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1. CIM IT Services Market Outlook:Global Automotive IndustryBusiness Intelligence Group August 2003
2. ContentsExecutive Summary Automotive Industry Business Challenges Global Regional: US, Europe, Asia-Pacific, Rest of World Automotive IT Spending Trends Global & Regional IT Spend Forecasts Automotive Industry IT Trends Automotive IT Services Industry: Competitive Profiles Automotive IT Services Market: BearingPoint Alliances Sources and Contact
3. Executive Summary Automakers are currently faced with slower sales, over capacity and declines in profitability. Big 3 are losing market share to Japanese automakers. Toyota, Honda and Nissan increased their U.S. sales and market share in the first half of 2003, while the Big Three manufacturers (GM, Ford, DaimlerChrysler) saw their sales decline despite spending heavily on incentives. Currently the global automotive industry has too much capacity (roughly 30%) and as sales fall, the problem continues. Car prices have been falling making already thin margins even more pressured. The global automotive industry is faced with more competition, greater price transparency, rising customer expectations and quality improvements, making the pressure even greater on price and profitability. China presents the best opportunity for automakers due to increased government incentives and cooperation, cheaper labor, and proximity to a large population of potential consumers. China continues to make progress towards a market economy which has led to global businesses, like automotive companies, trying to ramp up in order to tap into the country's large marketplace of 1.3B consumers. A year after entry into the WTO, in 2003, China’s automotive industry produced 3.25M motor vehicle units (38% growth compared to the year before). IT Issues: Industry in survival mode, pressuring spending; Opportunities for CRM Most manufacturing verticals, including Automotive, have been operating in “survival mode”, spending very little on capital and operational expenses; IT spending has suffered as a result.The North American manufacturing market constitutes approximately 45% of the total world manufacturing IT spend.
4. Executive SummaryCurrently in the automotive industry there is less significance placed on the role of IT in supporting business strategies, especially in comparison to industries like Financial Services or Healthcare payer industries. This is a large determinant of IT budget. In order to understand their near-term sales volume, option mix and price sensitivity, automakers have to start understanding their customers better through the many signals they see from their consumers’ interactions. Much of this can be accomplished through CRM initiatives. While dealer incentives have been used by most of the major automakers, especially in the US, companies leveraging their existing CRM might be able to get more for less. The data gathered from incentive programs flowing back to manufacturers and dealers can allow follow-up campaigns that bridge the gap between sales and marketing. ERP vendors are turning their focus to delivering extended applications in areas of SCM, CRM and PLM to compensate for the loss of revenue from large-scale projects. Competitors and Alliances Deloitte Consulting has a joint initiative with SAP to support the automotive industry in the deployment of the mySAP Automotive solution on a worldwide basis. As part of this initiative, DC and SAP are developing methods for customer-specific analysis on feasibility, cost-benefit, and ROI. IBM encourages their engineers to rotate in and out of the field, spending time solving real-life problems while not abandoning their inside research. IBM has created an "innovation services" group within its research unit dedicated to working on automotive customer problems, making them capable of taking their research and apply it to business issues. In the European automotive industry, SAP is currently focusing on cross functional processes, packaging their SCM, PLM and CRM all in one, using different modules, approaching it from the perspective of the business processes that cross these areas.
5. Global Automotive Industry: Business Challenges
6. Global Automotive Industry is on a Gradual Slide The world’s automotive industry has been on a gradual downward slide over the past year, accelerated to some degree by the likelihood of a major bankruptcy and further restructuring of the industry. Inhibitors include weak (regional) consumer confidence, high unemployment and uncertain global equity markets, all of which have led to lower sales. In Europe, the first five months of 2003 saw sales drop by 4% while new registrations for May fell the lowest in five years. The US market is forecast to shrink 4% this year. Currently the global automotive industry has too much capacity (roughly 30%) and as sales fall, the problem continues. Much of the over-capacity is due to each individual company expecting to grow faster than its rivals. And while the 90s showed strong returns, many automakers invested in additional capacity, created risky models, built more factories and entered into emerging markets that had more long term promise than short term. For many years the largest truck and car makers have continually sustained losses out of their primary businesses of car sales, often making profits through money made from selling spare parts at inflated prices, through financing businesses or through exchange rates. This structure is increasingly exposed in a downturn, especially when incentives like 0% financing have hampered the financing business. Car prices have been falling making already thin margins even more pressured. The global automotive industry is faced with more competition, greater price transparency, rising customer expectations and quality improvements, making the pressure even greater on price. In the US, incentives like 0% financing or money back have kept volume up but have also pressured prices. While incentives are expensive, whenever automakers push prices back up their volumes collapse.
7. Global Automotive Industry is on a Gradual SlideAside from product issues, The Big 3 have under-funded pension liabilities and health-care benefits for retirees. Ford is losing cash and their bonds have been downgraded to junk status. If the US market continues to slide a large-scale competitive restructuring could occur. European carmakers, like Fiat, which is laden with debt and production issues, could be purchased by other companies like GM (that owns 20%), or eventually be bought out by the state. The industry upsides for the Big 3: General Motors will continue to pursue its growth strategies in order to remain competitive. Daimler Chryslers is in the midst of its improved cost structure, allowing it to better compete with GM. Ford is spending a lot of money on capital expenditures. If the company does not execute, it may be in crisis. The Big 3 products have higher quality than ever, although the perception of quality is not as high as it should be.CompanyPensionHealthcareGeneral Motors$19,300$51,000Ford$7,300$22,741DaimlerChrysler£3,100£12,113Pension and healthcare source: MSDW, Based on Mmgt. DiscussionsTotal US Pension Fund and Healthcare Liability (in MM)
8. US Automotive Market: Slowing, but Still the Largest The US auto industry is the most important one to the global industry since there were 16.7M registrations in the United States in 2002 (down by more than 3% from the all time high in 2000). The US market for light trucks and SUVs (8.6M registrations in 2002) surpassed the car market in 2002 (8.1M registrations). The low level of US fuel taxes boosted SUV sales far more than in any other country, although rising oil prices and environmental legislation could reduce sales. In 2002, roughly one-fifth of the cars, light trucks and SUVs registered in the United States were foreign. California has the highest rate of passenger car purchases, accounting for roughly 13% of the total. The US industry, regardless of its high numbers, is currently saturated. The stock of passenger cars per head was the ninth largest in the world in 2002. With nearly 500 cars per 1000 of the population, the US has more cars per head than the United Kingdom, but slightly fewer than Italy and Germany. Car usage is extremely high in the United States over other countries in the world. The average person in the United States travels about 9,000 km per year, compared to 6,000 km in Western Europe and 4,000 km in Japan.
9. Big 3 Continue to Lose Market Share to Japan As the automotive industry gets more competitive, American consumers are buying more Japanese automobiles due to their reputation for quality and value. Toyota, Honda and Nissan increased their U.S. sales and market share in the first half of 2003, while the Big Three manufacturers (GM, Ford, DaimlerChrysler) saw their sales decline despite spending heavily on incentives. This trend started in 1998, when domestic manufacturers started to lose nearly 10 points of share, and the Japanese gained nearly 5. Industry-wide, car and light-truck sales were down 2.5% through June, to 8.2M. However, the three biggest Japanese manufacturers sold 100,000 more vehicles, and the domestic Big Three sold 200,000 fewer. Market share for all Japanese brands is at an all-time high of 28.5%, and domestic brands have shrunk to a historic low of 60.5%.The economic downturn has favored automakers like Toyota since consumers have become more stingy and discriminating with their purchases, thus favoring quality and value, which are the major selling points for most Japanese automakers (versus, for example, luxury autos). The Japanese continue to grab bigger chunks of the market despite record spending on incentives by their domestic rivals. At the beginning of June, incentives for Chrysler, Ford and GM averaged $3,389 per vehicle, versus $1,062 for Japanese brands. Korean makes averaged $1,371 and European brands averaged $1,945.US Car/Truck Share 1996 vs. 2003Source: The Economist, June 2003
10. Big 3 Continue to Lose Market Share to JapanThe Big 3’s incentives (14% of sale prices) are likely unsustainable. Their dependence on increasingly large incentives to offset the lower resale value of US cars reflects perceived problems with their long-term quality and durability. For example, Toyota and GM cars can be virtually identical (sometimes made on the same assembly line as part of a GM-Toyota joint venture), but because GM sells in the used-car market for 15-20% less than Toyota,2GM routinely offers purchase incentives of $1,000 a car, four times more than Toyota’s givebacks.3 The Big 3 continue to concentrate their testing efforts on the defect rates of product components. However, this focus doesn’t increase the likelihood of producing a more appealing car. For the Big 3, tests rate the car’s components but with less emphasis on the performance of the entire car as measured by the desired attributes (such as quietness). Conversely, Japanese automakers are particularly effective at testing for the attributes that excite their target customers. The Honda Civic, for example, is tested extensively for three key attributes: fuel efficiency, initial product quality, and durability. The resulting vehicle is more than a collection of defect-free subsystems; it is a car that performs well in the areas that customers have come to expect from Honda. The upside for domestic automakers is that it is doubtful the Japanese can continue increasing their share at the same pace. Fewer segments are left for the Japanese to invade. The Toyota division, for example, offers a full line of vehicles comparable to Ford or Chevrolet, and it has a range of models in the Lexus luxury division that includes sedans, SUVs, and sports cars. Profitability is also pressured at the Big 3 compared to Asian manufacturers. For example, Honda averages $1,581 in profit per vehicle (sold in the US) and Toyota gets $1,214. General Motors, however, earns only $701 while Chrysler Group makes only $226. Ford loses an average of $114 on each vehicle sold last year.
