Deloitte report signals transformation in the global automotive industry by 2020

Economic downturn shifts power balance to emerging markets and leave cost-conscious consumers in its wake

By 2020, as few as ten volume original equipment manufacturers (OEMs) groups based in six major markets will account for 90 percent of global automotive sales according to a new report by Deloitte Touche Tohmatsu’s (DTT) Global Manufacturing Industry Group. In the report “A new era: Accelerating toward 2020 — An automotive industry transformed” Deloitte member firm senior automotive leaders foresee a new global balance that will give rise to more competitors headquartered in emerging manufacturing hubs, shifting away from the mix of 15 major players today in 4 markets.

“A new competitive landscape is unfolding,” says Dr. Hans Roehm, global managing partner of DTT’s Global Manufacturing Industry Group. “The global economic conditions and market dynamics will lead to some deep structural changes in the automotive industry, setting the stage for growth. China and India will emerge as stronger players joining Western Europe, Japan, Korea, and the United States as the six centers of design and manufacturing for OEMs and their suppliers.”

Deloitte member firm automotive leaders offer perspectives on the major technology developments, structural changes, shifts in customer preferences, and workforce trends expected to transform the global automotive industry over the next decade.

The report highlights three technology trends that offer important opportunities for automakers: powertrain technology and the move to electric; the shift from mechanics to electronics; and low tech mobility.

“The race for electric vehicles (EVs) is heating up,” observes Dr. Martin Hoelz, global automotive industry group leader and partner with Deloitte Germany. “By 2020, EVs and other “green” cars will represent up to a third of total global sales in developed markets and up to 20 percent in urban areas of emerging markets.”
“But, government policies and regulations, driven by different factors such as stricter carbon emission standards to independence from foreign energy, will heavily influence the marketability of EVs and other technology innovations,” adds Hoelz.

Commenting on the structural changes expected in the automotive industry, Randy Miller, principal with Deloitte Consulting LLP, United States explains, “To remain competitive, a higher volume global architecture will be the norm. OEMs will rely on higher volume global platforms supported by networked regional design centers in key emerging markets. Managing these complex networks will be one of the greatest challenges for automakers over the next ten years.”

Another major challenge facing the industry will be to create a supplier network in emerging markets. “This applies to the Russian automotive industry as well,” notes Yury Zachek, Deloitte partner, Head of the Automotive group. “All global carmakers who have opened their assembly lines in Russia, or are in the process of doing so, are more or less experiencing difficulties relating to localization of production.”

One possible solution would include establishing joint ventures between global automotive suppliers and their local counterparts, or creating other forms of partnership to transfer know-how and technology. “Other strategies such as bringing your own production capacities to the emerging markets or totally shifting to local suppliers are not always an option, given the crisis, poor quality of products or shrinking production,” adds Mr. Zachek.

According to the report, “Green” will be one of seven customer themes for the automotive industry in 2020, including:

1. Conscious consumption – a growing emphasis on value
2. Moving up – the emergence of new wealth in emerging markets
3. Shades of green – cost vs. consciousness
4. Safety first – consumers to be attentive to innovations
5. Staying connected - the need to be networked
6. The web – internet as a sales channel
7. Changing preferences - older, more urban consumers

“Dramatic changes in customer buying preferences will play out differently according to the dichotomy that will develop between mature and emerging markets,” says Robert Hill, principal with Deloitte Consulting LLP, United States. “Customers will fragment into distinctly different segments by 2020.”

Attitudes altered by the recession will continue to evolve in mature markets, while a shift from economy cars to luxury segments will occur in emerging markets. Advancements in alternative technologies will also transform consumer mobility altogether.

“Automotive companies will struggle to make required investments and develop the capabilities to capture these trends,” adds Hill. “It will be about defining a strategy that profitably and flexibly meets regional customer requirements.”

The new era of the automotive industry will also be characterised by different workforce dynamics.

“The automotive industry will be a vibrant and high-skilled workplace,” says Dick Kleinert, Human Capital leader with Deloitte Consulting LLP, United States. “Not too long ago, people had this image of a dark, dirty and dangerous environment, but now the industry is known for high skills, advanced technologies, and dynamic change”.

As technologies evolve, OEMs will endeavor to distinguish and develop talent pools with traditional and non-traditional workers by technology and region. Workforce requirements for each region will be determined by function and scale.

“The war for talent will intensify leading up to 2020,” explains Kleinert. “And, companies that embrace new and comprehensive approaches to workforce flexibility will succeed.”

For a copy of “A new era: Accelerating toward 2020 — An automotive industry transformed”, please visit www.deloitte.com/anewera.

Deloitte Touche Tohmatsu Global Manufacturing Industry Group

The Deloitte Touche Tohmatsu (DTT) Global Manufacturing Industry Group comprises more than 750 member firm partners and 12,000 industry professionals in over 45 countries. The group’s deep industry knowledge, service line expertise, and thought leadership allows it to solve complex business issues with member firm clients in every corner of the globe. Deloitte member firms attract, develop, and retain the very best professionals and instill a set of shared values centered on integrity, value to clients, commitment to each other, and strength from diversity. Deloitte member firms provide professional services to more than 81 percent of the manufacturing companies in the Fortune Global 500®. For more information about the DTT Global Manufacturing Industry Group, please visit www.deloitte.com/manufacturing.

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