global economic and automotive trends & developments presented by: gavin maile

1© 2014 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.

Global Economic and Automotive Trends & Developments

Presented by:Gavin Maile

South African Automotive Week15 October 2014


Global Economic and Automotive Trends & DevelopmentsAgenda

2. Global Automotive Trends & Developments

3. KPMG Global Automotive Executive Survey 2014

1. Global, African & South African Economy

. 3.

© 2014 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.

Some news headlines about the global economy

Global

economy may

need stimulus –

Business D

ay

Global

economy

getting

better,

Barclays says

Global economy one shock away from another crisis – The Telegraph

Is world economy heading for another economic crisis? – The Daily Star

Two charts that show the

world’s economy is thriving –

Business Spectator

Outlook

for

global

econom

y remains

uneven

- IMF

Manufacturing spearheads stronger global growth – Saxo Bank

. 4.


Global outlook: main messages from the GEP (Worldbank)

High income country recovery is underway

Developing country growth to pickup slowly, as tailwinds from stronger high-income growth are countered by capacity constraints and an eventual tightening of financial conditions

Regional prospects vary

Global risks have declined but prospects remain sensitive to volatility in financial markets

Over the medium-term macroeconomic policy needs to tighten in order to increase resilience and, in some countries, alleviate inflationary pressures

Medium-term growth will have to come from structural reforms that boost growth potential

“Shifting priorities, building for the future”

. 5.


Global economy: GDP growth forecasts (Worldbank)

2012 2013 2014 2015 2016

2.5 2.42.8

3.4 3.5

World

2012 2013 2014 2015 2016

4.8 4.8 4.8

5.45.5

Developing countries

2012 2013 2014 2015 2016

1.51.3

1.9

2.4 2.5

High income countries

3.4% 5.4% 2.4%Growth outlook revised downwards from 3.8% at the beginning of the year to a more modest 3.4% in July. The recovery is continuing, but momentum has slowed down and there are risks that might derail the move towards a healthier economy.

Growth outlook revised upwards from 4.8% at the beginning of the year to a more aggressive 5.4% in July. Capacity constraints, slower local reforms and political tensions in some areas are, however, potential risks to the future growth outlook.

Growth outlook revised upwards from 1.9% at the beginning of the year to 2.4% in July. Mixed signals and uneven recovery of developed economies, with patches of very exciting growth and patches of bad news.

. 6.


The global powerhouses (World Bank)

TOP 10G L O B A L E C O N O M I C S U P E R P O W E R S

United States Projected GDP 2014: 17.5 trillion

Projected GDP 2019: 22.1 trillion

ChinaProjected GDP 2014: 9.1 trillion

Projected GDP 2019: 14.8 trillion

FranceProjected GDP 2014: 2.7 trillionProjected GDP 2019: 3.6 trillion

JapanProjected GDP 2014: 4.9 trillionProjected GDP 2019: 5.7 trillion

GermanyProjected GDP 2014: 3.6 trillionProjected GDP 2019: 4.9 trillion

Brazil

Projected GDP 2014: 2.2 trillionProjected GDP 2019: 2.9 trillion

Russia


Italy


India


#1

#2

#5

#3

#4 #7

Source: World Bank

#8 #9 #10

#1

#10

#2

#5

#3

#8

#7

#4

#9

#6

UnitedKingdom


#6

. 7.


How healthy is Africa? (Economist Intelligence Unit)

Forecast average annual GDP growth 2014 - 20198.1%

Mozambique

7%

India

7.0%

AngolaTanzania Cote D’lvoire

Ghana

6.95%6.9% 6.4%

Nigeria Kenya

6.1% 6.0%

Ethiopia RussiaSouth Africa

USAUnited Kingdom

FranceGermany

5.1%2.65% 2.65%

2.5% 1.9% 1.5% 1.45%

Cameroon

4.3%

Brazil

2.65%

Sub-Saharan Africa average annual GDP growth 2006 - 2013

4.7%

Kenya

6.8%

Tanzania

6.3%

Uganda

3.7%

South

Africa

7.9%

Sierra

Leonne

6.8%

Nigeria

9.5%

Angola

6.2%

Botswana

6.5%

Zambia

7.7%

Ghana

10.6%

Ethiopia

7.1%

China

7.2%

Mozam-

bique

Forecasted growth for 2014: 1.5%

Q2 2014: +0.6% (lower than expected +0.9%)

. 8.


South Africa: a story of confidence (or a lack thereof) (BER)

Neutral at 50

Sept 2009

Sept 2014

BER’s BCI survey

The BCI survey question: Respondents are asked to rate current business conditions as "satisfactory" or "unsatisfactory".

Respondents rated business conditions as unsatisfactory as the index is below 50.

However, it has increased by five points to 46 in 2014Q3.

This implies that close to 54% of respondents continued to be unhappy with prevailing business conditions.