11. Global Automotive Industry: Market Share by Revenue The global automotive industry is highly concentrated while market share is shifting. DaimlerChrysler, Ford Motor, and General Motors make up 44% of total global sales. However, this is one percent less than last year, indicating the Big 3’s loss of market share to smaller competitors. While Toyota has greatly increased its market share in the US, the company has also lost a percentage of market share since last year. Imports to North America are the highest they’ve been since the late 80’s. Of particular concern to American manufacturers, light truck sales, once the major profit generator, are losing share to foreign competitors like Toyota and Nissan.Source: Standard And Poors, 2003
12. Industry Profitability Severely Pressured The large automakers have been fighting the downturn and trying to sustain sales with large rebates and easy credit in the US and increasingly in Europe. However, these strategies have seriously pressured profits. DaimlerChrysler reported in July 2003 that net income fell worse than it has since the industry’s last poor earnings period in late 2001. Mitsubishi promoted easy credit, including loans that deferred payments for a year to consumers with weak credit but have recently rescinded this promotion due to profit erosion. PSA’s profit was hit mostly due to the rise of the Euro, especially against the British Pound and Brazilian Real, Brazil being where it has one plant. Some automakers are attributing this span of poor earnings to the bottom of the current cycle of slowdown, however many are still seeking structural improvements and better pricing power to buffer this cycle.CompanyEarnings StatusIssuesGeneral MotorsOperating profit fell 87%, Announced earnings August 8, 2003Intense US price war severely pressured profitsDaimler ChryslerSecond quarter 2003 operating profit fell 62%Chrysler losses, US price war, Mercedes sales slackingRenaultOperating profit fell €588 million. Last reported 7/24/03Global sales decline (4.5%) in first half; adverse currency movesPSA Puegot CitreonOperating profits in auto division down 27% in first half 2003Strong euro, weak French demandVolkswagen€400 million off its pretax profit, announced May 2003Foreign-exchange moves, weak European salesMitsubishiForecasting $674M net loss as of July 2003US sales down 20% in 6 mos. April; anticipates $420M charge for bad car loansFord96% drop in operating profit in mid July announcements$525M loss at Ford of Europe, US price warSource: Wall Street Journal, Earnings Reports
13. Automakers Still Poor at Aligning Supply and Demand Profits in the global auto industry are suffering since OEMs cannot align their supply with consumer demand. While consumer demand data is readily available, carmakers follow lagging indicators and the result is ineffective advertising and rebates and inventory overstocks. The current methods that automakers use to satisfy demand are out of alignment. In record sales years (such as 2001), profits in the automobile industry averaged a mere 1.2% and only three companies—BMW, Honda and Magna International- had 5% profit. Forecasts often miss actual demand. For example, demand for Daimler’s PT Cruiser far exceeded supply when it came on the market. Then DCX ramped up capacity to 230K units, making it ordinary and buyers moved on. Right now the factory is discounting the model, further eroding the model’s image. Suppliers are hurt by variation. When an OEM plans incorrectly on a particular platform volume, of about 10-15%, the factory has to raise or lower volume suddenly. In 2002 sales were the lowest in four years, leaving vehicle inventory at 70 days. Seventy days of inventory can mean $40B in capital sitting on lots. Meanwhile dealers and OEMs spend $3B and $11B, respectively, every year on advertisements. The loop from production planning to manufacture to sale and back takes up to 6 months, which is too long to fix overproduction of an unpopular configuration or to inform suppliers of surges in demand. With a lagging market, intense competition and more rapidly shifting consumer tastes, this poor alignment has been more obvious in the industry than ever. Automakers are still applying last year's sales results to the current year’s pre-planned volume without consideration of how many days it took to sell specific vehicles.
14. US Automotive Distribution: Inefficient NetworkDealers account for nearly all US car and commercial-vehicle sales, but these networks are increasingly inefficient. Automotive companies have not been able to relocate or shut down poor performers due to state laws. However, it is possible to reshape dealer networks by orchestrating a series of ownership changes, encouraging weak performers to exit the market, helping top performers to expand, and encouraging dealers to improve sales skills. Given tight profit margins, manufacturers can definitely use the extra profit that a more efficient distribution system could deliver. U.S dealer networks were built in an incremental and uncoordinated way over several decades creating room for consolidation as well as other efficiency-enhancing improvements. Manufacturers have awarded franchises to thousands of independent owner-operators ranging from small family businesses to large scale national chains. Once a dealership opens for business, the manufacturer can’t exert much direct control over it and must be content, essentially, with the role of product and financing supplier. Multi-brand manufacturers face the additional complication of dealing with several overlapping networks that work against one another. A dealer has substantial power to put a manufacturer’s top and bottom lines at risk—for example, by cutting back its investment in facilities, pushing the brands of competitors, or pursuing fewer but higher-margin sales at the expense of the manufacturer’s volume goals—thereby optimizing its profits and undermining those of the OEM. US automotive manufacturers rely almost entirely on dealers to distribute their products. In 2001, dealerships had sales of more than $800 billion—close to 100% of the manufacturers’ total vehicle sales. The manufacturers also depend on their dealer networks to provide the after-sales parts and services that are fundamental to their success.Source: McKinsey Quarterly, Strategy & Business, Wall Street Journal, EIU
15. US Automotive Distribution: Inefficient NetworkFactorsIssuesGeographic DistributionOutlets must be close to customers but not too close to one another. The once robust networks of the Big 3 were built largely in the 1920s-1950s and haven’t been adapted to demographic shifts. These networks are too tightly clustered in urban areas and too sparse in the suburbs.Dealer SalesSome dealers are better at running their businesses than others yet manufacturers can not eliminate poor performing dealerships. The experience of one major manufacturer suggests that, adjusting for market size and location, dealers in the top quartile sell three to four times as many vehicles as dealers in the bottom quartile.Business FormatProviding service and parts is essential to the health of dealerships and manufacturers whose reputation depends on service. Some dealers cover 100% of their fixed (and even other) costs through parts and service. Some dealers do not capture downstream revenues in full. Traditional business formats require authorized dealers to provide service only at or near their showrooms. If a local market can’t support the customary full sales and service operation, dealers have no way of providing service by themselves,4and the network forfeits tens of billions of dollars to independent repair shops and third-party parts makers. Some automakers estimate that they control no more than 20% of the total service business for their cars (margins on spare parts are several times higher than those on new cars). Brand MixManufacturers generally want dealers to sell only one brand at a given showroom to create strong brand loyalty, sharpen identity, and minimize competition within the network. Dealers usually want to hedge their bets, selling two or more brands, sometimes from competing manufacturers. Single-brand dealerships are most viable in growing markets or for strong products that can make it on their own. Multiple-brand dealerships make sense in markets where a single brand can’t give a dealer sustainable sales volumes. Some US brands might not be able to survive without sharing showrooms with a stronger complementary brand.Source: McKinsey Quarterly, Strategy & Business, Wall Street Journal, EIU
16. US Automotive Distribution: Inefficient NetworkState franchise laws and other regulations protect dealers from “intrusive” moves of OEMs. In some states, direct ownership of dealers by manufacturers is prohibited outright; in others, manufacturers can’t close or relocate poorly performing dealerships and must settle for isolated and relatively superficial store-level improvements (remodeling showrooms or providing additional sales and service training). If the manufacturers were allowed, many would have already restructured their dealer networks, consolidating their presence in some markets and expanding in others. A more integrated approach where dealers and manufactuers work together, sharing sales data, trends and information is likely the best solution for dealers and automotive manufacturers. Among the Big Three, Ford and DaimlerChrysler each has more than 4,000 dealer locations in the United States; GM has more than 7,500. Assessing the performance of each dealership, setting its goals for the future, and overseeing the necessary changes is a three-to five-year process. Manufacturers can start by mapping the best locations for their showrooms and service centers in every local market by analyzing historic and projected sales data, demographics, and market trends. Most manufacturers have not undertaken these steps, and thus can’t identify dealers that have both the skills and the resources to add brands to their franchises or to succeed in new locations. To have an optimally configured network, the manufacturer must put the best dealers in control of it. This may be accomplished by using negotiators to facilitate the transfer of ownership among dealers in each market. Manufacturers will need to work through dealers to forge a consensus that benefits both them and the dealers to overcome regulatory impediments.Source: McKinsey Quarterly, Strategy & Business, Wall Street Journal, EIU
17. European Automotive Distribution: Increased Competition from EU LegislationAdopted in July 2002, and eventually fully implemented in October 2003, EU legislation for block exemptions will force the automotive distribution systems to become more competitive, likely creating more price pressure for cars, parts, and services. Under the new rules, manufacturers can: Opt for exclusivity, granting exclusive sales territories for their distributors (thus limiting competition among dealers selling the same brand). Opt for selectivity, giving the dealer the right to sell cars to non-authorized resellers, which can, in turn, sell them anywhere in the EU. This also allows manufacturers to ban non-authorized resellers but permits dealers to sell and market cars directly to consumers anywhere in the EU. Much of this new legislation will lead to increased competition. Restrictions on multi-brand dealerships are being eased, so brands will get even more competitive. Cross-border trade will also increase, which could lead to greater Internet sales, an acceleration of the consistency of car prices (which vary widely across the EU). New rules also threaten car manufacturers share and margins in the after-sales market (where they actually make most of their profit), by breaking down the car business value chain. Car makers will also be forced to give independent service providers complete technical information, as well as authorization of service providers.Source: McKinsey Quarterly, Strategy & Business, Wall Street Journal, EIU
18. US Automotive Outlook: Poor in Short Term, Fair Long Term The outlook for United States passenger car sales growth is poor in the short term while long term prospects are no better than fair. The sales picture over the last 18 months has been distorted by sales incentive schemes (like 0% financing) which had immediate results. Sales created out of incentives tend to reflect consumption brought forward rather than new spending. Thus volumes will fall further over 2003. The US market is less likely to fall precipitously like previous peak-to-trough eras in the automotive industry. Sales fell 29% in the early 1980s and 23% in the early 1990s. The peak-to-trough sales from 2001 to 2004 are expected to amount to only 7%. The US market is currently saturated which does not bode well for long term growth (average annual growth in passenger car registrations between 2005 and 2007 are expected to be just 1.3% a year). This is similar to Germany, France and Italy, but slower than emerging markets. Currently none of the US’s Big 3 automakers are well prepared for a major downturn in the automobile market and their medium term prospects will be constrained by global overcapacity and downward pressure on prices. Competition is likely to increase and the industry’s capacity will grow but the elasticity of demand is currently declining.Source: The Economist, Economy.com, Morgan Stanley
