hierarchies Toyota announced its withdrawal in November 2009 for cost reasons. They said Formula 1™ was just too expensive in view of the difficult finan- cial situation. By the end of 2010, only 350 employees will be allocated per team. Toyota had approx. 800 employ- ees in its Formula 1™ factory in18 Automotive – Summer 2010
  • 19. to win the Le Mans 24 Hours with a senger cars and BMW motorbikes. Formula 1™ and brand diesel car. And in the future we will The company’s mastery of CFEP 1 also use our LMP1 cars to try out materials and their use in body man- image must match ground-breaking technologies,” says ufacture, the development of hybrid “Essentially”, emphasizes Sven Wolfgang Ullrich, Head of Audi components for Formula 1™ and der- Reinecke, Marketing Professor at the Motor-sport. “So we very much wel- ivations for series production are University of St. Gallen, “a company come the fact that Automobile Club also good examples of this knowl- must ask whether the Formula 1™ de l’Ouest has announced the first edge transfer. High hopes were also image suits the image of the compa- international racing series for LMP1 connected with the introduction of ny’s own brand, and whether this suits cars this year. We are completely the KERS (Kinetic Energy Recovery the primary target group (visitors) and convinced that this especially inter- System) hybrid technology, which the secondary target group (media esting technical motor sport cate- was approved by the FIA after the audiences).” Mr. Reinecke believes the gory has a very bright future, and it 2009 season, but was put on ice fact that Mercedes has been active in very much suits the times,” says Mr. only a year later by the team associa- Formula 1™ for almost 20 years with Ullrich. tion, FOTA. There are considerations its cooperation with the Sauber and Trying out the latest technologies being made for a reintroduction, but McLaren teams is significant: “Conti- is essentially also possible in For- BMW will no longer be in Formula 1™ nuity always pays off in marketing.” mula 1™. When BMW returned to when it happens. The Munich-based A Formula 1™ commitment, he says, Formula 1™ in 2000, the declared company, whose board member is international marketing and must not goal was to establish synergies responsible for development, Dr. be interpreted as national. The Profes-No member firm has any authority to obligate or bind KPMG International or any other member firm vis-à-vis third parties, nor does KPMG International have any such authority to obligate or bind any member firm. All rights reserved. between Formula 1™ and series Klaus Draeger, was still enthusiastic sor from Switzerland therefore doesn’t© 2010 KPMG International Cooperative (“KPMG International”), a Swiss entity. Member firms of the KPMG network of independent firms are affiliated with KPMG International. KPMG International provides no client services. development. The knowledge devel- in summer 2008 about “transferring think the enthusiasm in Germany is oped in Formula 1™ for processing the know-how gained in the BMW only a “nice side effect”, given that different materials and components, Sauber F1 Team directly to series almost half of all Formula 1™ races are such as cylinder heads and crank- vehicle development,” pulled out now held in countries that qualify as cases, was used for both series pas- completely about a year later. highly attractive emerging markets – and the fascination for the best sport in the world remains intact here. By Eva-Maria Burkhardt / Christoph »Trying out the latest technologies is Neuschäffer, Freelance Journalists essentially also possible in Formula 1« 1 = Carbon Fibre-Enhanced Plastics Automotive – Summer 2010 19
  • 20. 20 2.1 20 00 2.4 20 01Automotive – Summer 2010 3.2 20 02 Source: China Automotive Dealership Association 4.4 20 03 Vehicle sales in China (in million units) 5.1 20 04 years for the country’s auto dealers. 20 5.8 05 20 7.2 06 China’s auto 07 20 The future of 20 8.8 9.4 08 for the first time. But, paradoxically, it was far from the best of Last year was a great year for auto sales in China, as it overtook dealership market the US to become the world’s biggest car market in volume terms 20 09 13.6 © 2010 KPMG International Cooperative (“KPMG International”), a Swiss entity. Member firms of the KPMG network of independent firms are affiliated with KPMG International. KPMG International provides no client services. No member firm has any authority to obligate or bind KPMG International or any other member firm vis-à-vis third parties, nor does KPMG International have any such authority to obligate or bind any member firm. All rights reserved.