The SACCI Business Confidence Index (BCI)

The BCI survey question: Respondents are asked to rate current business conditions as "satisfactory" or "unsatisfactory".

The index increased slightly to 89.2 in September from 89.0 in August 2014.

Although it appears that waning business confidence has been checked, business confidence remains at an undesirably low level

48

Sentiment among new vehicle dealers 15 points in the third quarter

Confidence among wholesalers by 15 index points.

Retailers, building contractors and manufacturers, the business mood by 11, 8 and 3 points respectively

23

28

43

36

47

44

55

48

39 38

52

41

47 46

52

48

42 4341 41

46

. 9.


South Africa: a story of confidence (or a lack thereof) (BER)

1

6

1514

1514

9

11

45 5

-3

-1

-3

-7

1

-8-7

-6

4

-1

BER’s CCI survey questions

How do you expect the general economic position in South Africa to develop during the next 12 months? Improve considerably Improve slightly Deteriorate slightly Deteriorate considerably Don’t know

1

How do you expect the financial position in your household to develop in the next 12 months? Improve considerably Improve slightly Deteriorate slightly Deteriorate considerably Don’t know

2

What is your opinion of the suitability of the present time for the purchase of domestic appliances such as furniture, washing machines, refrigerators etc? Do you think that for people in general it is the right time, neither a good nor a bad time or the wrong time?

3

Consumer rating slipped from +4 to -1 index points during 2014Q3

Neutral at 0

Sept 2009

Sept

2014

The confidence levels of high income consumers remain notably higher compared to that of low income consumers, with wealthy consumers

being particularly optimistic about the outlook for their householdfinances.

. 10.


South Africa’s standing amongst developing economies (Economist Intelligence Unit)

2001

2012

2017

0% 10% 20% 30% 40% 50% 60% 70% 80% 90% 100%

US$ 3.3 bn

US$ 13 bn

US$ 20 bn

South Africa Russia Brazil India China

BRICS will represent 32% of global

economic output by 2017

In 2010, South Africa joined an expanded

BRICS group

Jim O’Neill of Goldman Sachs

created and coined the term BRIC to

identify the world’s fastest growing

economies

ECONOMIC POWER (2012)

MARKET SIZE

Total GDP of US$ 22.3 billionRepresenting 27% of total global economyPopulation about 40% of global population

Source: Economic intelligence Unit

In 2009, the first BRIC summit was held

5th BRICS summit in Durban, BRICS bank and BRICS business

council14.2%

13.3%

11.9%

58.4%

2.2%

Brazil

Russsia

India

China

SA

. 11.


South Africa’s competitiveness (Global Competitiveness Report)

Institutions

36Infrastructure

60Economy

89

This little island is

beating us

Health and education

132

Higher education

86

Labour market

113

Financial markets

7

Innovation

43

Overall ranking 56Restrictive labour regulations

Inadequately educated workforce

Inefficient government bureaucracy


Global Economic and Automotive Trends & DevelopmentsAgenda

2. Global Automotive Trends & Developments



13© 2014 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 third parties, nor does KPMG International have any such authority to obligate or bind any member firm. All rights reserved.

KPMG’s view on impending changes in automotive value chain

ORIGINAL EQUIPMENTMANUFACTURER

SUPPLIER

CAR RENTAL ANDFLEET PROVIDER

CONVENTIONAL DEALER

FINANCIAL SERVICE PROVIDER

MOBILITY SERVICE PROVIDERTIER '0.5'

NEWCOMER OEMs

NEW COMPONENTS SUPPLIER

IS AND CONNECTIVITY

WEB 2.0 BROKER



NEWPLAYERS

TRADITIONAL PLAYERS

Tier 1 Suppliers■ Vehicle and engine module / system

manufacturing

Tier 2 Suppliers■ Automotive parts manufacturing

(suspension, steering and driveline)

Tier 3 Suppliers■ Automotive parts manufacturing and

raw material processing

Electric Components and Light Weight Materials Suppliers■ Batteries, e-motors, power electronics

and semi-conducters

■ Carbon-fiber chassis and auto parts

Information Systems and Connectivity Companies■ Telematics, wireless communication,

infotainment, and mobile payment

AUTOMOTIVE VALUE CHAIN

SUPPLIER


IS AND CONNECTIVITY


Region Safety Innovation Quality Emerging Markets

Consolidation Sustainability CollaborationRationalizing Capacity and Production

Leveraging Cost Benefit

Profitability Expansion Growth Aftermarket

Western Europe

US

Japan

Brazil

Russia

India

China

RoW

Outside-car Components

In-car Components

New e-components

Suppliers – Market Segmentation

Supplier Market Segments Key Electric Components

Charger Li-ion BatteryPack

Inverter+DC/DC

+ EV Control

Electric MotorCharging

Station

KEY TRENDS

AUTOMOTIVE

VALUE CHAIN


SUPPLIERCAR RENTAL &

FLEET PROVIDER

CONVENTIONAL DEALER


MOBILITY SERVICE PROVIDERTIER ‚0.5‘

NEWCOMER OEMs


IS & CONNECTIVITY

WEB 2.0 BROKER

notvery distinctive


Key TrendPriority

Comment

QualityPotential EV buyers are concerned about the driving range of EVs. OEMs are trying to find various methods, such as using towed generator system or providing training to drivers, to increase distance on a single charge.