19. US Automotive Outlook: Macroeconomic Drivers The automotive industry has been driven by interest rates which were at 48-year lows. Rates are forecast to increase through 2006 which will have some effect on sales. GDP is expected to increase in 3Q03 and increase by a point in 4Q03. GDP should stabilize through 2004. Unemployment is expected to stabilize as job creation picks up, however not at a rapid rate.ForecastSource: GDP and Interest Rate forecasts, Economy.comInterest RatesGDPNotes: (1) Interest Rate is on New Car Loan, Commercial Bank (2) Interest Rate is on New Car Loan, Finance CompanyForecast
20. US Automotive Outlook: Expense and Profitability ForecastsSource: Economy.comSales have increased but net profit margins have suffered due to 0% financing and are only rebounding slightly. Net profits and operating margins should stay flat for the remainder of the forecast. Capital spending is expected to increase slightly over the forecast. Ford is expected to spend $1,210 on cap ex/unit produced (GM is at $886). Sales will stay flat through 2003 and increase only slightly in 2004. The biggest jump in sales is expected between 2005 and 2006. High end, SUV and minivan models offer higher profit margins, but their sales have declined reducing profitability.ForecastForecast
21. Global Automotive Industry Outlook: Emerging Markets, ConsolidationIn the year ahead, there are some significant changes that should affect the global automotive industry, especially in light of its considerable pressures like cost, maintaining production schedules, and sustaining or gaining market share. Largest emerging markets -- Brazil and China -- will contribute the most growth in terms of demand. Consolidation continues to be an issue however local players that are regionally or niche-focused will still have an important presence.Government safety and environmental regulations could be costly for automakers but also lead to greater investments in high-tech suppliers, leading to entirely new automotive innovations. It is likely that the global automotive industry will eventually need to resort to radical changes in order to see past profitability.Autofacts Global Automotive Forecast, 2Q ‘03
22. Automotive Regional Markets: Business Challenges
23. Western Europe: Difficult Environment In the first four months of the year, the European auto market shrank 3.7% compared with the same period in 2002. Continued difficult markets in Europe could lead to more exports to the United States which will further weaken pricing there. Economic recovery remains weak in Europe and growth of passenger car and commercial vehicle sales is negative. European demand for trucks is likely to remain weak throughout this year, perhaps starting to recover in 2004 and 2005, depending on the segment and geographic area. Constant price pressures are causing European manufacturers to seek greater efficiency improvements and cost-savings measures. Many European manufacturers are concentrating on internal operations to improve their financial performance and cash flow generation over 2003. The divergent taxing systems currently in place across Europe complicate and hinder efforts to roll out pan-European leasing services for automobiles. The EU is currently working towards greater tax harmony, allowing companies to cater to multinational corporations more easily, promoting growth in the car leasing sector. As a result, cross border leasing may become vastly easier to implement from 2005, when leasing companies will be able to centrally organize their international operations and bypass differences in regional regulations. Source: EIU
24. Western Europe: Asian Automakers Are Making Major Inroads Sales of Japanese cars in Europe are setting new records. Given their healthy profit margins and expanding production base in Europe, the Japanese appear well placed to increase their share of the European market significantly over the next decade at the expense of Europe’s weaker carmakers. New car registrations in Western Europe dropped 6.5% in April year on year, crimped by slow economic growth and the Iraq war. At the same time, Japanese brands recorded a 5% jump. The Japanese now hold a market share of 12.1% in Europe, up from 10.8% a year ago, and that number is expected to increase. Europe’s best-selling car is now the Mazda 6, boosting Mazda’s year-on-year sales by more than 40% between January and April 2003. Japan’s market share gain is not likely to restart the trade disputes of the 80s and 90s because the number of cars the Japanese are exporting to Europe has not jumped significantly. The Japanese have expanded their production facilities in Europe with the result that locally produced vehicles now account for about 50% of sales in the EU, as opposed to less than 25% ten years ago. The recent leap over the 10% market share mark, however, is cause for concern for European carmakers, as the Japanese are gaining ground at the expense of some of the industry’s biggest names. Volkswagen, for example, saw sales plummet by 15.4% year on year in April. At the same time, Germany’s leading carmaker reported profits plummeted by two-thirds in the first quarter, blaming the weak dollar in the US and its lack of new models. France’s Renault is forecasting no increase in profits this year and Italy’s Fiat is struggling to eliminate its losses.Source: EIU
25. Western Europe: Asian Automakers Are Making Major InroadsBy contrast, all of Japan’s big three carmakers posted record net profits for 2002, with Toyota reporting an increase of 53.4% and Mitsubishi Motors announcing a tripling of profits. Most of these increases are due to cost-cutting at home, where sales remain flat. Production of cars has been falling for the last two months in Japan, while exports to Europe jumped 14.4% in April, the eighth straight monthly increase. South Korean carmakers are also making inroads in Europe--KIA’s sales soared by nearly 70% in April year on year, pushing it past Mitsubishi, Saab and Lancia, and giving it 0.9% of the EU market. Korea is also acquiring share in Europe, gaining 0.6pp in June 2003. KIA, the main beneficiary, was up 0.4pp while Hyundai followed with 0.2pp. Opportunities for new entrants or existing participants to increase their market share in countries like Spain are good because there is little brand loyalty—only 27% of owners buy the same make of car as before, compared to 50% in France and Germany. The result is intense competition: profitability is the lowest in Europe, and none of the five most popular manufacturers holds more than 13% of the market. Source: EIU
26. Western Europe: Germany Not BuyingGermany: Volkswagen heading To Asia-Pac, Truck Business Western Europe and the German market are near the low levels of last year and the first quarter. In Germany there is still a massive reluctance to buy, a high savings rate, yet a very high average age of automobiles. Volkswagen AG completed a major refocus of its vehicle export program, with a withdrawal from the European market and new penetration into the Asia-Pacific region, including Japan. VW experienced a reduction by 3000 units of the manufacturer's exports in the first half of 2003, when compared to the same period in 2002 — a fall from 16,000 to 13,000. The company is in talks to buy the truck division of German conglomerate MAN AG to realize its strategy of eventually producing everything from light passenger cars to 18-wheel trucks. Volkswagen AG recently posted lower earnings this year because of weak demand in Europe and the appreciation of the euro against the dollar. Foreign-exchange moves slashed about €400 million off its pretax profit in the second quarter. The company hedges only about 40% of its currency exposure, much less than some rivals. VW plans to reduce currency exposure by moving production of the Jetta to its plant in Puebla, Mexico. Sales of Mercedes luxury cars, which have been historically more immune to economic downturns, fell 5% in the last quarter. Sales of the M-Class sport-utility vehicles and smaller C-Class cars are slipping despite increased leasing incentives. In a recent customer-satisfaction survey, Mercedes was rated below average.Source: EIU
27. Western Europe: France in DeclineFor the first five months of 2003, moreover, French sales showed a 9.8% decline – the steepest in Europe. France’s car market has declined steadily for the past 18 months, while the unemployment rate has risen. In France, every second car is bought with the help of a loan and potential car owners are reluctant to commit themselves to repayments when they are not sure what tomorrow will bring. Peugeot sales in the first four months of 2003 rose 1.7% worldwide from the same period of 2002, with gains of 120.6% in China and 35.1% in central Europe and Turkey. Apart from Peugeot, all car makers saw their sales drop in the French market in May and June. Renault plunged 14.7% while the European market leader, Volkswagen, sustained a fall of almost 29%.Source: EIU
28. Western Europe: Italian Pre-Owned Market Strong, Spain PositiveItaly: In Decline, but Pre-Owned Market has Positives Figures from the Italian automotive industry body UNRAE show that the Italian new car market is continuing a year on year decline. Italian automaker Fiat has seen its home market share drop by 12.6% in April, compared to last year. Fiat is already struggling with widespread financial woes caused by poor market performance in the face of the wider economic downturn. The company is predicting that year totals for 2003 will be between 2.05M and 2.1M vehicles sold, a decrease from 2.3M in 2002 and 2.5M in 2001. Car sales were lifted somewhat due to the Italian government's “scrappage scheme” which offered incentives to encourage motorists to trade in their older, heavy-emissions vehicles for new cars. This scheme was intended to remove many of the older and more heavily polluting vehicles in favor of newer, cleaner vehicles. While the end of the government's scrappage scheme in March was bad news for new car manufacturers since buyers are less inclined to buy new cars now that they have returned to their full cost, it should have a positive effect on the pre-owned dealer market. Spain: Positive Growth Outlook The surge in foreign direct investment since the 1980s has led to a widespread restructuring of the automotive sector. Spain is now the third largest car producer in Europe after Germany and France, and the fifth largest in the world, although none of the major motor vehicle manufacturers is Spanish-owned. Over 80% of Spanish automotive output is destined for export. The domestic automotive market has also grown significantly in recent years to become the fifth largest car market in Europe, after Germany, Italy, France and the UK. The present automotive sector is Spain’s second largest single industry after tourism.Source: EIU
29. Western Europe: Italian Pre-Owned Market Strong, Spain PositiveSpain: Positive Growth Outlook (cont.) Demand for new cars in Spain has been boosted by interest rate cuts, attractive financing deals, and the need to spend undeclared pesetas ahead of the introduction of euro notes and coins in January 2002. However, the economic slowdown caused sales to fall in 2002. The trend continues in 2003; new car registrations dropped by 6.5% in the first two months of the year. The outlook for new car sales beyond 2003 is better, reflecting robust economic growth (albeit weaker than in 1998-2000). Spanish income levels and consumer tastes are gradually moving toward EU norms, while the Prever scheme has been extended. The Spanish government introduced the Prever scheme to give automobile buyers who turn in their old automobile a $533 sales tax rebate on the purchase of a new automobile. Car ownership is still low and the number of old cars remaining on the road is high, offering potential for catch-up growth. Source: EIU
30. Western European Share Losers and Winners (1Q03)Source: EIUOEMShare StatusShareActivitiesRenault 11.9Gaining share in Europe (up 12.9% in June 2003 for a share gain of 1.1pp), taking that distinction from Peugeot. Renault is getting help from its new Scenic model in France and its Megane model throughout Europe.Peugeot 14.6 Share declined, especially with its PSA and Fiat brands.Korean 3.3 KIA gained 0.4pp of share, as did Hyundai (0.2pp).VW 17.8VW was weak, especially with its VW brand (opposed to other holdings). Daimler/Chrysler6.2Mercedes and Chrysler were weak.Japanese 12.8Japanese continued to gain share gaining 1.0pp and increasing sales (as a group) at 11.8% in June 2003. Toyota and Mazda gained the most.Ford10.5Suffered the most in the month of June ’03 with sales declining 5% (a share loss of 0.9pp).BMW 4.4BMW is performing the strongest of the German luxury brands with sales up 5% (while Audi and Mercedes have fallen 1.4% and 4.1%, respectively).