  • 21. A fter a golden age in the late 1990s and early “naughties” when demand for new cars far outstripped supply, today’s car market is experiencing both a huge surge in the number of dealerships and the bringing on- stream of a vast new swathe of pro- duction capacity. As a new customer base emerges – one that is con- cerned with small, low-cost cars – the viability of China’s ever-expand- ing auto dealer industry is being questioned. Car sales take off – but profits lag behindNo member firm has any authority to obligate or bind KPMG International or any other member firm vis-à-vis third parties, nor does KPMG International have any such authority to obligate or bind any member firm. All rights reserved. Despite a huge rise in total car sales© 2010 KPMG International Cooperative (“KPMG International”), a Swiss entity. Member firms of the KPMG network of independent firms are affiliated with KPMG International. KPMG International provides no client services. over the last decade (see table, page 20), dealer margins have plummeted. According to Zhao Hao, a professor at Beijing’s Cheung Kong Graduate School of Business, in the mid- 2000s, profits on a car sale were commonly around Rmb 30,000, and could be as high as Rmb 100,000; that figure today is typically less than Rmb 3,000 1 (or approx. US$ 442). This poses a dual problem for OEMs: how to expand their dealer- ship networks and improve profitabil- ity at the same time. Over time the solution is likely to become the same as in the world’s mature markets, where money is made from financing, insurance, extended warranties, after-sales ser- vice and spare parts – not from new car sales. To a degree, this approach is already being recognized in China, with full-service dealerships – known as 4S businesses because they pool showroom, sales, service and spare parts – becoming widely popularized. But establishing a 4S dealership can cost as much as Rmb 20 million and many of these businesses are struggling to survive. Media reports suggest that more than 80 percent of dealerships in the richest part of China – its eastern coastal strip – are losing money. 2 Their problems can partly be attributed to market immaturity. In 2009, some 8.6 million of the 13.6 million autos sold in the country Automotive – Summer 2010 21
  • 22. went to first-time buyers. While sales Regional auto parks are a variation uring out the best way of penetrat- have taken off, much of the support- on the same theme, comprising clus- ing lower-tier markets in regions ing infrastructure has yet to be put in ters of 4S dealerships with repair away from the coast – understanding place. After-sales and spare part ser- and service outlets, beautification what sort of distribution and infra- vices are underdeveloped industries, stations for second-hand autos and, structure is necessary, and whether largely handled by small and far in some instances, insurance and retail models that work in one region cheaper garages or repair shops, auto finance centers. can be transferred to another, or will many of them using counterfeit or Offering competing brands at a have to be modified. low-quality components. single location presents challenges The OEMs are also going to have to the OEMs. Finding reliable deal- to spend more time looking at the ers has long been a problem, while kind of dealer relationships they The dealership ongoing relationships are often diffi- want to sustain over the long term. debate: size or cult to monitor and manage. The Until now, dealers have largely been mega-dealerships, that offer the financially focused – looking at how service? vehicles of a range of makers, have they can sell as many cars to first- So far, dealers’ efforts to recover little brand loyalty, while the 4S out- time car buyers as quickly as possi- their profitability have focused pri- lets, which are popular with custom- ble. In the future, however, they will marily on increasing their scale by ers looking for a one-shop stop to have to possess a far broader range establishing mega-dealerships, auto make their purchase, tend to cater to of skills, including an ability to draw trade markets and auto sales parks, immediate local, often short-term on best practices from other areas of No member firm has any authority to obligate or bind KPMG International or any other member firm vis-à-vis third parties, nor does KPMG International have any such authority to obligate or bind any member firm. All rights reserved. and less on creating a value-adding needs. Often they don’t share the retailing; an in-depth understanding © 2010 KPMG International Cooperative (“KPMG International”), a Swiss entity. Member firms of the KPMG network of independent firms are affiliated with KPMG International. KPMG International provides no client services. customer service portfolio. same long-term strategies and of the automotive industry in general Mega-dealerships – large-scale regional or national objectives of the and the new directions it is taking in businesses selling multiple brands – OEMs. areas such as electric and hybrid are the most prominent model found, There are advantages and disad- cars; and – perhaps most impor- accounting for 44 percent of all auto vantages with all of the current tantly – the ability to nurture cus- sales in 2008. 