Safety and Reliability

High temperatures shorten the life of lithium-ion batteries, while cold temperatures diminish their power capabilities and affect overall vehicle performance.

CostHigh cost of EVs will discourage potential buyers. Also, the cost of charging infrastructure and batteries will affect the industry.

InfrastructureDeveloped markets such as Western Europe and the US have started formulating policies to expand public charging infrastructure. However, it is still very immature in other regions.

Government Intervention

Governments have taken initiatives to encourage the EV industry by providing tax breaks on purchase and investments in R&D. However, with no clear guidelines, there could be a delay in the rollout of EVs.

New Components – Electric Components

B

OEM Strategies to Access Battery and E-Component Know-How

AUTOMOTIVE

VALUE CHAIN



FLEET PROVIDER

CONVENTIONAL DEALER



NEWCOMER OEMs


IS & CONNECTIVITY

WEB 2.0 BROKER

■ With three fully owned battery plants already operating in Europe, the Renault-Nissan Alliance tries to keep the battery production for their EVs in-house.

■ Newcomer OEMs such as BYD and Tesla Motors produce e-components in-house.

Make

■ BMW and Fiat-Chrysler buy battery technology from the South Korean battery specialist SB LiMotive instead of engaging themselves in the development and manufacturing of battery cells and packs.

Buy

■ Daimler operates two JVs with Evonik for battery packs and cells — Deutsche Akkumotive and LiTec Battery.

■ Daimler recently announced plans to form a JV with Bosch, to produce e-motors.

■ VW jointly develops lithium-ion batteries with Sanyo/Toshiba.

Cooperate Company Country Customers / Partners

Panasonic Japan Toyota

LG Chem Korea GM

BYD Co. Ltd.` China BYD

Samsung SDI Co., Ltd.

Korea Telsa Motors, VW

GS Yuasa JapanMitsubishi (i-MiEV), PSA (Peugeot iOn, Citroen C-Zero)

Saft Groupe France Johnson Controls, GM

Tesla Motors US Daimler (Smart EV), Toyota

China BAK Bat. China GM, FAW Group

notvery distinctive

Importance of Key Trends for Electric Components Suppliers

Top (Vehicle) Battery Manufacturers 2012

Sou

rce:

Co

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any

we

bsi

te


New Components – Light Weight Materials

B

Carbon Fiber as Future Light Weight Material in Automotive

OEM Strategies to Access Battery & E-component Know How Selected Light Weight Materials Suppliers 2012

AUTOMOTIVE

VALUE CHAIN



FLEET PROVIDER

CONVENTIONAL DEALER



NEWCOMER OEMs


IS & CONNECTIVITY

WEB 2.0 BROKER

+ Car weight reduction in favor of heavy but necessary auto parts (e.g. lithium-ion battery packs)

+ Increased fuel efficiency through lighter weight

+ Reduced exhaust emissions via higher fuel efficiency

+ Improved passive and active safety owing to higher material strength than aluminum or steel

Advantages

- Very high material costs (CFP component can cost nearly five times more than the same part made from aluminum)

- Very time-consuming manufacturing cycle (e.g. hand-positioning layers of fiber, lengthy bonding process)

- In contrast to aluminum or steel, no post-processing applicable (scrap can be around 30 percent)

Disadvantages

Importance of Key Trends for Light Weight Materials Suppliers

Company Country Customers / Partners

Mitsubishi Chemical Holding

Japan N/A

Toray Industries Japan Daimler AG (JV)

Voith Germany Audi

Teijin Japan N/A

SGL Carbon GermanyBMW (JV), VW (minority stake), PSA

Zoltek Companies United States N/A

Oya Carbon Co., Ltd. (Oya Co)

China N/A

■ Carbon fiber is strong, stiff and light and therefore well fit for automotive structural parts.

■ For example, BWM’s ‘project i’ under the project, environment-friendly models are developed and launched in mass leveraging carbon fiber also thinking beyond environmentally-conscious and agile driving. Sales Price: > US$55,000

Release Date: 2013

Range: ~ 100 miles

Weight Reduction: > 400 lbs

notvery distinctive

Key Trend Priority Comment

SafetyContrary to popular belief, carbon fiber is stiffer and five times stronger than steel. In addition, it has a higher energy-absorption rate than steel and can increase safety in a collision.

Cost

Companies are innovating new techniques to reduce the cost of carbon fiber, such as use of ‘forged composites’ manufacturing process by Lamborghini and Callaway Golf Co, and mass production of a mold for an automobile frame by Teijin Limited.

