AUTOMOTIVEMANAGERTRENDS, OPPORTUNITIES AND SOLUTIONSALONG THE ENTIRE VALUE CHAIN

1/2011

China,mobilityservices andcompactcars are fueling growth. But traditionalsegments and regions remain thesource of long-term profits.

Automotive markets are humming and the potential for growth is huge.Recent projections show that global vehicle sales will climb to about108million by 2017.Manufacturers and suppliers that want to profit overthe long term from this upswing must adapt themselves to newmarketconditions and new customer needs.

Without a doubt, the BRICcountries and the next generation of emergingmarkets will drive this growth.The clear focus ofwork heremust be to modifyproducts to satisfy the needs of specific markets and establish a brandfoothold.While the car will remain the status symbol in emerging marketsfor many years, people in major Western metropolitan areas with finelywoven networks of public transportation will be searching for more flexibletransportation models.The winners emerging from this evolution will bethose companies that can roll with the shift in mobility needs and provideprivate and commercial customers with the solutions they need.

This transition will force the automotive industry to face fundamentalchallenges. To respond strategically to these trends, companies mustrecalibrate their business models and forge alliances with the right partners.This is the only way for them to withstand the persisting cost pressure andgenerate attractive returns in a seesawing market. In the process, their ownbrand identity and control of customer interfaces must not be ignored.The customer wants to be won over and excited by his or her brand overand over again.Today,125 years after the invention of the car, this is moretrue than ever before.

Against this backdrop, many sections of the growth agenda of automakersand suppliers must be reprioritized. You will find ideas for setting the rightpriorities in the latest issue of our AUTOMOTIVE MANAGER. I hope thatyou will come across many other valuable suggestions in it as well andlook forward to having a dialogue with you.

Best regards,

AUGUST JOAS

Head of the Oliver Wyman

Automotive Practice

3

Dear Readers,

CONTENTS ALONGTHE ENTIRE VALUE CHAIN

07EXPLOITING MARKETOPPORTUNITIESFOR PROFITABLEGROWTHManufacturers must adaptthemselves to newmarketconditions and address individualgrowth fields

10FULL SPEED AHEAD FORTHE CUSTOMERTo profit from the upswing overthe long term, manufacturers mustput together intelligent, under-standable packages of products

12BOOSTING R&D OUTPUTWITHOUT BREAKINGTHE BUDGETSmart programs help enhance

R&D results

14THE E-RACE WILL BEDECIDED IN CHINAThrough partnerships in China,international manufacturers andsuppliers can crack open thedoor to this huge electro-mobilitymarket

16ECONOMIZING ANDPROFESSIONALIZINGSuppliers must continuosly lowercosts and professionalize theirsales operations

CUSTOMER R&DPROCUREMENTSUPPLIER

18REDEFININGFLEXIBILITYNew production models arefueling the paradigm shiftfrommass production to masscustomization

20INCREASINGTHE PROFITS OF SALESAs demand grows, the profitabilityof auto sales is moving tocenter stage

22THINKING FROM THEMARKET’S PERSPECTIVEManufacturers should approachinternational expansion byemploying a market-driven strategy

24URBAN, INNOVATIVE,MULTIFACETEDIf manufacturers intend to succeedin the mobility-service market,they need some innovative ideas

26CAR2GO: DAIMLER’SSMART SOLUTIONAmanufacturer responds to itscustomers’ needs

28RESULTS,NOT WORDSA portrait of Lars Stolz,an Oliver Wyman Partnerand supplier expert

29A MOBILITYREVOLUTION?The commentary explores thelatest mobility trends and takes alook beyond the challenges of theeveryday business world

30AUTHORSIN THIS ISSUE

31PUBLISHER’SINFORMATION

PRODUCTION SALES SERVICES

7

The automotive industry is booming. The trend ispointingupwardwith annual growthexpected tohit nearly6percent through 2017. For manufacturers, the future isfilledwithopportunities. But if theywant their business togain a long-term lift from this upswing, they must adapttheir operations to newmarket conditions and focus onindividual growth fields.These fields should bepinpointed,developed and systematically pursued in line withautomakers’ brand identities, expertise and resources.