31. United Kingdom: Strong Selling Market, Pricing Falling Despite a weaker economy and two record years in 2001 and 2002, the market for new cars in the United Kingdom is still strong. Fleet sales usually drive the market, but in June 2003 private sales led the way. The UK market is now one of the cheapest in Europe, offering attractive deals to the individual customer. New car registrations increased by 15.8% in the UK for the month of June compared to a year ago. Just over 240,000 cars were sold over the period and nearly 63,000 of these were diesel-powered. Nearly half of the total sales went to private-buyers. The Ford Focus remains the biggest seller, for the 38th month in a row, but the new Renault Megane has had a big impact, taking second place. The high proportion of private sales has led to an increase in niche vehicles such as 4x4s and MPVs, which are less likely to be used as fleet vehicles. The first-half performance has been strong with the market now expected to total 2.45M units in 2003. This would make it the third highest year of car sales by volume on record, after 2002 and 2001. Continuing competition in the new car market place is squeezing prices ever lower. This, coupled with a falling pound against the Euro, is making new cars more affordable and the UK market a much better value than other European markets. New cars sales will probably continue to be strong as consumers take advantage of the UK's newly found position as one of the cheaper countries in Europe for automobiles (made in the UK). Importers have suffered as their advantage on price shrinks and the proposition of a new car from a traditional dealer becomes more attractive and affordable. The used car market could also struggle as residual values are forced down.Source: EIU
32. Eastern Europe: Slower EU Demand, Domestic Demand Remains StrongSurging local currencies, notably in the EU accession countries, have lowered the cost of imports and squeezed export margins. New car sales in Eastern Europe have remained buoyant, notably in Hungary, but the region accounts for only a fraction of sales in Western Europe. Meanwhile, exports have taken a hit thanks to slow growth. The Czech-based Skoda, owned by Volkswagen, is E. Europe’s largest automaker; it saw its 2002 net profit drop 14.5% year on year to Kc1.8bn ($65.5M), while sales fell by 3.2%, to 445,525 units. The company does not anticipate a quick recovery, and expects 2003 results to be flat. On the supply side, Eastern Europe still continues to have potential for the West. East-Central Europe in particular offers an appealing combination of low-cost skilled labor, proximity to West European markets and a potentially lucrative market in its own right. Eastern Europe has sophisticated supply networks---components makers in the Czech Republic supply some 22 international car firms. Eastern Europe could also eventually be a larger part of the upcoming Chinese market. For exporters, the higher shipping costs entailed by moving further east would negate the benefits of cheaper labor, but there are a number of car-makers aiming to sell locally. Given that incomes remain low, that means producing a cheaper car. Renault (France) in Russia, for one, plans to develop a new low-cost model, the X90, to be built locally. Production is scheduled to begin at the Renault-owned Dacia plant in Romania in 2004, and in Russia from 2005. Russia has seen investments continue apace, with most manufacturers geared towards producing for the local market. Ford (US) is to start producing Focus models in St Petersburg this year. The Russian government is also considering the creation of special economic zones, aimed in part at luring more auto investors to the country, starting in 2006.Source: EIU
33. Eastern Europe: Slower EU Demand, Domestic Demand Remains StrongDemand in the longer term still looks strong in Eastern European. Rising purchasing power coupled with new financing possibilities should encourage consumers to purchase new vehicles. Some Asian companies are expected to start building additional factories in Eastern Europe in order to capture that market, as well as gain access to Western Europe. For example, there have been speculations about Hyundai Motor planning to build a plant in the Czech Republic which would be a third car maker in the country, apart from Mlada Boleslav-based Skoda Auto and Toyota-PSA.Source: EIU
34. China: Large Growth OpportunityChina continues to make progress towards a market economy which has led to global businesses, like automotive companies, trying to ramp up in order to tap into the country's large marketplace of 1.3B consumers. A year after entry into the WTO, in 2003, China’s automotive industry produced 3.25M motor vehicle units (38% growth compared to the year before). The Asian region, excluding Japan,which is a big market for automotive manufacturers in China has almost doubled its share of the world vehicle market in the last five years, to slightly less than 14%. Domestic demand is strong: while global volumes will drop by more than 5% over the next 18 months (equivalent to 3m vehicles), Asia sales (again, excluding Japan) will rise by 10% this year, by 3% in 2004 and by 5.5% in 2005. Last year, auto sales surged more than 50%, topping the one-million mark for the first time and making China one of the world's biggest passenger-car markets. Newly wealthy Chinese led the growth, buying their first cars and in some cases upgrading to new models. The sales boom has prompted a flood of new investment by auto makers from around the world. China’s automotive value chain is currently expanding at an accelerated rate as the country continues to open itself to foreign investment. The government has encouraged foreign investment, as well as the manufacturing of auto parts like brake unit and drive axle unit assemblies, gearboxes, diesel engine turbochargers, and ignition control devices. The automotive industry grew 109% in the first quarter of 2003 (year over year). Gartner projects the industry to produce 4M units in 2003 due to rapid domestic income growth, easier financing, increased pace of urbanization, investment in highway and parking infrastructure, and greater availability of less expensive automobiles. In January 2002, China reduced transaction and consumption taxes, import tariffs and import quotas to encourage motor vehicle purchases.Source: EIU, Gartner, Knowledge at Wharton, Wall Street Journal
35. China: Large Growth OpportunityBecause automobile manufacturing is a capital intensive industry, most global players are coming to China not just for the cheaper labor but for the ability to be close to customers. In the past, the key buyers of autos in China have been the Chinese government and taxi fleets, but now more consumers are buying. China’s technological, design and operational capabilities still precede most of the West in terms of development. Most of the joint ventures between Western automakers and the Chinese have been in assembly, not design and core technology. Many manufacturers cite loose quality control, too many joint ventures with other foreign companies, and inconsistent standards. Currently the Chinese government is drafting a policy requiring foreign manufacturers to transfer their technologies to their Chinese parties. By 2010 domestic companies must own 100% of the technology related to the vehicles they produce. However, the ease and acceptance of this measure (which is also a violation of the spirit of the WTO), is still uncertain. The Chinese government is looking to build a “pillar” industry in its country to set an example for other industries. Many believe that automotive could be that “pillar” industry since it incorporates so many corporate functions like finance, retail, manufacturing, as well as a heavy research and development aspect. Long term, China may undergo a price war (similar to the one the Chinese electronics industry went through), due to increased competition that characterizes a fast growing market. Source: EIU, Gartner, Knowledge at Wharton, Wall Street Journal
36. China: Organizational and Cultural ChallengesWhile many Western companies have fixed boundaries, consolidated in a pyramid model with ownership and control (the top filtering down through layers of operating divisions or subsidiaries), in China boundaries are less obvious; the legal, listed and operating entities of a business are typically separate. For most Chinese companies, this structure has led to operational inefficiencies, an inability to integrate their operations, and consolidate markets throughout China. It is difficult to tell where Chinese companies begin and where they end because they are often “webs” of relationships. China’s complex regulatory system and operational challenges, such as disparate local trucking suppliers, create the need for specific local market expertise to make the supply chain work. In the smaller- to medium-sized markets, the risk of investing in a failed supply chain in China can not only destroy business profits, but also diminish overall corporate profitability. For automakers to succeed in China they not only need to get their products to the customers, but also provide reliable spare parts and service support, all of which are difficult because distribution and logistics in China are fragmented and often beyond the control of global players. China continues to lack effective third-party trade accounting to complement physical distribution like automotive parts and products. China does not allow overseas companies to sell products directly to Chinese customers in local currency which forces suppliers to sell products offshore through an intermediary (ie, Chinese Import Agent), or to set up or invest in their own Chinese firm in a Bonded Free Trade Zone. Third-party accounting platforms can manage a separate general ledger for each trading client which has led to the advent of various proxy trading services in the country. The theft of foreign-owned patents and copyrights remains a major problem in China. The vast majority of all software, music and movies sold in China are unlicensed, damaging companies such as Microsoft Corp. and others that view China as a potentially huge market. The problem remains so widespread that some foreign retail companies, such as Wal-Mart Stores Inc., sometimes unwittingly find their shelves in China stocked with counterfeit goods.Source: Gartner, Knowledge at Wharton, Wall Street Journal
37. China: Organizational and Cultural ChallengesPatent and copyright infringement have posed a major problem for foreign motorcycle makers such as Yamaha Motor Co. of Japan, enabling Chinese manufacturers to quickly assert dominance in that industry. Now, there are growing signs this is becoming an issue for foreign auto makers. Late 2002, Toyota sued a private Chinese auto company, Geely Auto Group, for trademark infringement, one of the first such lawsuits in China's auto industry. Source: Gartner, Knowledge at Wharton, Wall Street Journal
38. Japan: Continued Low Light Vehicle Sales but Strong Truck Sales Japanese domestic sales are still low, but heavy truck sales increased. Overall, Japan has improved over the last four years, but domestic sales have remained stagnant. The sales rate for automobiles declined in June at a rate of 6.5% YoY, down 0.5% from May. The SAAR (seasonally adjusted annualized rate) for registered vehicles and mini-cars combined reached 5.62M. Truck-related sales increased strongly YoY and Mitsubishi Motors, Fuji Heavy and Mazda Motor were helped by new product launches. The SAAR for heavy-trucks increased 19.1% in June, MoM and 59.3% YoY. Imports to Japan have under-performed relative to the overall market. The sales volume for imports deceased 0.01% YoY as of June 2003. Volkswagen led the imports, followed by Mercedes. Imports make up 7.8% of the Japanese market. By contrast, Toyota and Nissan make up 43.6% and 19.7%, respectively.Source: EIU