3 dealer frameworks – what is needed tomer loyalty, so buyers keep return- Auto trade markets cluster sepa- is a Next Generation Network Model ing for other products and services rately owned dealerships, thereby as described in KPMG’s 2009 Global as well as their next new car. These reducing dealer operating costs and Dealership Survey, which asked car loyal buyers are also more likely to allowing them to offer lower prices to sellers around the world where they recommend their trusted dealership customers. China’s largest auto trade saw their industry heading. The to their social network. market, the North Asia Car Market in answers indicate a need for dealers Only with such brand champions Beijing, brings together more than to develop a Next Generation Net- in place will both the dealerships and 160 dealers. Used-car consumers are work Model. This model highlights the OEMs be able to answer ques- showing a preference for this model the need for longer-term thinking tions such as how best to build as auto trade markets allow car own- around demand – 15 to 20 years out brand reputation through strategic ers to trade in old cars and receive a – not just over the next three to five vehicle display, promotion and mar- discount on new purchases. years. In China, this will include fig- keting. Comment Financial strains can be reduced with more precise forecasts W e have been working with many of China’s largest auto dealership networks to help release hidden cash from the business and improve profitability. One of their biggest challenges is maintaining the right level of inventory with the right products; accurate forecasting can relieve a significant component of that financial burden. We Michael Jiang work with our clients to get a is an Advisory Partner at clear view of their cash posi- KPMG China tion so that they can make it work for their business.22 Automotive – Summer 2010
  • 23. appetite for information and position the opportunity for the automotive A continuing evolu- themselves as a preferred resource industry is how to find the best way tion: what’s next for for consumers’ car choice and pur- to convert the rush of sales from first- chasing decisions. time buyers into sustainable long-term China’s auto dealers? The development of leasing is business relationships. In the immediate future, collabora- another area of untapped potential. For dealers this will mean reorient- tions between the big OEM car mak- Leasing practices are currently almost ing themselves away from their reli- ers and independent distributors to unknown in China, yet in the US they ance on new car sales. In the mature develop integrated networks should account for more than half of new markets of developed countries, deal- alleviate some of the financial burdens vehicle sales. Establishing a leasing ers typically only make between zero on dealerships. market in China will necessitate the and eight percent margin on new Beyond this consolidation is a development of two related busi- sales; so they focus extensively on given. As with many sectors in China, nesses: a sophisticated used-car mar- extended warranties and other means the creation of a market opportunity ket, where cars that have been leased of bringing back customers that gen- has led to a flood of new entrants, can be sold on to other buyers, and erate higher margins such as servicing transforming what was a profitable new financing capabilities, that allow (up to 65 percent) and spare parts (27- sector into one that costs money for dealers to offer cars at less than their 35 percent) and on-selling finance and many businesses in almost no time at factory price. insurance products. China will inevita- all. With profits shrinking and competi- Managing the shift to a used-car bly go that way too, and the dealers tion growing fierce, it is a challenging market, however, will pose its own that survive will be those that adapt toNo member firm has any authority to obligate or bind KPMG International or any other member firm vis-à-vis third parties, nor does KPMG International have any such authority to obligate or bind any member firm. All rights reserved. environment that is certain to lead to challenges for dealers. Although some this model quickest.