China is the top investment destination for global automakers due to its robust domestic demand and export opportunities, KPMG said in its 14th annual Global Automotive Executive Survey released on Thursday.

After interviewing 200 automotive executives across 31 countries, KPMG found that 70 percent of the respondents view China as their top choice for investments, ahead of other BRIC countries - India was selected by 63 percent of respondents, Russia by 54 percent and Brazil by 48 percent.

Additionally, 94 percent of the respondents said they expect China to see growth in domestic vehicle sales, underpinned by the rising middle class and growing urbanization.

BRIC markets are expected to account for nearly half of all global vehicle sales by 2018.

The survey also indicated that four Chinese automakers - BAIC, SAIC, FAW and Geely - are expected to be among the top 10 companies to gain global market share over the next five years.

"China remains a highly attractive market due to its long-term growth potential. It's no surprise that automakers are placing more big bets in China, and doing so ahead of the other markets," said Andrew Thomson, Asia Pacific head of automotive and partner of KPMG China.

The survey also found that sport utility vehicles, or SUVs, will remain the fastest-growing car segment in China, after it registered a dramatic year-on-year increase of 26 percent during the first 11 months of 2012, outpacing the 7.1 percent growth in overall car sales recorded for the period.

"While the trend among cost-conscious consumers in mature markets is to downsize to smaller, more fuel-efficient vehicles, a sizeable proportion of consumers in the BRIC markets still aspire to own bigger cars, such as SUVs," said Thomson.

Multinational automakers are consequently striving to boost their SUV capacity in China to meet the rising demand, and luxury automakers are getting in on the act to bring their latest imported SUV models to China.

The auto industry also faces some challenges, the survey pointed out. For example, it appears to be getting harder to set up production facilities in the BRIC markets. In China, this may be a reflection of concerns about the level of fragmentation of the automotive industry in the country.

Respondents also said that environmental restrictions will increase more than any other type of barrier, with 74 percent of auto executives indicating that such obstacles will become greater in China, up from 65 percent in 2012.

Additionally, 52 percent said they expect government intervention to increase in 2013, while 54 percent believe import and export duties will rise in China.

Meanwhile, overcapacity remains an ongoing challenge for the sector. One-fifth of respondents consider the risk of overcapacity in the BRIC markets as high or very high, with China being rated even higher at 26 percent.

The survey also noted that BRIC countries are expected to see a surge in vehicle sales, and that BRIC automakers are setting their sights on exports to new markets in the next three to five years, with the biggest growth opportunities likely to come from Southeast Asia and Eastern Europe.

"Innovative new concepts, such as vehicle rentals and leasing, as well as mobility-as-a-service models, also have potential for the future, given continuing urbanization and the high density of the population in Chinese cities," Thomson added.

In terms of service, most global respondents agreed that dealerships will have to evolve the quality, range and mix of what they provide in order to thrive in the future. Added-value services are rated as the most important offering, particularly in the BRIC markets led by China, where dealership models are relatively under-developed and service quality can vary considerably, said the survey. Three-quarters of auto executives from the BRIC markets see great potential for such developments.

Meanwhile, the retail environment in China is undergoing substantial change with, for example, the rapid expansion of automakers into the country's western provinces to exploit the next wave of growth from third and even fourth or fifth-tier cities.

The China Passenger Car Association on Wednesday said that China's passenger vehicle sales increased 6.8 percent year-on-year to 14.68 million units in 2012, overtaking for the first time the combined sales in Europe.

lifangfang@chinadaily.com.cn

(China Daily 01/11/2013 page14)