KPMG Expert Emphasizes ‘Disruption’ In Auto Industry

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The Toronto Star

February 26, 2018

By Lesley Wimbush

Not since the arrival of horseless carriages has our definition of transportation faced such an enormous upheaval. Autonomous technology, artificial intelligence and alternative energies have the potential to transform the way we live and the role that mobility plays in our society.

According to KPMG, an international audit firm that conducts an annual Global Auto Executive Survey (GAES), if there’s one catch-all word that covers this year’s report, it is “disruption.”

Now in its 19th year, the GAES surveyed more than 900 senior automotive and technology executives and approximately 2,100 consumers globally to examine the shifting trends shaping the future of the automobile.

Are we indeed, as industry titan Bob Lutz famously declared last year, approaching the end of the automotive era, in exchange for a future of standardized travel modules?

According to the survey, not quite. At least not yet.

We sat down with Peter Hatges, KPMG’s partner and national automotive sector leader, at the Canadian International Auto Show to talk about the results of the survey—some of them surprising—and the burgeoning trends that are redefining our industry.

Peter, you’ve been quoted in the survey as saying that “the future demographics of the car-buying public globally point to a decreasing love affair with car ownership ... as cars become less of a status symbol and more of a shared utility.” Can you elaborate?

Hatges: You wouldn’t know it by the profitability of the OEMs (original equipment manufacturers)—they’re making a lot of money, record profits, 1.6 trillion in revenue, $184 billion (U.S.) in earnings.

I think there’s a confluence of things happening. We’ve got the onset of automated driving coming at us very hard. And people think it’s automated driving that’s driving the change. It’s not. It’s collision avoidance. Lane-keeping assistance, adaptive cruise control, maintaining distance, collision-avoidance systems in front of the car, cameras behind the car—those things were originally meant to avoid collision. But—as they migrate, the car drives itself. So that’s part of the mentality—people think this is more utilitarian, it’s not a fashion statement anymore, the love affair’s gone, it’s expensive. So, people are saying, “If I can have it when I need it, why do I need to own it?”

I do think people like to have the freedom that a vehicle brings. But for sure, I do think there is a reduction in ownership simply because there’s been a change in the way we’ve become accustomed to travelling—particularly if you’re an urban dweller.

You’ve got Uber, you’ve got taxis, you’ve got public transit moving at a rapid pace around the urban center—do you really need a car? Can you manage it? Some people, and Toronto’s a good example, may find it too congested. So, I do think the trend is that way in highly dense urban centers. However, when you expand (to rural areas) the contrasting factor there is that you need a car to get around. I’m not convinced it’s as drastic as the indications are.

According to the GAES, Canada, particularly Southern Ontario, at 7th place globally, is well-positioned in autonomous “readiness.”

Hatges: BlackBerry QNX (Canada) is a big part of the backbone inside of vehicles. There are a lot of technologies that emanate here and obviously in Southern California. The interesting question for us is, “If automated driving is going to become mainstay, what are the benefits to us? What does that mean for our infrastructure?”

Here’s how I see the benefits: traffic control, maintaining and shortening the distances between vehicles—reduces congestion, avoid collisions—so when you avoid collisions you avoid traffic congestion.

One thing we need to figure out as we progress forward is there are many systems that help to avoid collisions and control the vehicle as it travels down the road: It needs to stay between the lines; you can use GPS, but it’s not that accurate; there are cameras, but it’s hard for them to see when there’s snow or inclement weather; there’s radar, but radar works with other objects in place.

So maybe the infrastructure of our highways and byways needs to have some electronics to speak to the car to keep it in the place where we need to keep it. And I see that as a major potential infrastructure development over time.

Canada’s BlackBerry QNX is emerging as a global player in cybersecurity technology tools.

Hatges: The demands for driving experience, particularly for modern executives—me, you, everybody—is you want to be in touch, you want to be in communication. My emails can be read to me. The demands of people, the expectations of people, drivers, young people, is, “I want to be connected, I don’t want to be sitting in the car with nothing to do because I’m addicted to tweeting, I need to know what’s going on.” There’s a lot of introduction around staying communicated, which brings in to play: How safe is the data being communicated to me?

Surprisingly, more than half of the executives surveyed believed that electric vehicles will fail commercially, that fuel cell technology is a more viable alternative and that the internal combustion engine (ICE) still has a place in the future.

Hatges: The survey is very good, as executives look at their own plans. As they look at electrification and how Tesla’s doing, it’s clear to them the infrastructure required for electric cars is a major investment. We all have electric car anxiety.

It’s a lot easier to test and apply the theory around electric cars in California than it is in Winnipeg, where it’s colder. If you were stranded—if for some reason your car is disabled, and your phone doesn’t work, or you’re in a remote location, you’re in the dead of winter and its -20 C—and you can’t charge your vehicle? It’s actually a dangerous situation. The other thing is, the efficacy of batteries is poorer in cold weather. And I think they’re finding they’ve underestimated just how less efficient they are.

So, you combine that with the combustion engine making great strides, with oil all of a sudden becoming fairly abundant—the combustion engine is starting to look pretty good. Fuel cell technology is what people are talking about right now.

The critical feature there is the charge time. If an electric car takes four to eight hours, it’s [FCEV is] going to take 25 minutes. That requires a requires a huge infrastructure too. But the feeling is that it’s very clean, it produces no emissions, just water out the tailpipe. So, if they get 25 minutes down to 10 minutes? You might have a coffee during the 10 minutes to charge the car, and you don’t pollute anything—that would be all right because we make allowances.

There’s going to have to be a lot of cooperation between OEMs and data technology startups.

Hatges: I think you’ve touched on a fantastic point. What is the role of the OEM? They used to assemble cars. Did you know that Magna now does assembly for GM, Mercedes and BMW? So, they [OEMs] are designing cars.

It used to be—take a sheet of steel, put some wheels, put an engine in it. Now it’s like—what are we putting inside of it? Does it have Wi-Fi? A hot spot? What about the technology used to stop it, keep it safe, not hit anything?

So, the emphasis on the dependency on technology is accelerating for sure. It will compel successful OEMs to adopt far more open policy around who can help them with their design ideas, their expectations, what they should be doing. They have to be open to it.

Like BlackBerry? (Canadian company BlackBerry developed the motherboard and hardware, Waterloo University developed the software, for Canada’s first successful fully-autonomous drive test.)

Hatges: I think Blackberry’s going there. They’re on the right track. I think they’re going to be another pioneer.

Are consumers still loyal to the OEMs, and less likely to turn to Silicon Valley tech giants for their mobility needs?

Hatges: I think the traditional car-buying public looks at the OEMs and says, “They’re reliable, the products have gotten a lot better, and I trust them.”

The undercurrent in the Canadian and North American buying public is not that they don’t trust technology—they don’t embrace it. No one is ready to hop into an automated vehicle today and say, “Take me home” from the back seat. The traditional OEMs are trusted, they will be partnering more and more with technology companies who will have a greater influence on car content and therefore greater influence on profitability.

About Bob Lutz saying that the automotive era as we know it is done, we’ll have five years to get our cars off the road or sell it for scrap?

Hatges: I don’t believe it. There are people like you and I who still love it. We’re prepared to spend significant dollars driving cars.

Original headline: KPMG expert emphasizes ‘disruption’ in industry; Automobile companies and consumers’ changing attitudes will soon see an upheaval

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