Fuel efficiency

With tough fuel economy mandates set by developed countries, many OEMs (such as GM) are planning to use carbon fiber.

InnovationCompanies are developing new innovative methods to improve the quality of the carbon fiber and reduce production time for mass usage.

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rce:

Co

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we

bsi

te


IS and Connectivity – Overview

■ Tier 1 supplier Delphi and Autonet Mobile, a provider of internet-connectivity telematics, signed an agreement to develop and market a wireless connectivity platform, to deliver entertainment and downloadable content to vehicles in motion.

■ Hyundai and Microsoft jointly set up an ‘Automotive IT Innovation Center’ to develop next generation infotainment systems, including multimedia and navigation-related features.

■ Ford and Microsoft have already joined forces to equip Ford cars with a voice-controlled communications and entertainment system. Recently, they expanded their partnership to introduce an electricity grid management tool to Ford’s new electric models, which helps consumers to time car charging to periods when energy use is lower and therefore cheaper.

■ Bosch Group and Vodafone integrated their machine-to-machine (M2M) platforms, to offer businesses a simple way of wirelessly connecting products to the internet.

Trends toward Connected Cars Possible application areas of connectivity-based technologies

Leveraging convergences via cross-sector partnerships

AUTOMOTIVE

VALUE CHAIN



FLEET PROVIDER

CONVENTIONAL DEALER



NEWCOMER OEMs


IS & CONNECTIVITY

WEB 2.0 BROKER

■ Modern cars are increasingly turning into smart and web-connected ‘mobile platforms.’

■ OEMs try to integrate the trends in consumer electronics, in order to generate a new ecosystem of revenue as others may run dry in the future.

■ Importance of mechanical parts for future automotive value creation is decreasing. 2010

2025Software

Electronical parts

Mechanical parts

Shift in value creation in the Automotive Business

Infomobility■ GPS navigations providing drivers

info (news, available parking, alternative routes, shops, tourist areas, traffic situation, CO2 route optimization, points of interest, etc)

Commerce■ Mobile payments system (charging tolls,

parking fees, buying tickets, shopping)

■ Usage of the car recording system (miles per year, day of the week …) to be correlated with premiums for car insurance (e.g., every week, the car dashboard signals the cost of car insurance)

Entertainment■ Consumer electronics

for passenger amusement in front and rear seats (e.g., iPod, satellite radio, TV and car PC system)

Communication■ Telephone video

call, email, SMS, internet access to connect to remote users.

Safety / Security■ In-vehicle tracking system (intelligent black box

checking and tracking car conditions)

■ Personalization of car access and driver settings

■ Automatic security distance maintaining system (based on speed and weather conditions)

■ Home video alarm monitored from the carCar maintenance and Optimization■ Remote diagnostic

application

■ Chips and controller for variable speed drive intelligence in order to produce Smart Motors that reduce energy consumption and CO2 emissions

■ Telemetry to collect vast amount of data to fine tune car performance monitoring

“You get more and more connectivity between cars as well as between manufacturer and driver.” – Eberhard H. Kern, Mercedes Benz India,

June 2013Source: Press Release

Source: Reuters



NEWPLAYERS

TRADITIONAL PLAYERS

Original Equipment Manufacturers■ Vehicle and engine design,

manufacturing, and assembly

■ Brand management

■ Several OEMs vertically integrate e-car value chain steps, from battery manufacturing to e-motor production

■ Supplier, dealer and customer financing via captive financial service arms

Tier ‘0.5’ Suppliers■ Tier 1 suppliers upgrade to contract

manufacturers

■ Complete car design and development capabilities, including production

Newcomer OEMs■ Immature e-technologies and relatively

low complexity allow newcomers to compete with established players



TIER '0.5'NEWCOMER

OEMsNEW COMPONENTS

SUPPLIERIS AND

CONNECTIVITY


OEMs – Global Market Segmentation

Light Vehicles (LV) ■ Light Vehicles includes both passenger vehicles and light

commercial vehicles with at least four wheels, used for the transport of passengers and/or used for the carriage of goods.

Passenger Vehicles (PV) ■ Motor vehicles with at least four wheels, used for the transport of

passengers, and comprising no more than eight seats, in addition to the driver's seat.

Light commercial vehicles (LCV) ■ Motor vehicles with at least four wheels, used for the carriage of

goods. This limit depends on national and professional definitions and varies between 3.5 tons and 7 tons.