© 2010 KPMG International Cooperative (“KPMG International”), a Swiss entity. Member firms of the KPMG network of independent firms are affiliated with KPMG International. KPMG International provides no client services. a host of business closures in the dealers are already talking about Total sales volume in China will next few years. entering this sector in China, the busi- continue to rise and, while first-time Scale, however, is only part of the ness remains very different from that purchasers will continue to have their equation. Customers are becoming of selling new cars. Going down this purchase decisions driven by cost, increasingly savvy – using new media route will add another level of com- repeat buyers will be drawn to buy to gather information about the vehi- plexity to what is already a difficult proven products from trusted suppli- cles they are considering to make an period. ers. Inevitably dealers will have to put evaluation about what they want more effort and investment into mar- before they even walk into a dealer- keting, working more closely with the ship. Defining success: OEMs to develop and maintain the In China, with around 400 million what does it take brand image of the models they offer people connected to the internet, pro- and to tailor the buying experience to spective car buyers have access to a to win in China’s suit evolving customer needs. host of information sources about car market? It is possible that the luxury cars cars, their strengths and weaknesses, makers will show the way. Despite and what buyers can expect to pay. In 2009, some 8.6 million of the 13.6 the overall growth in car sales, these Dealers have an opportunity to use million autos sold in China went to brands still view China as an untapped their online platforms to feed this first-time buyers. 4 The challenge and market. Their targets aren’t the first- Automotive – Summer 2010 23
  • 24. No member firm has any authority to obligate or bind KPMG International or any other member firm vis-à-vis third parties, nor does KPMG International have any such authority to obligate or bind any member firm. All rights reserved. © 2010 KPMG International Cooperative (“KPMG International”), a Swiss entity. Member firms of the KPMG network of independent firms are affiliated with KPMG International. KPMG International provides no client services. time buyers, but those who are look- Comment ing to upgrade. And when they do, the upmarket brands will want to cap- Winning over consumers with an ture profit across the value spectrum – from financing and insurance, servic- exclusive shopping experience ing and spare parts, as well as the ini- tial sale – by targeting customer loy- alty and retention in particular. The I t is clear that the mega dealerships have established a very successful niche in the earliest stages of the car market boom in China. But they are expensive to build and maintain, and the consumer base is widening, dealer of the future in China puts the customer first; and when that hap- pens, profits are sure to follow. both in terms of customer demographics and in terms of geography. By Andrew Thomson, Partner, Because they require such a substantial initial investment to build, estab- KPMG China lishing a mega dealership in a burgeoning car market does not always make sense in the short to medium term. Alternative automotive retail 1 “Riding the auto wave: car dealerships in China”, Cheung formats such as “pop-up” stores selling a limited range of products tar- Kong, Winter 2010, pages 45-7. 2 “Riding the auto wave: car geted specifically at a particular customer demographic, for example, dealerships in China”, Cheung Kong, Winter 2010, page 46. could offer the agility that is necessary to capitalize on emerging oppor- 3 “Overview of the PRC Automotive Retail Document”, US- tunities. Dealers that can break away from the crowd at the high end of China Business Council, March 2010. 4 “Carmakers to vie for the spectrum are also more repeat customers”, Tian Ying and Stephanie Wong, China likely to be successful; offer- Daily (Hong Kong Edition), 11 March 2010. Aaron Low ing “VIP” treatment aimed at is an Advisory Partner creating an exclusive retail at KPMG China experience could be a win- ning strategy.24 Automotive – Summer 2010
  • 25. Sustainable cash and working capital managementNo member firm has any authority to obligate or bind KPMG International or any other member firm vis-à-vis third parties, nor does KPMG International have any such authority to obligate or bind any member firm. All rights reserved. It is an understatement to say that the credit crunch has had a major© 2010 KPMG International Cooperative (“KPMG International”), a Swiss entity. Member firms of the KPMG network of independent firms are affiliated with KPMG International. KPMG International provides no client services. impact on the automotive industry. Rapid changes in sales volumes have had a consequential impact on the cash cycle, and in order to manage this nearly every auto company has had to implement emer- gency measures to ensure their own liquidity. These measures were often unsustainable “squeeze and stretch” practices to solve a short- term issue. N   ow that financing is more stable and volume growth is returning in some mar- kets and segments, it is time to consider the les- sons from the last 18 months in order to make sustainable change. Business must ensure that any growth in vol- ume does not lead to a working capital bubble as tight controls are relaxed. This becomes critical when you con- sider that some of the strategic trends within the sector are driving greater cash absorption: Changes in market mix: European manufacturers may experi- ence increasing complexity in the supply chain over time as overseas markets increase in importance on the customer and supply side. Further complexity is introduced as markets move away from production sites. This requires careful planning and monitoring to ensure proactive management of cash resources. Automotive – Summer 2010 25