39. South Korea: Production Continues to Rise; Favorable Buying DemographicsBy 1995 South Korea had become the world’s fifth largest vehicle producer. Since then, but with the notable exception of the recession year of 1998, production has continued to rise, reaching around 3m units in 2000-01, of which around 50% were destined for the domestic market. Assuming a capacity of 6m units and a capacity utilization rate of 75%, South Korean car production could rise to 4.5m units within the not too distant future. With car manufacturing in Germany likely to decline over the medium term as indigenous producers shift production abroad to locations such as Spain and the Czech Republic, South Korea may, by the end of the current decade, be producing more vehicles than any country in Europe, becoming the world’s number three producer, behind the US and Japan. The outlook for the domestic vehicle market over the medium term is robust. Demand will be supported by a number of factors: Foremost among these will be demographic trends, with the numbers in the main car-buying age group of 15-64 year olds expected to rise to more than 70% of a population of just under 50m by 2010. Although the number of passenger car registrations has been rising at a rate slightly ahead of the overall growth rate of the economy over the past five years, the low diffusion rate (stock of cars per 1,000 people) in South Korea in comparison with developed countries such as the US and Japan suggests that there is still considerably more room for expansion. In 2002 in South Korea there were around 200 cars per 1,000 people compared with just over 400 in Japan and just under 500 in the US. Rising personal wealth on the back of a positive economic outlook— GDP per head is expected to reach around $15,000 by 2007—also bodes well for car purchases on the domestic market over the medium term.Source: EIU
40. Latin America: Difficult Environment, Lower SalesAutomotive manufacturers are facing another difficult year in Latin America, with overall domestic demand flat at best. Though export markets offer some relief, the industry will remain depressed until business in the main markets of Brazil and Mexico starts to revive. In the meantime, new trade agreements and inter-company alliances are allowing some manufacturers to rationalize production and distribution as they prepare for better times in the medium term. Early indicators from the main markets of Latin America show that the automotive market is still suffering from lack of consumer confidence and buying power in 2003. The lack of demand growth is a big blow to the big manufacturers, already suffering from currency devaluations and poor sales in 2002. General Motors reported that 2002 sales in the region dropped by $429M, to $4.7B, and has admitted that market conditions remained difficult in the first quarter of 2003. Volkswagen saw sales in its three main markets (Brazil, Mexico and Argentina) dip by 10%, to 581,000, units in 2002 from 2001. Although the company managed to increase sales in Mexico in the first quarter of 2003, the slump continued in Brazil and Argentina. Renault sold 11% fewer vehicles in 2002. Fiat (Italy), with sales concentrated in Mercosur, saw its euro revenues in the trade bloc decline by nearly €1bn, to €3.27bn ($3.43B). Bucking the trend, PSA Peugeot Citroën posted an increase of 1.3%, to 109,300 units, in its 2002 Latin American sales, thanks largely to new model launches in Brazil. Nissan Motor (Japan) increased total regional sales by 13%, to 258,000 units, through an impressive performance in Mexico and its alliance with Renault.Source: EIU
41. Latin America: Stronger Export Potential, Alliances HelpingWith demand in local markets failing to pick up, manufacturers are increasingly looking to exports to take up some of their sizeable spare capacity. Last year’s currency devaluations have increased the international competitiveness of products made in Argentina, Venezuela and Brazil, with the latter country benefiting most. Volkswagen and GM, for example, are both exporting their compact car kits from their Brazilian plants to assembly lines in China. Volkswagen’s exports from Brazil, which totaled 133,000 units in 2002, could be further boosted in 2004 if the Tupi, a new small car designed largely for the Brazilian market, is produced in Europe. Ford Motor and Renault are also betting on Brazilian export potential. Ford’s new Fiesta and Ka models, built at the company’s new Bahia factory, helped boost export revenues to US$530m in 2002. This year the EcoSport SUV is also being shipped abroad. By 2005, Renault plans to increase its Brazilian capacity from 70,000 to 200,000 vehicles, of which 40% will be exported. Devaluations have led to more localized sourcing strategies as well. Toyota Motor, for example, has halted imports of kits from Japan for its Corolla passenger car model into Latin America, preferring to supply assembly lines in the region with kits produced in Brazil. Manufacturers are also trying to reduce costs and improve distribution in the region through alliances. In line with its global relationship with Nissan, Renault has been able to assemble its vehicles at the Japanese company’s plants in Mexico and sell them through its distribution networks locally and in Peru, where Nissan is strong. Nissan has been using Renault’s assembly lines and distribution in Brazil and Argentina to break into those markets. Similarly, Mitsubishi (Japan) has been selling vehicles through Daimler-Chrysler’s (Germany) distribution network in Mexico. (Daimler-Chrysler has a small minority stake in the Japanese company.)Source: EIU
42. Latin America: Stronger Export Potential, Alliances HelpingPartnerships are helping other carmakers expand into new markets, including Andean countries, which have some of the highest growth potential in the region and are currently dominated by GM. Renault, in partnership with Toyota and Mitsui (Japan), asserted its ambitions in the region when it took majority control of Sofasa, a Colombian car assembler, in 2002. Apart from assembling Renault and Toyota models, Sofasa distributes throughout the Andean region. Manufacturers are also ready to rationalize production and, if necessary, outsource it. Scania (Sweden), a leading truck maker, has decided to produce all its gearboxes and rear axles at its plant in Tucumán, Argentina, while production of all cabs and engines as well as final assembly will take place in São Paulo. Struggling Fiat will begin selling its premium Alfa Romeo cars in Mexico later this year, using the local dealership network of General Motors Corp. It said it expected sales of around 20,000 Fiat cars a year. The new agreement strengthens ties between Fiat and GM, which bought a 20% stake in Fiat Auto in 2000. Fiat also has an option to sell the remaining share to the Detroit automaker starting in 2004. In July, Volkswagen announced it will lay off 2,000 employees at its subsidiary in Mexico because of declining sales. Source: EIU
43. Latin America: High Lending Rates and Weaker Currency has Led to Weaker SalesCar sales in Brazil slumped for a fourth month as high lending rates and falling wages depressed consumer spending. Sales of cars and trucks fell by 7% to 100,102 units in June 2003 from a year earlier. In the same period, the production of vehicles was down 1.9% to 141,545 units in June. High central bank lending rates currently at 26% negatively affect auto sales as about 70% of cars in Brazil are sold on installments. Falling wages have worsened the situation, as consumers have less money to spend. Wages have been falling every month this year to an average of 853 reals (US$301) in May from 1,096 ($387) in December. The production of cars and trucks has not plunged further as auto manufacturers based in Brazil export more due to a weaker currency. Exports accounted for about a third of all sales in June. The slump in sales has forced the Brazilian units of General Motors and Ford to give part of their workers collective holidays in June and July to help reduce stocks. (Ford has not posted a profit for its South American division since 1997) Brazil's economy and with it consumer spending is not likely to pick up fast. The government estimates the economy to grow about 2% this year, while the central bank expects just 1.5% of economic growth.Source: EIU
44. Global Outlook for Major MarketsRegionIssuesLatin AmericaLocal demand is expected to strengthen in the second half of 2003 or in 2004. In Argentina, manufacturers are working with the government to find ways to stimulate the industry. However, their calls for reduced sales taxes are likely to go unanswered until the federal fiscal balance improves. In Brazil, an anticipated reduction of prohibitively high interest rates will help revive the market. Currently few cars are bought with vendor financing in the region. But the financial-services industry, including multinational banks, is beginning to display more interest in supplying consumer finance in markets such as Mexico, Brazil and Chile. In Mexico, car manufacturers will be looking to the US. If consumer confidence continues to recover there, it will have a direct impact on Mexico’s export volume and, by helping to improve local income, boost carmakers’ domestic prospects.South KoreaWith major declines in Europe, South Korea may, by the end of the current decade, be producing more vehicles than any country in Europe, becoming the world’s number three producer, behind the US and Japan. The outlook for automotive exports over the medium term is relatively bright. South Korean cars are now seen as acceptable alternatives to Japanese cars in the key US market. Demand also looks set to rise in the rapidly growing Chinese market. South Korea’s proximity to the Chinese market will put it in a strong position to take advantage of future growth, particularly as tariffs fall following China’s admission in late 2001 to the WTO.
45. Global Outlook for Major MarketsRegionIssuesChinaChina is firmly established as the emerging market with the best growth prospects and is attracting more auto industry investment than any other emerging market. Good demand prospects have encouraged a large number of joint venture vehicle manufacturing operations. The big question for market development is how many of the emerging urban middle class will become car owners. Cost is clearly a factor, as is the availability of consumer credit. There have been signs that consumer finance will become more available. General Motors (GM) is putting together a joint venture with a Shanghai-based bank to provide credit lines to car buyers, for example.Eastern EuropeSurging local currencies, notably in the EU accession countries, have lowered the cost of imports and squeezed export margins. New car sales in Eastern Europe have remained buoyant, notably in Hungary, but the region accounts for only a fraction of sales in Western Europe. Exports have taken a hit thanks to slow growth. Russia has seen investments continue steadily, with most manufacturers geared towards producing for the local market. EU candidate countries will also have to adopt the union’s stricter emissions standards on used cars when they join the EU in 2004, which should help to curb cheap imports. Although 2003 is not shaping up to be a banner year for carmakers, demand in the longer term is still looking strong. Rising purchasing power coupled with new financing possibilities should encourage Eastern European consumers to purchase new vehicles.