Global vehicle sales will climb from about 72 million units in 2010 to about108 million units by 2017. This increase translates into an average annualgrowth rate of 6 percent. But the strength of this growth varies markedlyfrom region to region. Individual countries form the core of this growth. By2017, about 60 percent of additional volume will be generated by the BRICcountries with 21 million vehicles. China stands atop the list of fast-growingregions with a projected total of 14 million sold vehicles. From there, volumein the other BRIC countries falls steeply: India (2.7million), Russia (2million)and Brazil (1.8 million). The 15 countries with the largest growth in volumein years to come include three of the Next 11 countries: Iran, Indonesia andMexico.Combined,they will produce an increase of 2.3 million.Growth ratesof 15 percent to 23 percent are forecast in such Eastern European countriesas Latvia,Hungary,Estonia,Ukraine and Romania.But the absolute additionalvolume here is relatively small: an additional 0.8 million vehicles will besold in the entire Eastern European region.

EXPANDING REGIONALLYTo gain a share of the success in emerging markets, manufacturers have tomove to the area. Once there, they can gain an understanding of the targetmarket’s preferences and needs, and then use this knowledge to enhancetheir marketing campaigns. The fundamental requirement here is a rangeof products that has been customized to meet the specific needs anddesires of regional customers, topped off with appropriate service packages.Over the long term, per-capita purchasing power is expected to be lowerin emerging markets. This means that the product range must primarilyinclude compact vehicles – paired with the appropriate financing solutions.Introducing new brands or sub-brands can also make sense. By taking thisapproach,manufacturers canenter unchartedmarket territorywithoutdullingthe profile of their core brands. Renault, for instance, markets its low-cost

EXPLOITINGMARKETOPPORTUNITIESFOR PROFITABLE GROWTH

August Joas,Matthias Bentenrieder,Hosuk Chung

CUSTOMER › R&D › PROCUREMENT/SUPPLIER › PRODUCTION › SALES › SERVICES

Logan sedan as under the Dacia brand in Europe. But in South America andRussia the Logan wears a Renault badge. For the Indian market alone,Daimler Trucks created the new brand BharatBenz, which literally translatesfrom the country’s languages into India-Benz. In another step,manufacturersshould adapt their footprint to address local conditions, particularly in termsof the creation of their own development and production skills.

SHIFTING TO GREENIn developed regions as well, automakers are faced with the challenge ofproducing smaller and smaller compact cars that get better and bettermileage. The smallest vehicle classes – small and basic – already generateabout 35 percent of sales volume. By 2017, this total will rise to nearly45 percent of additional volume, particularly as a result of robust growth inthe BRIC markets. The unit sales of hybrid vehicles will climb by 16 percentannually, or an increase of 2million units. As a result, about 3.2million hybridvehicles will be traveling down the world’s roads in 2017. Legal regulations,limited resources and rising oil prices will give further momentum to alter-native drive systems and efforts to lower fuel consumption. Attitudes amongusers, particularly those in developed countries, are changing as well.Increasingly, mobility is being used in a conscious manner.

As a result, manufacturers must intensify their focus on alternative drivesystems, further optimize the internal combustion engine, increasingly uselightweight construction technologies and materials as well as spur on newmobility concepts. The basic technology of electric vehicles is not matureenough yet. High costs, low battery range and inadequate infrastructure areinhibiting customers’ desire to buy such vehicles. In 2025, electric cars willmake up less than 1.5 percent of the vehicle population. Nonetheless, Chinais committed to becoming the world’s largest producer of electric vehiclesby 2020. The country’s government is pouring huge amounts of money intoproduct development and is devising buying incentives for end customers.The electro-mobility market is teeming with opportunities that Westernmanufacturers cannot let slip through their hands. They must positionthemselves in China by forging strategic partnerships.

20172010

108.2

71.9

WORLD+6.0%

BRIC1

+9.1%NEXT ELEVEN2

+6.3%

20172010

46.1

25.1

20172010

8.45.56.0%is the annual growth rate for vehicle salesworldwide

GrowthbyregionVehicle sales 2010and2017inmillions of vehicles aswell as average annual growth rates

1 Brazil, Russia, India,China2 South Korea, Mexico,Turkey, Philippines,Egypt, Indonesia, Iran (Pakistan,Nigeria,Vietnam,Bangladesh are not included here)Source: JDPA,Oliver Wyman analysis