  • 26. Financing: Car manufacturers can receive finance for finished vehicles after a variety of “trigger” points depending on the sales market. This availability of cash may diminish the desire to undertake a full review of processes and practices. Is this short-sighted? A business that fails to maximize the use of its cash will limit its ability to compete in the longer term. Alliances and joint ventures: The significant investment in both finance and working capital required to develop items such as platforms, electronics and power trains is lead- ing to more cooperation. While coop- eration should lead to a reduction in development costs, it introduces No member firm has any authority to obligate or bind KPMG International or any other member firm vis-à-vis third parties, nor does KPMG International have any such authority to obligate or bind any member firm. All rights reserved. additional complexity to cash flows. © 2010 KPMG International Cooperative (“KPMG International”), a Swiss entity. Member firms of the KPMG network of independent firms are affiliated with KPMG International. KPMG International provides no client services. So how do organizations move to sustainable cash management? Cross-functional involvement along with dedicated and sufficient resources are vital to improve cash: Working capital crosses the business and all its key functions and geogra- influence cash. Overall responsibility have seen, many businesses do not phies. This can lead to a reluctance to for an area of working capital should have the right cash-focused KPIs for dive into an issue that is so cross-func- be with one member of the senior their activities. tional. While finance staff may monitor management team in order to resolve Accurate operational cash forecast- performance, operational staff make conflicting functional objectives. ing is at the centre of improving cash. the decisions that impact most on cash Daily or weekly cash flow forecasting flow. This is why it is necessary to Cash-focused performance is vital for operating a business. For involve areas ranging from sales and targets must be set and cascaded this to be successful it must involve marketing as well as procurement, pro- to the operational level: the key operational areas of the busi- duction and logistics to bring about the These should have incentives and con- ness. Forecasting is vital to manage all necessary operational and commercial sequences. To sustain cash release it available cash effectively. Without vis- changes. How is this achieved on a is often necessary to change behav- ibility and control, improvements are sustainable basis? This is the multi-mil- iors and working practices. Change very hard to identify and sustain. lion euro question! can be difficult to achieve where an organization has gotten used to oper- In our experience, the key points to Clear roles and responsibilities are ating with a stable set of incentives improve cash forecasts are: necessary for performance: based on volume and profit. Targets Demand forecasting, Who is responsible for the finished that are set need to be aligned at a Complex multi-national and multi- vehicle inventory? At any car manufac- functional and individual level; conflict- currency supply chains, turer there are a number of people that ing goals and incentives will prevent Complexity as a major driver of have some degree of ownership but any initiative from gaining momentum. corporate equity, often there is no single point of con- In our experience, incentives work and Trapped cash in overseas trol. Roles and responsibilities need to are important to sustain benefits. The markets and be understood across the cash cycle to more they seek to measure specific Long finished vehicle inventory pipe- ensure that all individuals expected to operational performance the more lines that can easily build up without deliver understand how their functions useful they will be – from what we proper focus.26 Automotive – Summer 2010