Definitions of Vehicle Types LV Sales Development by Market Cluster* 2010-17e

AUTOMOTIVE

VALUE CHAIN



FLEET PROVIDER

CONVENTIONAL DEALER



NEWCOMER OEMs


IS & CONNECTIVITY

WEB 2.0 BROKER

2010 2011 2012 2013 2014 2015 2016 20170

2

4

6

8

10

12

14

16

1.5 1.6 1.4 1.3 1.3 1.5 1.6 1.7

6.7 6.6 6.7 6.7 7.3 8.0 8.8 9.6

2.8 2.9 3.4 3.3 3.23.4

3.63.7

TRIAD BRIC RoW

LC

V S

ale

s (

Mill

ion

Un

its

)

PV Sales Development by Market Cluster 2010-17e LCV Sales Development by Market Cluster 2010-17e

2010 2011 2012 2013 2014 2015 2016 20170

20

40

60

80

100

120

29 30 31 31 32 33 34 36

25 27 29 31 34 38 42 45 20 20 22 21 21

22 23

24

TRIAD BRIC RoW

LV

Sa

les

(M

illio

n U

nit

s)

2010 2011 2012 2013 2014 2015 2016 20170

10

20

30

40

50

60

70

80

13.4 13.2 12.1 11.7 11.9 12.3 13.0 13.8

18.4 20.4 22.3 23.9 26.6 29.9 32.8 35.0

16.7 16.8 18.1 17.9 17.818.5

19.320.0

TRIAD BRIC RoW

PV

Sa

les

(M

illio

n U

nit

s)

48.6 50.4 52.5 53.5 56.460.7

65.068.8

11.1 11.1 11.5 11.4 11.912.9

14.015.1

74 77 81 8387

9399

104

Sou

rce:

LM

C A

uto

mot

ive

Q2

2012

Sou

rce:

Est

imat

es,

KP

MG

ana

lysi

s

*Note: Vehicles unidentified are included in LV sales, however excluded from PV and LCV sales.

Sou

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LM

C A

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mot

ive

Q3

2013


OEMs – Key TrendsAUTOMOTIVE

VALUE CHAIN



FLEET PROVIDER

CONVENTIONAL DEALER



NEWCOMER OEMs


IS & CONNECTIVITY

WEB 2.0 BROKER

notvery distinctive

RegionMobility

SolutionsOvercapacity

Supplier Performance

Urbanisation Connected CarFuel

Efficiency/e-mobility

Market Growth

Consolidation JV’s/M&A

Western Europe

US

Japan

Brazil

Russia

India

China

KEY TRENDS


Tier ‘0.5’ – Overview

■ Trend is shifting toward greater reliance of automotive OEMs on tier 1 contractors for development and supply of critical components or even completely outsourced model lines.

■ Over the past 15 years, more OEMs have undertaken contract manufacturing, as they have come under increasing pressure to develop new vehicles, particularly due to consumer preference for more distinctive models and in response to uncertainties in market conditions .

■ Tier ‘0.5’ suppliers are those suppliers who, besides providing modules for vehicles, have complete vehicle design and development capabilities, including vehicle production (contract manufacturing), such as Magna International, Valmet Automotive, Karmann and Pininfarina.

■ Porsche has been outsourcing its 987 Boxster and Cayman manufacturing to Finland-based contract manufacturer Valmet Automotive since 1997. As this contract will end in 2011, Magna Steyr will step in to produce Boxster / Cayman sports cars in Austria, as of 2012.

■ California electric car start-up Fisker Automotive has also contracted Valmet Automotive to assemble its Karma plug-in hybrid sports sedan in Finland.

■ Electric vehicle ‘Eva,’ developed in-house at Valmet Automotive, demonstrates that contract manufacturers are striving for independent vehicle development, engineering and manufacturing.

■ Pininfarina, a leader in the production of niche vehicles, produces for Alpha Romeo (Spider), Ferrari (458 Italia) and Maserati (GranCabrio).

Shifting Responsibilities in Automotive Value Chain Prominent Examples of Contract Manufacturing

Suppliers Move up Automotive Value Chain

AUTOMOTIVE

VALUE CHAIN



FLEET PROVIDER

CONVENTIONAL DEALER



NEWCOMER OEMs


IS & CONNECTIVITY

WEB 2.0 BROKER

49%

39%

12%

Yes No Don't know

2010 OEM

2015+ OEMTier ‘0.5’Tier

3Tier

2Tier

1

Tier1

Tier2

Tier3

Process or cost leadership

(supplies parts and raw materials)

Technology leadership

(supplies sub-systems and

modules)

Integration competence

(supplies complex and

critical vehicle systems

Vehicle integration competence (capable

of assembling and manufacturing entire

vehicle)

Vehicle integration competence

(capable of assembling and

manufacturing entire vehicle)“49 percent of 200 leading

automotive executives believe that the future automotive value chain responsibilities will change significantly.”

Source: KPMG‘s Global Automotive Executive Survey 2011


Newcomer OEMs – Overview

Technological Changes Open up Promising Opportunities for Newcomers

AUTOMOTIVE

VALUE CHAIN



FLEET PROVIDER

CONVENTIONAL DEALER



NEWCOMER OEMs


IS & CONNECTIVITY

WEB 2.0 BROKER

■ Combustion engine parts, including the engine block, pistons, gaskets, valves, camshaft, oil pump, oil filter and injection systems

■ Exhaust system■ Tank system■ Clutch■ Peripheral systems such as oil pumps,

turbochargers and alternators

What will disappear?