46. Global Outlook for Major MarketsRegionIssuesUnited KingdomCar ownership, at an estimated 467 per thousand of population in 2001, remains below the EU average and well below countries such as Italy (574) and Germany (541), but it has been catching up in recent years. With the exception of MG Rover, which was sold to its management by BMW in 1999, mass car manufacturing in the UK is now completely foreign-owned. Production is expected to stabilize in 2003-04 and only surpass 1999 levels in 2006 when production peaks at 1.85m units. With demand at home falling, a growing share of UK production in 2003-04 (and after) will be for export. Import penetration of the UK car market is forecast to stabilize at around 75%. Three non-cyclical factors should underpin demand for cars over the forecast period: The first will be a continued rise in the working-age population. The second will be a further increase in the number of women with driving licenses (which has doubled between 1975 and 2000). The third will be falling prices. Car prices remain higher in the UK than in most other EU countries, but they have been falling since late 1998 and are likely to continue doing so over the next five years. The potential for growth in the UK car market will also run up against government policy, a stated objective of which is to relieve congestion on roads —particularly in and around the country’s major conurbations—by discouraging car use and encourage greater use of public transport.
47. Global Outlook for Major MarketsRegionIssuesJapanCar makers expect a small pick-up in the Japanese market (motor vehicle registrations to grow by just 1% a year on average in 2003-07, the lowest rate in Asia). Many also view Japan as a base for expansion into the fast-growing Asian markets. Consumer demand has been hit by domestic recession and that, combined with a strong yen and 1998's East Asian crisis, has hit export-dependent carmakers hard. Japan is not only the world’s second-largest vehicle producer after the US, but the leading producer of passenger cars. Toyota Motor is Japan’s largest vehicle maker in terms of sales and the third largest worldwide. The uncertain outlook for the domestic market suggests that further realignment is likely in the sector, particularly with so many competing players. Two areas in the sector look set for growth over the coming years: The first is the manufacture of environmentally friendly and fuel efficient vehicles. One of the latest examples is vehicles powered by fuel cells. Both Honda and Toyota are in the forefront of developing these vehicles, although commercial production is some way off. Another growth area, particularly given Japanese consumers’ increasing frugality, is the second-hand car market.
48. Automotive Industry: IT Spending and IT Trends
49. Automotive Industry: IT Professional Services SpendThe global Discrete Manufacturing Industry IT Professional Services spending is expected to show 5.2% CAGR over the 2002-2006 forecast. The traditional growth markets of North America (6.6%) and Western Europe (4.0%) are showing the lowest growth due to saturation in the market, as well as an expectation of near term weakness in demand. Sustained consumer spending and growth in business spending is necessary for a rebound Professional services IT spending should transition from consulting and systems integration to a focus on services delivered via outsourcing engagements. Consulting and systems integration spend awaits a market rebound and new, major IT projects. Discrete Manufacturing: IT Professional Services by Region, Worldwide, $MDiscrete Manufacturing: IT Professional Services by Service, Worldwide, $MTransportation Equipment: IT Professional Services by Service, Worldwide, $MSource: Gartner, August 2003. Gartner’s Transportation. Equipment definition includes automotive, as well as parts and trucks (not just light vehicle).
50. Automotive Industry IT Budget Allocation The percentage of IT spending for Discrete Manufacturing, which includes the Automotive Industry has declined 5.8 percentage points since 2001. Typically, automotive companies spend roughly 2% of their revenue on IT, although this varies among companies. Most automotive companies reevaluate their IT budgets monthly. Gartner predicts that for 2003 the percentage of revenue discrete manufacturers will allocate to IT will decline by another 1.3 percentage points from an already low spend in 2002. Automotive companies spend most of their IT dollars on Applications, followed by IT Services and Outsourcing.IT Spending as a % of Revenue for Manufacturing (2002)Automotive Industry IT Budget Allocation (2002)Source: Gartner June 2003; Information Week 2002 Survey
51. Automotive Industry IT Budget Allocation: Less Strategic, More SurvivalCurrently in the automotive industry there is less significance placed on the role of IT in supporting business strategies, especially in comparison to industries like Financial Services or Healthcare payer industries where it is a large determinant of IT budgets. Most manufacturing verticals, including Automotive, have been operating in “survival mode”, spending very little on capital and operational expenses; IT spending has suffered as a result. The North American manufacturing market constitutes approximately 45% of the total world manufacturing IT spend. Many automotive companies are still relying on legacy systems, proprietary systems and prior investment in packaged applications, while spending less on the implementation of new technologies and applications. Source: Gartner, Forrester
52. IT Priorities in ManufacturingWith “7” being the most important and “1” being not at all important, in a recent Gartner survey, 35 recipients in its annual survey of manufacturing enterprises, ranked security as the highest priority. The Manufacturing vertical’s top IT priorities are “back to basic” solutions and technologies and address very specific business and technology issues, suggesting that manufacturers are still looking for ways to get more out of their past IT investments. Much of this consists of streamlining existing IT architecture, investing incrementally in applications that strictly address existing business processes, and securing existing intellectual property and operational data.Source: Gartner, 2003. Top Five IT Priorities in Manufacturing: 2003Most manufacturers anticipate that the government will take a more proactive role in issuing regulations that will require more stringent IT security through 2003 and beyond. IT architecture is included here because many manufacturers are rethinking and streamlining their IT architectures in order to cut costs, categorize and weed out, upgrade and integrate various applications and technologies in their IT portfolios. While Web Services is still in its infancy, it has become a priority for manufacturers, even if only in a pilot state.
53. IT Trends: Applications Spend Has Declined, ERP Shifting to Other GeographiesAutomotive makes up a large share of total SCM revenue at 7%, but has declined over the last two years. Procurement spend, however, has not declined, showing a growth rate of 7%. ERP revenue from manufacturing and non-manufacturing sectors was nearly equal in 2002, with a minimal 1% point change in the automotive industry market share. Procurement, however, has increased from 6% of total revenue to 8% share. While North America's share of ERP revenue exceeds 50% in 2003, as automotive manufacturing activity recovers and or increases in places like India, China, and parts of Southeast Asia, the global share of ERP could shift to Asia/Pacific in 2003 and 2004.Applications License Revenue and Share by Industry, 2001-2002Source: Gartner, Forrester, AMR, June 2003Supply chain growth in Latin America has been fueled by traditional businesses seeking to diversify distribution channels and improve the efficiency of their supply chain management. Generally speaking, CRM, SCM, and ERP e-business application adoption in Latin America still lags far behind the US and Western Europe. Most SCM adoption is being driven by multinational corporations who are pushing the development of online transactions, especially Mexico and Brazil. The most progress has been seen in global industries such as automobiles.
54. IT Trends: CRM Cheaper than Incentives, Drives Demand ForecastingWhile dealer incentives have been used by most of the major automakers, especially in the US, companies leveraging their existing CRM might be able to get more for less. The data gathered from incentive programs flowing back to manufacturers and dealers can allow follow-up campaigns that bridge the gap between sales and marketing. Incentive packages that are tailored, through CRM data, can provide customized packages to different sets of customers at different stages of the purchase cycle. Current incentive packages provide the same package to everybody. A still critical challenge among dealers and OEMs is sharing customer data (in a partnership) so that customer information can move seamlessly through the automotive value chain, and at different points in the purchase cycle. This would allow both to offer the customer the right value proposition at the right time. Automotive has a consumer-driven supply chain, thus the ability to forecast demand accurately, as well as set price and production levels, is the difference between profitability and excessive and expensive inventories. However, there is typically an intermediary between the manufacturer and the end customer, making it difficult to get a clear picture of actual demand or to segment their customer base according to profitability or value. AMR Research estimates that $250B in excess automotive inventories were written off in 2002. The market is quick to punish those companies that can’t control losses or provide accurate estimates in regards to revenue or Earnings Per Share (EPS). The use of analytics is shifting from operational to strategic. C-level executives are asking for their own views, based on what they need, to set and accomplish enterprise goals. In the Automotive industry, this could mean better insight into consumer behavior, buying patterns, or more reliable demand forecasting or price-setting.Source: AMR, June 2003, Strategy & Business
55. IT Trends: Automakers Have Still Not Leveraged Demand Signals through CRMIn order to understand their near-term sales volume, option mix and price sensitivity, automakers have to start understanding their customers better through the many signals they see from consumer interactions. While they have the richest customer interactions in the whole car buying experience, dealer salespeople still seldom capture any data. Most OEMs cannot translate their demand signals into action. Many carmakers still ignore customer data they do amass, especially if it is bad news. Also, often analysis that conflicts with the successful self image of the automaker is not well received. Promotion is often inconsistent with the customer base. Targeted ads and incentives often go to broad bases instead of particular consumers. For example, small-engine cars are not being targeted to environmentally conscious consumers. By 2005 it is expected that market data on the level of individual vehicles will be so widely available (and increasingly cheap) that no carmaker will be able to gain competitive advantage. This will require innovative ways to analyze the data.Source: Forrester, Strategy & BusinessCustomers visit an average of three dealerships, talking to five salespeople, over a 6 month period prior to purchase. Over 228,900 dealers salespeople in 22,000 franchises have 78M customer interactions. More than 70% of new-car buyers research their purchase online, seeing an average of 60 pages. The web generates roughly 15B demand signals every year from online users. Online ads, direct mail, interactive TV, car shows and other inputs touch some 30M consumers each year, creating 5.6B demand signals a year. Of the 21B demand signals only 0.01% directly inform production. On average, interaction between an automobile company and a customer occurs every 1.2 times a year.
