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Eight mega trends shaping the global light vehicle industry

Date: 10/02/2013
Source: EY
To prepare for the next decade, automotive companies need to raise the following five questions and assess how well they are prepared to respond to the opportunities and challenges these present: How will products need to adapt? How will demand for vehicles and mobility evolve? How will business models need to adapt? What are the supply/value chain issues and implications? What are the new market dynamics?

In answering these questions, EY has identified eight mega trends that will significantly impact the revenues, costs and profitability of the industry during this decade of tremendous change.

„From the social media phenomenon to structured government initiatives, these diverse trends influence vehicle manufacturers, suppliers and dealers on multiple fronts. To seize the opportunities that lay ahead, players old and new must leverage their ability to innovate and remain flexible. No doubt, it’s a new era for the automotive industry.” says Ariadna Oºlobeanu, Senior Manager EY Romania

Governments push for safer, cleaner transportation
Governments are focusing on three areas to secure individual mobility: preservation of resources, environmental compatibility and safety. In response, original equipment manufacturers (OEMs) will begin to build cleaner, safer and more diverse range of cars, including a variety of zero-emission vehicles. From the customer’s perspective, penalties and incentives will influence their decision to own a vehicle and how it will be used. Penalties may include congestion and road user charging, and incentives, such as rebates, will be used to reduce the cost of ownership for zero-emission vehicles.

OEMs develop new value propositions to meet shifting mobility needs
Consumers in the developed and developing world have different mobility needs. Continued urbanization is likely to lead consumers in the developed world to seek alternatives to car ownership even as it leads people in the developing world to buy more cars.

Car-sharing and integrated mobility businesses will become more popular in developed economies. In the emerging markets, more people will be forced to buy cars simply for transportation, but infrastructure development will not keep up with the demand. In response, the OEMs will need to diversify their portfolios to offer more services (such as car-sharing schemes) and have a wider presence across all the different vehicle segments.


New players take the lead in the mobility market
New players will enter the market because of advances in technology and unmet consumer needs. Non-automotive companies are providing services, such as car-sharing, mobility integration, usage-based “black-box” insurance that sets premiums based on real-time monitoring of driving performance, electric vehicle integration and advanced car entertainment systems. The evolution of these new business models brings new entrants into the traditional automotive value chain, adding additional areas of risk and opportunity for OEMs in redefining their business focus.

Social media redefines automotive marketing
The traditional means of marketing a vehicle with a 30-second spot displaying a gleaming car on a mountain road has shifted dramatically. In recent years, consumers have had a great deal of information available when they decided to buy a vehicle. The social media phenomenon has brought access to uncensored feedback including other consumers’ opinions and perceptions. Buyers’ decisions are being influenced by other consumers, influential websites/blogs and news articles — sources that automotive companies cannot control or restrict. At the same time, the new social media platforms make it possible for OEMs to create much closer bonds with customers. Automotive companies, especially OEMs, are gradually recognizing this paradigm shift and using this to their advantage in marketing their products.

Collaboration among industry stakeholders
Technology innovations are triggering business changes. OEMs and Tier 1 suppliers are looking to collaborate more than before, not only within the industry, but also with technology companies and telecoms. In particular, they will likely work together to draft standards for emerging technologies, such as common protocols for in-vehicle connectivity and a common battery-charging infrastructure for electric cars. Additionally, OEMs are more willing to share platforms with competitors and focusing on flexible production in order to decrease R&D cost, reduce risk and decrease time to market.

Portfolio rationalization among OEMs
Following the recession, most OEMs in developed countries will be looking for sustainable, profitable growth and not just volume. Yet, emerging market OEMs will be reaching for scale as fast as they can, through acquisitions in either their home market or the developed world to build global brands and establish a global presence.

New risks arise from the globalization of the industry
OEMs are being challenged to devise radical operational strategies to tackle the new risks emerging from globalization. From demand – supply misalignment and volatile raw material prices, to changing regulatory policies and shortage of qualified workers in developed markets, the automotive industry’s globalization efforts are facing a reality check today. In the face of these risks, the industry must implement mitigation strategies to enable the value chain to be flexible enough to adapt

Recession and OEMs press Tier 2 and 3 suppliers toward new strategies
The dramatic tightening of belts at the OEMs and Tier 1 suppliers exposed the vulnerability of Tier 2 and 3 suppliers, in particular their relatively weak financial health and the absence of product, market and customer diversity. However, rather than simply try to cope with increasing demands to do more with less, Tier 2 and 3 suppliers will need to become increasingly strategic. The winners are likely to jettison non-core businesses for greater profitability and diversify their risks by creating relationships with a range of OEMs, and developing products that can serve customers, even outside the automotive ecosystem.


„Despite facing a difficult context after several years of decline in the economy, the auto industry is ready to meet the challenges ahead. However, to be able to adapt to the ever changing requirements, this sector needs a solid industrial policy and a regulatory framework that stimulates competitiveness.

In Romania, both Renault and Ford have a significant presence as producers, and these investments in the automotive sector continue to attract spare parts suppliers, leading to improved overall viability of the production of vehicles and auto parts in the country. The cost of labor is still cheap compared to the more advanced Central and Eastern European countries and Romania is optimally positioned to take advantage of a shift in consumer preferences towards budget cars.

Moreover, the Romanian automotive market still shows a great potential for development within the European automotive market, as Romania continues to have the lowest car fleet density in the European Union, less than half the European average, according to data released by the European Automobile Manufacturers' Association (ACEA).

These strengths are also clearly seen from the fact that Romania has had, in the first six months of this year, the fastest growth rate of auto production in Europe (and third fastest in the world), surpassing Italy, Belgium and coming close to Poland. Local production increased by 45% in the first six months of this year, according to the International Organization of Motor Vehicle Manufacturers (OICA)", added Ariadna Oºlobeanu, Senior Manager EY Romania.

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About EY Romania
EY is one of the world's leading professional services firms with approximately 167,000 employees in 700 offices across 140 countries, and revenues of approximately $24.4 billion in 2012. Our network is the most integrated at global level and its vast resources allow us to help our clients benefit from every opportunity. In Romania, EY has been a leader on the professional services market since its set up in 1992. Our over 450 employees in Romania and Moldova provide seamless assurance, tax, transactions, and advisory services to clients ranging from multinationals to local companies. Our offices are based in Bucharest, Cluj-Napoca, Timisoara, Iasi and Chisinau. From 1 July 2013, Ernst & Young becomes EY, the logo has been modified in response to this change and the company's new tagline becomes "Building a better working world". The new visual identity reflects the new strategy of EY, Vision 2020. For more information, please visit www.ey.com.


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