■ Electric engine and related powertrain systems■ Battery systems, including power electronics,

battery management, charging devices (Plug-in) and DC / AC converter

■ Gearbox■ Wheel suspension■ Power transmission■ Air condition systems■ Cooling water pump■ Thermal insulation■ Chassis

What will change? What will be added?

Reduction in Complexity

■ Less complexity could mean that supplier fragmentation will decrease (less need for a high number of specialists). This could increase profit margins overall.

Electrical engine: Powertrain with ca. 210 individual parts and 14 mechanical partsCombustion engine (six cylinders): Powertrain

with ca. 1,400 individual parts and 140 mechanical parts

■ Mature technology with high entry barriers■ Newcomers must close experience gaps

■ With a young technology, all market participants start at the same level, and face similar challenges.

■ Newcomers have the same or better chances to succeed.


Newcomer OEMs – Current Examples

■ SABA Motors is a Silicon Valley Startup company developing high performance electric vehicles similar to Telsa Motor’s electric sports car.

■ The company promises to offer two-seat electric roadster that accelerates to 60 mph in five seconds and reaches a top speed of 105 mph

■ The car offers driving range between120 and 140 miles per charge.

■ BYD is a 15-year-old Hong Kong-listed battery maker that started producing BYD-branded electric cars, using its own batteries.

■ MidAmerican Energy, a unit of billionaire investor Warren Buffett's Berkshire Hathaway, surprised financial markets in 2008, with an agreement to purchase 10 percent of since then little-known BYD for USD 230 million.

■ BYD is working on launching its first plug-in all electric car, the E6, however, the time-frame is unknown.

Tesla Motors (Premium Electric Sports Cars) SABA (Electric Sports Car)

BYD (Build Your Dreams)

AUTOMOTIVE

VALUE CHAIN



FLEET PROVIDER

CONVENTIONAL DEALER



NEWCOMER OEMs


IS & CONNECTIVITY

WEB 2.0 BROKER

Source: CNBC

■ Tesla Motors produces a high-performance electric sports car, and is backed by a number of high-profile investors.

■ In May 2012, introduced all new model S with improved efficiency and range.

■ In Dec 2012, reported an annual sale of US$385.7 million, an increase from US$148.6 million for the year ended Dec 2011.

■ In October 2013, announced the opening of the West Coast Supercharger Corridor, energizing a network of stations that enable Model S owners to travel for free between San Diego, California and Vancouver, British Columbia.

■ In October 2013, announced alliance with Panasonic to expand supply of automotive-grade battery cells. Source: CNBC

Source: CNBC

■ Formed as a spin out from Rough and Tuff Electric Vehicles, headquartered in Atlanta, Georgia produced smart car called ‘The Life’ lookalike of electric car.

■ The Life is a two-seater car priced at US$32,995, with driving range of 100 miles.

■ The car is small in size reaching 65 mph top speed and is relatively highly priced compared to similar cars

Wheego Electric – The Life

Source: Company website

http://blog.autoladestelle.de/wp-content/uploads/2010/06/wallpaper_4982_800x600.jpg



NEWPLAYERS

TRADITIONAL PLAYERS

Captive / independent dealerships■ Showroom-bound vehicle marketing and

sales

■ Vehicle maintenance services

Auto Rental and (Non-)Captive Financial Services Companies■ Long-/short-term auto rental services

■ Leasing, financing and fleet management

Mobility Service Providers

■ Intra-urban car sharing / club schemes or intermodal mobility solutions

■ Can be provided by OEMs, car-rentals, utilities, infrastructure providers, public transport companies or new entrants

Web 2.0 Brokers / Intermediaries■ Vehicle brokerage via online distribution

channels

AUTOMOTIVE VALUE CHAIN CAR RENTAL AND

FLEET PROVIDER

CONVENTIONAL DEALER

MOBILITY SERVICE PROVIDERNEW COMPONENTS SUPPLIER

IS AND CONNECTIVITY WEB 2.0 BROKER


Conventional Dealers – Overview

Dealer Market Segmentation

AUTOMOTIVE

VALUE CHAIN



FLEET PROVIDER

CONVENTIONAL DEALER



NEWCOMER OEMs


IS & CONNECTIVITY

WEB 2.0 BROKER

DealerGroups

Used Car

Dealerships

Multi-Brand

Dealerships

IndependentDealer

End Customer

OEM Captive

Dealerships

Key Trend Priority Comment

Emergence of Establishing Market

Establishing markets such as China will reach higher levels of market maturity quicker than existing established markets.

Customer Relationship Management (CRM)

Auto dealers are increasingly using CRM software or online solutions to manage / optimize their marketing activities, sales processes customer satisfaction and retention, and service department functions.

After-sales Support

After-sales support is one of the core focus areas for dealers, particularly in the Triad.

Used Car Business

Post the financial crisis, sales volume of used cars has been increasing and is expected to increase further in major markets.