  • 27. State of the art management reporting systems are not key to the success of improving cash flow: Comment It is often said by management that poor systems prevent effective cash Cash and Working Capital management. We have found that it is management in action not the information contained in the system that prevents performance improvement, but it is the attention to detail in an organization’s policies and processes. Operating procedures have A recent example of a stressed cash and working capital management engagement is an international automotive company that was experi- encing severe cash difficulties as a result of reducing sales and an inflex- to be clear and involve regular reviews ible cost base. As the overall automotive market declined the business to ensure they remain effective. Good suffered further and, with the deteriorating global economic situation, they sales and credit policies, procurement, found that new financing was not available within the timescale required; supplier selection and receiving pro- the business was facing site closures in the near future. cesses, for example, will be far more effective in improving cash flow. A structured response to the crisis was initiated, engaging functions across the business to ensure that cash management was a priority for Communication: senior management right across the business. The response included: The means and frequency by which the Reviewing short term cash flow forecasting processes and implement-No member firm has any authority to obligate or bind KPMG International or any other member firm vis-à-vis third parties, nor does KPMG International have any such authority to obligate or bind any member firm. All rights reserved. business communicates the activities, ing a robust forecast involving significant cross-functional input. Ensur-© 2010 KPMG International Cooperative (“KPMG International”), a Swiss entity. Member firms of the KPMG network of independent firms are affiliated with KPMG International. KPMG International provides no client services. progress and achievements of initiatives ing the right people from across the business provided input into the plays an important part in its success. forecast. This new cash flow forecasting process delivered greater trans- Sustainability requires the business to parency with the timing and scope of future problem situations at indi- understand, help and accept revised vidual sites on a daily basis. This sustainable process also utilized mod- working practices. eling teams to implement an automated and consolidated short term cash flow forecast, saving significant management time. Hell hath no fury like a Working alongside management we set up a daily program to facilitate shareholder scorned: the implementation of controls and changes to core cash management For organizations that continue to focus processes. on profits it will take a major change to Managing a multidisciplinary team to develop and implement tactical incorporate cash into the decision mak- cash management actions that generated over € 500 million in cash. ing process. Shareholder expectations Actions included supplier term extensions, credit term reductions, mean that it is unlikely that this will be wholesale financing and indirect tax initiatives. tolerated in the long-term. Cash is a far scarcer resource than it was two years Learning from the short term actions meant that the business was ago, so a more efficient process of turn- able to deliver sustainable process improvements and benefits via root ing profits into cash will improve share- and branch changes to the way the Group manages its cash and working holder value disproportionally. Compa- capital. This included leading nies will need to look up and down the the development of market cash supply chain to identify opportunities to targets, market key performance Roger Bayly release cash. indicators, mapping working capital is an Advisory Partner Continuing to have cash locked up in responsibility, and cash manage- at KPMG in the UK working capital results in less available ment training for key finance staff. for investment. An organization that finds its ability to invest in new markets and product lines limited, will not only see interest in its products falling – shareholder value will also fall. An enduring and disciplined focus on cash will be one of the underlying differ- ences between the winners and losers in the auto sector over the next ten years. By Roger Bayly, Advisory Partner, KPMG in the UK, and Martin Flint, Senior Manager, KPMG in the UK Automotive – Summer 2010 27