8

PROVIDING MOBILITY SERVICESAlthough the race todevelop thedrive systemof the futurewill notbedecidedfor another 20 to 30 years, an enormous change is already taking shape inmobility patterns and concepts. The growing demand for mobility servicesis being fed by an array of sources. The number and size of megacitiescontinue to climb, causing there to be even fewer parking places and evenmore traffic jams. The foundation of the car’s position as a status symbol iseroding, and people no longer consider car ownership to be a necessity oflife. In the downtown areas of German cities, for instance, only 80 percentof people who are 18 to 29 years old have a driver’s license. In rural regions,the total is 90 percent. Mobility rates in the megacities of industrial countriesare declining. The drop is expected to be about 5 percent in Tokyo andNew York City through 2025 and up to15percent in Londonduring the sameperiod. The enhancement of smart communication technologies is anotherdriving force behind changes to how people will get around in the future.Armed with smartphones that are capable of performing better and betterwhile being easier and easier to use, people can access mobility services atany time from any place. And the number of these smartphone users willexplode, jumping from about 500 million today to about 1.2 billion in 2015.As a result, the mobile Internet is becoming an even more important partof the new urban world of mobility. In Germany, the annual growth rates ofmobility services are impressive at 15percent to20percent.Inabsolute terms,though,market volume is limited. Nonetheless, this market is strategicallyimportant for car manufacturers. And the reason is easy to see: one vehicleused in a car-sharingor pay-per-use model replaces several purchased cars.This creates risks for manufacturers because their traditional businessmodelsno longer apply. Vehicle manufacturers must respond to the potential dropin volumeby tapping additional revenue potential.

Sustaining the interface to the customer will be the biggest challenge.Established manufacturers should employ their brand’s name recognitionto promote promising mobility concepts particularly in metropolitan areas.Manufacturers such as Daimler with car2go and car2gether, BMWwithDriveNow,PeugeotwithMuandVolkswagenwithQuicarhavealreadyenteredthe car-sharing market. Toyota recently launched a pilot project as well.Other companies have also caught a glimpse of the business opportunitieshere, including Connect by Hertz, WeCar by Enterprise and ZipCar.

EXPLOITING DIVERSIFICATION AND NICHESDemand will also continue to grow in individual market segments. It willclimb by about 7 percent a year in the premium and about 8.5 percent inthe luxury segment. In absolute volume gains, this will amount to 3.6 millionpremium and 40,000 luxury vehicles by 2017. Because demand in bothsegments is becoming increasingly polarized, these growth fields can beaddressed through diversification and the tapping of niches. With annualgrowth rates of more than 7 percent, the sports-car segment will increaseat above-average rates as well. Volume will climb from 1million vehiclesin 2010 to 1.7million in 2017. Automakers can add new crossover vehiclesor super sports cars to their product lines and profit from this trend. In theprocess, the synergies with the remaining product line should be tapped.

1 IDENTIFY SHORTCOMINGSPinpoint segments and regions that areinadequately covered on the basisof a company’s own brand profile andproduct range as well as on the basis ofits own resources and expertise

2 DEFINE PROGRAMSClearly define markets, products andcustomer groups and carry outconquest programs designed to tap themost attractive target segments

3 CLEARLY FOCUS ONRESOURCE ALLOCATION80-20 rule focusedon topopportunities;consciously lower the priority of othergrowth options

4 SYSTEMATICALLY CREATE ABUSINESS FOUNDATIONDevelop the necessary expertise andresources; set up joint ventures to usespecific technologies or partnerships togain market access

5 QUICKLY AND FORCEFULLY CARRYOUT IMPLEMENTATIONRigorously communicate the strategyand systematically implement it in allbusiness areas and sales levels as part ofa carefully synchronized master plan

Five steps in the growth agenda

9CUSTOMER › R&D › PROCUREMENT/SUPPLIER › PRODUCTION › SALES › SERVICES

After being battered by dramatic drops in unit sales andincoming orders in 2009, the commercial-vehicle industrygot backon track in 2010.Ifmanufacturers intend toprofitlong term from the upswing, they must put together intel-ligent, understandable packages of products tailored tomeet the needs of individual customergroups.Customers’requirements and their levelsof satisfactionwereexaminedby thestudy»EuropeanTruckCustomer2010«.Recommen-dations related to the industry as a whole and to certainmanufacturers in particular were then formulated.

The commercial-vehicle industry experienced its worst crisis ever in 2009.In North America, sales figures plummeted by 36 percent, and in SouthAmerica they dropped by 16 percent. Asia was the only area to buck thetrend, generating a small gain of 6 percent. The situation was much moredire in Eastern Europe, with figures plunging 65 percent. Western Europedid not fare much better as it suffered a 43 percent loss. In 2010, though,the global commercial-vehicle market bounced back faster than anyoneexpected. Nonetheless, some time will have to pass before the industry willreach its pre-crisis levels once again.

