Auto sector set for major shift over next five years – KPMG

NEW trends in globalisation, rapid urbanisation and changing consumer behaviour will cause a big shift in the automotive landscape over the next five years, a Birmingham-based analyst has said.

John Leech, KPMG’s UK Head of Automotive, said the contrasting announcements on jobs by Jaguar Land Rover and Honda indicated the diverse nature of the industry.

“JLR and Honda’s announcements highlight that auto manufacturers’ fortunes are diverging. New trends in globalisation, rapid urbanisation and changing consumer behaviour will cause a big shift in the automotive landscape over the next five years. Whereas premium car makers are enjoying boom times, volume car makers continue to be in the doldrums,” he said.

His comments come as figures show new car registrations in the European Union fell by 8.2% in 2012 – their lowest level since 1995.

Eurozone auto manufacturers saw 12.05m new registrations last year but of the major markets only the UK showed growth – up 5.3% on 2011. Spain, France and Italy saw double-digit declines.

The situation is so bad in France that car giant Renault has announced it is shedding 7,500 jobs by 2016 – equivalent to 14% of the firm’s domestic workforce.

“Producers of premium upscale cars are enjoying a surge in demand from emerging markets while manufacturers of smaller mass-market cars are struggling with the crash in demand from the Eurozone,” added Mr Leech.

“We are seeing a divergence in profitability and capital for investment in future models creating a twin-track within the industry.”

He said while the consumer trend in mature markets was to downsize to smaller, more fuel efficient vehicles, the reverse could be seen in emerging markets where buyers covet larger, more upscale cars especially 4x4s.  

“JLR has benefited from the desire of Chinese consumers for 4x4s in recent years and this trend is set to continue because at the moment only one in 18 Chinese of driver age own a car.  Other carmakers have noticed this trend and are planning a number of 4×4 launches in China this year.  Although his poses a threat to JLR it is hard to see rivals trumping the class-leading Range Rover,” said Mr Leech.

“The volume car plants here in the UK serve only the UK and European markets which have slowed down dramatically since last autumn.  

“The Japanese-owned UK car plants have also been suffering from the high Yen which has been putting further pressure on their profitability.  This comes at a time when the number of models and derivatives are exploding, new propulsion technologies are being researched and new trends such as car sharing and internet connectivity are changing business models and the value chain.  It is indeed a hugely transformative time for the UK automotive industry.”