Multibrand Dealers Dealers moving toward multibrand representation as single brand dealers are faced with profitability issues.

Key Trends at Global Level


Conventional Dealers – Retail Market OverviewAUTOMOTIVE

VALUE CHAIN



FLEET PROVIDER

CONVENTIONAL DEALER



NEWCOMER OEMs


IS & CONNECTIVITY

WEB 2.0 BROKER

Source: KPMG Global Automotive Retail Market Study

Country

Car Parc Size 2000 (millions)

Car Parc Size 2010(millions)

Car Parc Size 2020 (millions)

Car Ownership rate 2000 (in percent)



China 6 46 200 1 3 16

US 211 226 262 96 95 99

India 6 17 57 1 2 5

Brazil 14 22 38 11 17 22

Japan 52 58 59 50 57 61

Russia 20 34 53 17 28 46

Germany 44 42 45 63 62 69

UK 28 31 34 60 64 66

France 33 37 38 69 75 79

Italy 28 31 34 60 64 67

Matured market Establishing markets

New car sales are often stable or even declining in year-on-year and replacement car demand comfortably exceeds demand for first cars

New car sales growth rate over the last 10 years is often double digit and first car demand considerably exceed replacement-car demand

Used-to-New car sales ratio is between 1:1 and 3:1Used-to-New car sales ratio is often below 1:1, depending on the new car sales growth

Vehicle ownership rate is usually above 50percent

Vehicle ownership rate is usually below 50Percent

Over 90 percent of all vehicle purchases arefinanced

Most car buyers pay for their vehicles in cash

The total number of dealerships is constantlydecreasing, due to competition and low profits.

The number of dealerships is constantly rising to satisfy steadily increasing demand.

Key Difference – Mature and Establishing Retail Market

Car Parc Size and Density – Top 10 automotive market


Mobility Service Providers – Overview

Growing Trend Toward Integrated Mobility Services / Solutions

Parameters for Mobility Concepts

AUTOMOTIVE

VALUE CHAIN



FLEET PROVIDER

CONVENTIONAL DEALER



NEWCOMER OEMs


IS & CONNECTIVITY

WEB 2.0 BROKER

partially integrated mobility services

integratedmobility services

Comprehensivemobility solutions

Usage

Owner-ship

Car purchase + added value services (e.g.

insurance)

Vehicle financing or

leasing

Carsharing, car rental, full-

service-leasing

Intermodal mobility

services (car + pub. transport)

Finance & Insurance Telematics Mobility & Energy Technical Services

Vehicle financial services■ Credit■ Leasing■ Buy-back

Remote controls (EVs)■ Remote battery monitoring■ Remote control (HVAC, charging process, etc.)

Mobility■ Multimodal mobility access■ ICE car loan (“switching”) for EVs

Assistance■ Roadside assistance■ Localized assistance

Battery financial services (EVs)■ Credit■ Leasing■ Buy-back

Navigation■ Real-time traffic info■ Points of interest■ Eco-routing■ Reachable destinations

Energy / fuel■ Energy supply for Evs■ Fuel for ICEs

Warranty■ Warranty■ Warranty extension on EV and battery

Insurance■ Vehicle insurance■ Insurance on financing

Entertainment■ Connection to external devices■ Embedded apps (Internet, video, etc.)

Charging (EVs)■ Infrastructure installation■ Access to fast-charging networks

Maintenance■ Battery maintenance■ EV maintenance■ Battery replacement■ Remote maintenance


Web 2.0 Brokers – Overview

■ More and better information is provided, such as vehicle reports by independent consumer associations and interest groups, direct product and service comparison.

■ A more comprehensive coverage of the market reduces the risk of customers overpaying. A web-based intermediary will immediately be able to tap a vast reservoir of potential buyers / sellers, and may thus realize substantial economies of scale in information provision.

■ It is easy to link with providers of value-added mobility services such as car insurance, finance, car pooling and maintenance centers.

■ The wealth of information on the web is complemented by traditional services; for example, some websites offer home delivery of new cars.

Emergence of Virtual Sales Channel

Advantages of Online Auto Brokerage for Customers

AUTOMOTIVE

VALUE CHAIN



FLEET PROVIDER

CONVENTIONAL DEALER



NEWCOMER OEMs


IS & CONNECTIVITY

WEB 2.0 BROKER

WEB 2.0 Automotive Brokers

Automotive Information

Brokers

Automotive ServiceBrokers

Companies that offer online information, pricing and online quoting as well as additional services, such as financing, insurance, and a direct link to car dealers.

Companies that offer online information, pricing and a broker service to bring together potential buyers and sellers, but do not offer any additional services. They are purely infomediaries.