56. IT Trends: Web Sites Significant to Car SalesCar companies have long spent billions on car advertising on television, newspapers and other marketing collateral, but the web has become a dominant channel, whether third party or OEM sites. Web sites are critically important to car shoppers. Among information sources directly controlled by OEMs, nothing ranks higher in car buyer influence than a car company’s Web site. In terms of influence, OEM Web sites ranked higher than advice from friends, vehicle brochures, and articles in automotive magazines. Traditional advertising is cited as less influential. Television, magazine, and radio ads are the least influential at decision-making time. For example, only 26% of new- car buyers who looked to TV ads said that they helped make the final decision on which vehicle to buy.Source: Forrester, 2002Most Important Source Used For Car Purchase Decisions (%)
57. IT Trends: Web is the Key to SalesAccording to Forrester Research, 58% of automobile shoppers start online research at an OEM site. However, most automakers do not know how to measure the impact of their sites on the bottom line. Forrester found that “test-drive” intention decreases for 18% of site visitors, increases for 30%, and stays flat for the balance. Most OEMS have more visitors to their sites than vehicle sales per year. Unlike online retail stores, which can track generated sales from their online channels, automakers lack a direct revenue measure. However, they do track dealer leads and measure time spent onsite. Forrester found that OEM websites had a failure rate of at least 45% on at least one task. And when users accomplished one task, 95% encountered frustrations. This has a large business impact since 18% of testers were less likely to test drive a vehicle after experiencing a brand’s web site. Many OEM sites lack adequate visuals as well as comprehensiveness and clarity of content. OEMs have poor cross-channel connections that can offer online users easy access to real-world vehicles. This can be accomplished by online tools that reflect offline vehicle inventory; embedding dealer contacts into the research flow; and offering multiple paths to purchase (instead of having “lost” users on a site.) When OEMs have multiple infrastructures to support the same sale (i.e., GM and Ford sell through BuyPower and FordDirect, respectively), companies need better integration in order for users to successfully contact dealers. Automobile websites going forward will become more executable as sites move away from HTML coded tools into more Flash and other executable internet applications, which should enhance the users’ experience. Legacy backend issues are the largest inhibitors of adopting these applications. Automakers will also better align online searches with offline production (over the next five years).Source: Forrester, 2002
58. IT Trends: Asian OEMs Use Hosted Dealer Applications Throughout EuropeAs the Japanese share of automobiles throughout the European Union continues to increase, this will likely create the need for an OEM single-franchise dealer network there for Japanese automakers. Europeans currently have a strong single-franchise dealer network already established but as share for Japanese cars increases, they will likely seek a more robust dealer network. Honda, Toyota and Mazda have all seen double-digit increases last year while the market shrank by 2.9%. Block Exemption changes have opened the door for Asian imports. Asian imports will likely use hosted DMS (document management system) applications and dealer portals to provide sales and service through formerly captive European brands’ dealers. In order to sell to the 36% of European consumers who research cars online, dealers will likely collaborate with consumer retailers (like Wal Mart or the UK’s Tesco) to understand cross-channel shopping habits.Source: Forrester, 2002
59. IT Trends: Cross-Functional Capabilities for Better QualityDespite weak sales in the highly competitive automotive industry, all the major car manufacturers are pushing ahead with IT initiatives to expedite the time it takes to design, build and deliver products. Some automakers are seeking to develop cross-functional support systems for a new approach to quality, both within the company and beyond. Many automakers have increased coordination and integration among the marketing team (which defines the important attributes), product development (which must design a car that satisfies the customer’s requirements), purchasing (which can provide realistic cost-benefit trade-offs when cars are developed), manufacturing (which actually makes the cars), and external suppliers (which are increasingly responsible for delivering pre-assembled subsystems, not merely raw materials or parts). The downside is that the organizational structure of many automakers continues to be remarkably compartmentalized; functions struggle with each other, primarily because of misaligned incentives. These companies tend to judge the success of marketing by total unit sales, of purchasing by costs per vehicle, and of manufacturing by production hours per vehicle. If marketing identifies a new technology that might increase sales but will also cost more and slow down production, purchasing and manufacturing could well fight its adoption. Close internal coordination for attribute management, particularly between marketing and purchasing, has been a major reason for the steady progress of Japanese and European auto manufacturers in the United States. Combining traditional design innovation with attention to desired attributes is a large factor in car sales; a focus solely on avoiding defective products is not. For US auto manufacturers, the dynamic of quality has involved a struggle. After making great strides to reduce the number of defects in their cars, they must redouble their efforts to hold their ground in the new auto quality landscape.
60. IT Trends: Cross-Functional Capabilities for Better QualitySCM is meeting CRM in the manufacturing process. CRM vendors are expanding their core competencies into customer-facing processes that have well-defined touch points with supply chain activities such as trade promotion management, pricing optimization, and distributed order fulfillment. At GM, which has already cut the amount of time it takes to design a new car from four years to two years, one of the key initiatives now underway centers around building a common knowledge base that will track the lifecycle of a car. Using data warehouses and EAI software from IBM (MQ Series) and SeeBeyond, GM is developing what it calls a product data manager (designed and maintained by its key outsourcing partner, EDS). In addition to a planned CRM rollout, GM is looking to tie its OnStar system to an application that will know when a part of the car is under-performing and have that data transmitted to the system.
61. IT Trends: Automakers Still Hoping for a CAD Standard in PLMCAD interoperability costs the automotive supply chain hundreds of millions of dollars per year in drawing, re-mastering and maintenance of redundant CAD environments, including software, hardware, and personnel. For Tier 1 manufacturers, this is simply a fact of doing business, but an expense they would like to reduce. If the automotive supply chain were to converge on a global CAD standard, not only could engineering costs be slashed, but the cadence of new vehicle development would be far faster. For companies like General Motors, the issue is not just the cost of maintaining multi-CAD support but also how quickly and cleanly design iterations can be managed across various companies. Looking ahead, the automotive supply chain will have three fundamental strategic PLM directions to choose from: Captive/strategic supplier--Bet on a super-tight link to a few Original Equipment Manufacturer (OEM) customers and harmonize design technology to work seamlessly as an extension of the OEM’s development and manufacturing operations. PDM will be less critical than CAD, design collaboration, and program management. Independent, engineering-intensive supplier--Diversify business among many OEM customers while maximizing reuse of highly engineered components or technologies across multiple vehicle programs. Product Data Management (PDM) is the most important element of PLM strategy since it is the knowledge repository that allows smart bidding for competitive and profitable supplier contracts. Commoditized component supplier--Compete on cost for parts opportunistically across the OEM landscape. Quick, cheap Request-for-Proposal (RFP) responses are important, and multiple localized design and PDM environments will likely be all that can be cost-justified. In other words, corporate PLM strategy boils down to tough sourcing of direct materials with little or no need for a global PDM foundation. Source: AMR 2003
62. IT Trends: PLM Helping Automakers Embrace EnvironmentalismIn every major market there are environmental discussions surrounding automobiles: End-of-Life Vehicle (ELV) Directive in Europe SUVs in the United States Kyoto Treaty throughout the world Automakers will likely adopt PLM applications from their ERP vendors to track and improve environmental compliance. Source: Forrester
63. IT Trends: Automotive Industry Solution MapIndustry ChallengeDescriptionRisksSolutionsBuilding a strong product mix cost effectivelyAutomakers often create a deep and varied product mix to lessen the risks associated from a single product or product segments.Often a diverse product mix is capital intensive and lacks the potential for economies of scale found in a more narrow product focus.Procurement savings; product development exchanges; supplier portals; advanced planning and scheduling in manufacturing; supply chain management; product lifecycle managementCost effective procurementPurchased materials make up the automakers’ biggest cost. Automakers must procure materials as cheaply as possible through low prices or indirect subsidization of the procurement process.Reliance on a single supplier is the most cost effective method and leads to better pricing due to economies of scale. However, if the supplier fails, the risk is great. Automakers in developing countries, in particular, cannot risk a single supplier.E-Procurement; applications that streamline transactions between buyers and suppliers; marketplace exchanges; supply chain management Establishing and maintaining vertical integrationWhile automakers control the final assembly and production of transmissions and engines, they do not always control the manufacture of these components. Vertical integration can improve the automakers’ fixed costsLosing direct control over a supplier's assembly and production of components can lead to serious disruption in production. Outsourced manufacturing; supply chain management; warehouse management; risk optimization; order management project manufacturing
64. IT Trends: Automotive Industry Solution MapIndustry ChallengeDescriptionRisksSolutionsLabor UnionsStrong labor unions, particularly in the US and Europe have a strong hold on the industry. Labor unions can put the automaker at risk through work slowdowns and strikes. Management’s best interests for the company may not be aligned with the unions.Decrease cost/hour productivity, make fixed labor costs un-fixed. Business Process Outsourcing, manufacturing outsourcing.Capacity UtilizationManufacturer can have idle capacity and low utilization due to inability to exploit the existing market for its products.Poor contractual agreements, legal agreements, or management policies and strategies can stunt utilization. Often capacity rendered “non-marketable” might be a target for disinvestment too early, thus creating more expense to re-invest.Problem resolution solutions (spares management, risk optimization); Project lifecycle. SCM (advanced planning and scheduling; order management; flow/project manufacturing)Geographic DisparitiesMarket demand and product requirements vary dramatically by region. Car makers operate in a global environment, among global competitors, while trying to gain global economies of scale across marketing, sales, R&D, manufacturing and supply chain operations.Keeping production capacity in line with distribution and sales.Supply chain management; digital exchanges; supplier portals; purchasing solutions. Systems integration across disparate geographies.
65. IT Trends: Automotive Industry Solution MapIndustry ChallengeDescriptionRisksSolutionsBalancing AssetsMatching manufacturing capacity to demand. Estimates suggest that utilization rates ranged from 60% to more than 100% in the last year. Variables for consideration include a market balance from a geographical perspective, product strengths or weaknesses in local segments, and the ability to eliminate old and inefficient manufacturing facilities. Asset ManagementIncrease or sustain market share/Revenue containmentCar buyers tend to be loyal to certain brands. Automakers need to better capture and utilize customer information throughout the life of an automobile. Car makers are looking not only to generate revenue but to also keep existing revenue. This is requiring automakers to employ tactical initiatives like collecting receivables from actual sales in a timely manner. Loss of market share is hard to recapture for automakers. Difficult to find new buyers in mature markets. Marketing and sales costs ballooned $650 per vehicle over the last decade. Too much emphasis on greater market share can hinder cost savings initiatives. CRM (telesales; tele-service) Business intelligence from sales to warranty.