  • 28. Current studies KPMG’s Global Auto Executive The Transformation of the Automotive Survey 2010 / Industry Concerns Industry: The Environmental and Expectations to 2014 Regulation Effect (English, January 2010) (English, January 2010) Now in its eleventh year, the Consumers are increasingly 2010 survey reports on an in- opting for more environmentally- dustry emerging from one of friendly vehicles. Governments the most turbulent years in re- and regulators are also imposing No member firm has any authority to obligate or bind KPMG International or any other member firm vis-à-vis third parties, nor does KPMG International have any such authority to obligate or bind any member firm. All rights reserved. cent decades. Manufacturers stricter guidelines for emissions © 2010 KPMG International Cooperative (“KPMG International”), a Swiss entity. Member firms of the KPMG network of independent firms are affiliated with KPMG International. KPMG International provides no client services. and suppliers forecast that profit- control and fuel economy. ability will be lower than before, This KPMG survey explores the investment growth will decline, and that market share proposed regulations and incen- for some of the biggest manufacturers will continue tives affecting the global automotive industry and to shrink. suggests ways that manufacturers can respond. Brand and Ownership Concentration in the European Automotive Industry: Order: If you would like a print copy of the abovementioned publications, please contact: Possible Scenarios for 2025 Stephanie McCardle: smccardle@kpmg.ca (German, English, May 2010) You will find further publications at: This report explores consolida- www.kpmg.com tion trends in the automotive industry across Europe from the last 90 years and identifies determining factors behind those trends. A model is developed to forecast the future of the auto industry in Europe and in China. The industry model enables a forecast of what a possible consolidation process might look like by 2025. fastest petrol powered racing cars, Radical SR8, into a high performance electric vehicle and drive it across the Americas from Prudhoe Bay, Alaska to Ushuaia, Argentina. The road trip began in July 2010; visit their website to find out more about this ground-breaking project and to KPMG member firms are proud sponsors of Racing Green follow their journey. Endurance – an initiative by 11 enterprising students of Imperial College London to transform one of the world‘s www.racinggreenendurance.com28 Automotive – Summer 2010
  • 29. Global Automotive Contacts Dieter Becker Global Head of Automotive, KPMG in Germany T +49 711 9060 41720 dieterbecker@kpmg.com Stephanie Goering Global Executive, Automotive KPMG in Germany T +49 711 9060 41271 sgoering@kpmg.com Stephanie McCardle, Imprint Senior Marketing Manager, Global Automotive Published by KPMG in Canada KPMG AG T +1 416 777 3849 Wirtschaftsprüfungsgesellschaft Klingelhöferstraße 18 smccardle@kpmg.ca 10785 Berlin Editorial OfficeRegional Automotive Contacts KPMG Logo Werbeagentur ASPAC Miriam Leypoldt Chang Soo Lee Christoph Neuschäffer Samjong KPMG in Korea Michael Offtermatt T +82 (2) 2112 0600 changsoolee@kr.kpmg.com Project Management Carmen Borges, The Americas KPMG in Switzerland Gary Silberg T +41 44 249 20 51 carmenborges@kpmg.com KPMG in the US T +1 312 665 1916 Design/layout gsilberg@kpmg.com Logo Werbeagentur T +49 711 211 91-0 EMA info@logo-werbeagentur.de Dieter Becker KPMG in Germany Translation Office T +49 711 9060 41720 Dr. Billaudelle & Partner dieterbecker@kpmg.com T +49 89 41 07 35 92 info@billaudelle-partner.com Print Office Druckerei Memminger GmbH T +49 7141 791 10-0 mail@druckerei-memminger.de Photo Credits Title page: composing: logo and iStockphoto/Onur Döngel. p. 2: KPMG. p. 3: iStockphoto/Grafissimo, Shotshop/Thorsten Nieder, Shutterstock /Olly. p. 4-8: iStockphoto/Pixdeluxe, composing: logo/iStock- photo/BookMama. p. 9-11: composing: logo und iStock- photo/Alle, iStockphoto/Grafissimo, iStockphoto/Ictor. p. 12-16: Shotshop/Thorsten Nieder, composing: logo und iStockphoto/Andyworks, Shutterstock /Leva Vincer- zevskiene. p. 17: composing: logo/Shutterstock / Aspect3D/Argus. p. 18-19: Shutterstock /Jaywarren79, photocase/Bratscher. p. 20-21: Shutterstock /Olly. p. 22-23: iStockphoto/Chrisgon, Shutterstock /Rosamund Parkinson, Shotshop/Nieder. p. 24: Shutterstock /Zhuda. p. 25: iStockphoto/DNY59. p. 27: iStockphoto/Graffiti- zone. p. 28-29: KPMG.
  • 30. kpmg.comThe information contained herein is of a general nature and is not intended to address the circumstances of any particular individual or entity. © 2010 KPMG International Cooperative (“KPMG Interna-Although we endeavor to provide accurate and timely information, there can be no guarantee that such information is accurate as of the date it tional”), a Swiss entity. Member firms of the KPMG networkis received or that it will continue to be accurate in the future. No one should act on such information without appropriate professional advice of independent firms are affiliated with KPMG International.after a thorough examination of the particular situation. Any trademarks identified in this publication are the property of their respective KPMG International provides no client services. No memberowner(s). KPMG and the KPMG logo are registered trademarks of KPMG International Cooperative (“KPMG International”), a Swiss entity. firm has any authority to obligate or bind KPMG International or any other member firm vis-à-vis third parties, nor does KPMG International have any such authority to obligate or bind any member firm. All rights reserved. Printed in Germany.