Source: Cybermediation in Auto Distribution: Channel Dynamics and Conflicts


KPMG’s view on impending changes in automotive value chainSummary

NEWPLAYERS

TRADITIONAL PLAYERS

Tier 1 Suppliers■ Vehicle and engine module / system

manufacturing

Tier 2 Suppliers■ Automotive parts manufacturing

(suspension, steering and driveline)

Tier 3 Suppliers■ Automotive parts manufacturing and

raw material processing

Electric Components and Light Weight Materials Suppliers■ Batteries, e-motors, power electronics

and semi-conducters

■ Carbon-fiber chassis and auto parts

Original Equipment Manufacturers■ Vehicle and engine design,

manufacturing, and assembly

■ Brand management

■ Several OEMs vertically integrate e-car value chain steps, from battery manufacturing to e-motor production

■ Supplier, dealer and customer financing via captive financial service arms

Tier ‘0.5’ Suppliers■ Tier 1 suppliers upgrade to contract

manufacturers

■ Complete car design and development capabilities, including production

Information Systems and Connectivity Companies■ Telematics, wireless communication,

infotainment, and mobile payment

Captive / independent dealerships■ Showroom-bound vehicle marketing and

sales

■ Vehicle maintenance services

Auto Rental and (Non-)Captive Financial Services Companies■ Long-/short-term auto rental services

■ Leasing, financing and fleet management

Mobility Service Providers

■ Intra-urban car sharing / club schemes or intermodal mobility solutions

■ Can be provided by OEMs, car-rentals, utilities, infrastructure providers, public transport companies or new entrants

Newcomer OEMs■ Immature e-technologies and relatively

low complexity allow newcomers to compete with established players

Web 2.0 Brokers / Intermediaries■ Vehicle brokerage via online distribution

channels



SUPPLIERCAR RENTAL ANDFLEET PROVIDER

CONVENTIONAL DEALER


MOBILITY SERVICE PROVIDERTIER '0.5'

NEWCOMER OEMs


IS AND CONNECTIVITY WEB 2.0 BROKER


Global Economic and Automotive trends & developmentsAgenda

2. Global Automotive trends & developments




KPMG’s Global Automotive Executive Survey 2014About the study

Geographic distribution of respondents Respondents job titles

Company category Company annual revenues

About the study

■ KPMG International’s annual assessment of the current state and future prospects of the worldwide automotive industry.

■ In this year’s survey 200 senior executives from the world’s leading automotive companies were interviewed.

Source: KPMG's Global Automotive Executive Survey 2014.


Key automotive trends up to 2025

Source: KPMG's Global Automotive Executive Survey 2014.

Note: Percentage of respondents that rated a trend as ‘extremely important’ or ‘very important’

85%78%

76%

69%

61%

49%

49%

14%

59%

59%57%

STANDARDIZATIONIncreasing use of platforms andstandardization of modules ICE OPTIMIZATION

Downsizing and optimization of theinternal combustion engine (ICE)

FUEL CELL E-MOBILITY

EUROPEAN PRODUCTIONRationalization of production inEurope and shifting of productionto emerging markets

BATTERY E-MOBILITY

FINANCE & LEASINGOEM captivefinancing and leasingURBAN VEHICLE

Innovative urban vehicledesign concepts

CONNECTIVITYConnected car technologies(e.g. car-to-x communication)

MOBILITYMobility-as-a-service

SELF-DRIVING CARS

EMERGING MARKETSMarket growth in emerging markets

The industry continues to be shaped by emerging markets.

There is a sharp decline in the importance of pure battery e-mobility as automakers continue to turn their attention to improving ICE efficiency.


Markets and consumers - the bigger picture: Consumers choose economy over innovation

Percentage of respondents that rated issues as ‘extremely important’ or ‘very important’

Source: KPMG’s Global Automotive Executive Survey 2014.

92% 79% 79% 74% 73%

70% 69% 65% 53% 47%

Fuel efficiency Safety innovation Ergonomics andcomfort

Vehicle styling/exterior

Environmentalfriendliness

Enhanced vehiclelifespan

Plug-in solutions Vehicle-bound internetconnectivity and built-intechnologies

Telematics/personalassistance services

Use of alternative fuel technologies

Consumers have to choose between their conscience, their wallet and their status.

Connected car solutions are gaining importance year-on-year.

Factors influencing consumer’s purchase decision


Evolving strategies for market success

Note: Percentage of respondents that rated the strategy as ‘extremely important’ or ‘very important’Source: KPMG’s Global Automotive Executive Survey 2014.

1 3 84%

77%

77%

76%

55%

50%

2

3

4

5

6

2

1

6

4

5

Ranking2013 Business strategy Percentage

Organic growth

Expansion of the value chain and diversification

Corporate partnerships (JVs and partnerships)

Cooperation with players from converging industries

Outsourcing of (non-)core activities

Mergers and acquisitions

Ranking2014

Automakers arerefocusing fromjoint venturesand partnershipstowards independentgrowth.


Thank you

Presentation by:

Gavin Maile Director+27 83 253 [email protected]

mailto:[email protected]

global economic and automotive trends & developments presented by: gavin maile

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