66. IT Trends: Automotive Industry Solution MapIndustry ChallengeDescriptionRisksSolutionsIncreased competitionEconomics have increased competition, leading to plant closures and could also lead to future consolidation.Consolidation of strategic assets can sometimes jeopardize strategic advantage.CRM to generate and sustain new and current customers.Cost Savings through staff reduction; streamline business processesCompanies are looking at reduction of internal staff or re-focusing internal staff on core activities or a redesign/re-engineering of business processes and workflows to optimize IT investments. Uncertainty and economic pressures have put automakers in survival mode and many have sought to streamline operations and optimize business processes to improve profitability and cut expenses. Understaffing or outsourcing of strategic assets.IT outsourcing and BPO
67. Automotive Industry IT Spending InhibitorsSpending InhibitorsDescriptionLack of executive confidenceA history of long and costly IT projects that have delivered questionable ROI has led to skepticism in the executive suite about the benefits of IT. Lingering Uncertainty about war and economyAutomakers are more conservative when budgeting for capital and operating expenditures for IT.No Killer appCurrently there are no hot technologies or applications in manufacturing that automakers are seeking. While Web Services is the most popular current solution, they are still in pilot stages in most manufacturing segments.Cost savingsCost savings can drive IT initiatives however they can also constrain overall spending. Also, diminished or negative profitability has led to diminished operating budgets and IT spend.Purchasing Model ExperimentationMany manufacturers in general are consolidating the number of vendors with whom they work and are also seeking strategic IT partners who offer volume discounts. Some companies are engaged in auctioning in order to locate the lowest cost-hardware, software and solution provider.
68. IT Services Competitor Profiles
69. Global Automotive Industry: Services CompetitorsAccenture Accenture gained most of its capability in the automotive industry through its strong alliance portfolio in supply chain management. Accenture has alliances with over 40 technology providers in traditional supply chain and B2B sectors, both top tier and smaller/niche solution developers. Accenture provides joint development with automotive manufacturers to develop automotive telematics through its Services Bureau for Automotive Telematics (working with Microsoft’s Car .Net architecture). Deloitte/Deloitte Consulting DC has a strong automotive supplier base and Automotive financier client list. Most of the top 25 tier one suppliers are clients. DC develops significant intellectual capital in its supply chain practice in the form of the Deloitte Network Advantage, a “roadmap” for driving results in collaborative commerce projects. DC has a joint initiative with SAP to support the automotive industry in the deployment of the mySAP Automotive solution on a worldwide basis. As part of this initiative, DC and SAP are developing methods for customer-specific analysis on feasibility, cost-benefit, and ROI of the deployment of mySAP Automotive. The analysis allows mySAP Automotive to be optimized to improve the customer’s cost structure In April 2003, GM announced that it would cease its consulting work by its accounting firm Deloitte Touche Tohmatsu, a move which highlights growing scrutiny by investors that such ties could hinder auditor independence. GM paid Deloitte $102 million in 2001, the latest year for which figures are available, of which $81 million was for non-audit (consulting and tax) work.
70. Global Automotive Industry: Services CompetitorsEDS Expects outsourcing to be its top revenue generator in manufacturing for the next two years. In early 2003, Ford increased investment in its PLM offerings for design, product data management (PDM), collaboration, visualization and manufacturing process planning with EDS. Offers automotive clients its TeamCenter PLM. EDS’s PLM systems are capable of managing hundreds of thousands of specifications, including product formulas, packaging information, processes used to make products and test raw materials, and regulatory compliance for all the countries in which it does business. In mid 2003, EDS PLM Solutions scored a major win in the automotive sector for its PLM suite via a deal recently with Suzuki Motor Corp. Suzuki will purchase EDS' Unigraphics NX CAD software and Teamcenter Product Lifecycle Management (PLM) applications as part of the design platform used to build its automobiles and motorcycles. With the deployment, Suzuki is hoping to enhance supplier collaboration, reduce delivery time on products, and minimize its development costs. Initially, Suzuki will deploy more than 450 licenses of EDS‘s Teamcenter Engineering and Teamcenter Visualization PLM applications as well as the same number of licenses of Unigraphics NX. The company had a small pilot implementation of EDS software prior to the deal and is now replacing its CATIA CAD software with Unigraphics. In conjunction with A.T. Kearney, EDS‘s management consulting subsidiary, EDS plans to launch a new eSourcing software solution providing purchasing professionals input to design data earlier in the product development process. The "Lifecycle Sourcing" solution integrates the new 5.0i version of the eBreviate eSourcing suite of technologies from the A.T. Kearney Procurement Solutions unit into Teamcenter, thereby creating a linkage between the engineering and procurement functions, and enabling the supply chain to maximize cost management as product design evolves.
71. Global Automotive Industry: Services CompetitorsIBMGS IBMGS offers an Automotive Service-After-Sales Solution which helps automotive companies reduce warranty claims; benchmark product quality and safety compared to the rest of the industry; and improve customer relationships. IBMGS targets all the “streams” of the automotive industry--- from parts, manufacturing, to aftermarket sales and automotive retailers (dealers) in both light vehicles and heavy truck industries In February 2003, Ford Motor awarded a multiyear contract to IBM to supply up to 5,500 seats of PLM software plus services. Ford is trying to standardize all vehicle programs worldwide on its Catia and Enovia v.5 PLM offerings. Ford said it has not chosen an enterprise PLM standard from a single vendor. IBMGS recently helped a European automaker reduce warranty costs by creating an Internet-enabled diagnostic system that allowed mechanics to pinpoint problems more quickly. IBM encourages their engineers to rotate in and out of the field, spending time solving real-life problems while not abandoning their inside research. IBM has created an "innovation services" group within its research unit dedicated to working on automotive customer problems.
72. Global Automotive Industry: Services CompetitorsCGEY In the manufacturing vertical market, CGE&Y generates the most revenue from its applications development service line; systems integration and IT and business consulting generate the next highest revenues. The company anticipates the largest growth in the manufacturing vertical (in ’03) to come from its IT outsourcing business. CGEY offers the Collaborative Product Development Solution. This custom solution helps the design and manufacture of auto products on a global scale by taking products to market faster, increasing product quality and reliability, reducing total product cost, improving the relationship between manufacturers and their suppliers, while aligning the design with other business functions, such as marketing and purchasing.
73. Top Five Global IT Services Companies Revenue from Discrete Manufacturing ($M)Source: Gartner, 2003
74. Alliances
75. AlliancesSiebel In April 2003, Siebel Systems announced that Volvo has transformed the quality, effectiveness, and responsiveness of its technology services division, Volvo IT, using Siebel Service which connects over 3,000 users in Volvo IT's Swedish headquarters and other sites in Europe, Asia and North and South America to a single, uninterrupted view of Volvo staff and Volvo IT customers worldwide. Thirteen major help desks were established to ensure the resolution of hundreds of thousands of technical inquiries each year-either by phone or via connected Volvo IT field service professionals. All inquiries are registered in a single, central system and are either solved directly by the local help desk or are escalated to another support group around the world, depending upon the time of day, the nature of the customer inquiry, and the agent's expertise. In April 2003, Nissan Motor Acceptance Corporation (NMAC) and its Infiniti Financial Service Division (IFS) selected the Siebel Automotive Captive Finance Solution Set as the centerpiece for its Strategic Technology elevation Plan (SteP). As the financial services arm of Nissan North America, NMAC is pursing this strategy in order to contribute to Nissan's overall corporate growth and profitability goals for the next several years. Siebel’s automotive alliances include: Accenture, Andersen, ATS, Autotown, CGEY, Chrome Data, Cybertech, Deloitte, Digital Motorworks, Digitas, EDS, IBM, Impress, Miracle Software, PWC, SUN, Syncata, Unilog and Unisys.
76. AlliancesPeopleSoft PeopleSoft does not offer a specialized automotive vertical solution but does give treatment to the automotive industry under its “Industrial Products” vertical. PeopleSoft 8’s primary value in the automotive vertical is to offer manufacturers, suppliers and dealers CRM and ERP solutions for manufacturing and planning, supplier relationship management, and distribution. Also offers Human Resources Management, Financials Management, and business analytics for administrative processes, not specific to automotive. Oracle Oracle’s main value proposition for the automotive industry is that their solutions help automobile manufacturers from start to finish (end-to-end). From product launches that require integration of all development life cycle activities to marketing concepts to detailed designs; product configurations to issue resolution; engineering release change notices to bills of material. Oracle streamlines these development cycles. SAP In early 2003, SAP announced that Hyundai Motor Company chose SAP as the main solution provider for the company’s first U.S.-based original equipment manufacturer (OEM) assembly plant. Currently under construction in Montgomery, Alabama, the plant is the first North American automotive assembly site that will use SAP software for all its operations. Hyundai reviewed solutions from multiple ERP vendors, including Oracle. Hyundai's IT subsidiary, Autoever, is already working on the initial phase of the implementation. In the European automotive industry, SAP is currently focusing on cross functional processes, packaging their SCM, PLM and CRM all in one, using different modules, approaching it from the perspective of the business processes that cross all these areas.
77. AlliancesCompanyKey Automotive SolutionsSiebelSiebel eAutomotive Call Center, Siebel eAutomotive Sales, Siebel eAutomotive Service, Siebel Marketing Siebel eAutomotive Analytics, Siebel eAutomotive Partner Manager, Siebel eDealer Siebel Interactive Selling Suite, Siebel eService, Siebel Employee Relationship Management (ERM), Siebel eMail ResponsePeopleSoftPeopleSoft SCM, PeopleSoft HRMS, PeopleSoft Financial Management Solutions, PeopleSoft EPM, PeopleSoft CRM, PeopleSoft Supplier Relationship Management (SRM)OracleOracle 9i, Oracle’s integrated technology platform. Oracle also offers other integrated solutions, including Oracle e-Business Suite, Oracle CRM, and Oracle B2B. SAPmySAP Automotive, SAP offers cross-industry solutions which include: Business Intelligence, Conversions, Corporate Finance Management, CRM, Document Management, e-Procurement, Product Lifecycle Management
78. Sources and ContactsAMR Research Autofacts Automotive News (US & Europe) Business Week The Economist Economy.com Economist Intelligence Unit Edmunds Financial Times Forrester Gartner Information Week Knowledge @ Wharton Managing Automation Market News Publishing McKinsey Quarterly Morgan Stanley Standard & Poor’s Strategy & Business UBS Warburg VAR Business The Wall Street Journal Ward’s Auto World For more information, please contact: Michael Chaplinski Business Intelligence Group 610.263.7121 mchaplinski@bearingpoint.net

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