FULL SPEED AHEADFOR THE CUSTOMER

Romed Kelp,SvenWandres

10

IMAGE AND BRAND EXPERIENCE IN EUROPEIn the wake of the crisis,customer focus and customer loyalty have continuedtoadvanceup thepriority lists of commercial-vehiclemakers.Toaddress theseareas properly, the companies must have a solid understanding of customerneeds, which vary sharply not only among individual customer segments, butalso among regions. For the study »European Truck Customer 2010« morethan2,300commercial-vehicle customers in15countrieswereaskedquestionsabout their image of and brand experience with commercial vehicles. Theresult of the research is a comprehensive overview of the needs and satisfac-tion level of commercial-vehicle customers in the areas of product, price andcosts, sales process, service-department offerings and additional services.

AVAILABILITY AND CALCULABLE COSTS CRITICALService-department offerings have grown in importance among Germancustomers since 2008. At that time, fuel consumption ranked first among theTop 10 criteria in a vehicle-purchasing decision in Germany. Today, vehicleuptime has risen to the top, followed by warranties/goodwill and servicequality. Availability of spare parts ranks fourth, and fuel consumption comesnext.The significance of cost-related issues has changedaswell. Increasingly,customers are concerned about total cost of ownership, which is composedof purchase price, residual value and operating costs. The customer wantsa vehicle that is ready to roll at all times and has clearly calculable costs.

SOLUTION-BASED THINKINGToday, customers no longer consider the vehicle itself to be the essential factordistinguishing a manufacturer from the competition. They are very satisfiedwith the vehicle itself. Today, other criteria increasingly drive the decision-making process.To form a long-term relationship with customers,OEMs haveto gain an edge on their competitors through the solutions they offer. Giventhe increasing importance of vehicle uptime, they must put together a multi-component package: reliable vehicles, far-reaching service network, highservice quality, quickly accessible supplies of spare parts and highly capablemobility services to ensure mobility even in unpredictable situations.By bun-dling these services, manufacturers can gain an edge on independent com-panies amid theever-tougheningcompetition.In the areaofmobility services,about 40 percent of these services are provided by independent companies.

FOCAL POINTS FOR MANUFACTURERSUntil now, manufacturers have been unable to gain much ground withcustomers in Western andEastern Europebyoffering suchhigh-qualityadditional services as mobility guarantees, replacement drivers, short-termvehicle rentals, fleet management and insurance coverage. Customers havenot perceived these services to be of added value. For this reason, manufac-turers must extensively refine their communications, reassess their frequentlycomplex and confusing price structures and make allowances for the needsof various customer segments. The entire range of services must be designedin a customer-focused manner. The winners of this competition will be thosemanufacturers that have a superior understanding of customer needs anddevelop efficient structures that will enable them to put together tailored,easily understandable solution packages.

Significance and satisfactionvaryalong thevaluechainAverages of all individual criteria for eachcategory (1= verysatisfied,6 = not satisfied)across Europe

»The customer wantsa vehicle that is readyto roll at all timesand that has clearlycalculable costs. Thecommercial vehiclehas to operate.«

Vehicle 1.85 2.01

Price&costs 1.87 2.73

Sales process 2.45 2.49

Service-departmentofferings 1.70 2.21

Additionalservices 2.99 4.15

Significance Satisfactionto the of the

customer customers

11CUSTOMER › R&D › PROCUREMENT/SUPPLIER › PRODUCTION › SALES › SERVICES

After decades of continuous improvement to its security,comfort, and power,the automobile has entered anew era.The upgrades, however, have boosted the average weightof a C-segment car by 500kg since the’70s, leaving engi-neers to fightagainsteverysinglegramtocutCO2emissions.

In Western countries, customers also are overwhelmed by the huge numberof products available.In addition,manyof those carshave toomanyundesiredfeatures that they do not want to buy or they do not even see. In response tothese challenges, manufacturers are inventing new niche segments, devel-oping mobility services, proposing hybrid and electric vehicles, and makingthe cars as connected as their customers' smartphones. In parallel, newcustomers in emerging countries are asking that their specific needsbe met.All of this has resulted in more R&D work, but, of course, the work must bedone without overstretching resources. Automakers and suppliers that wantto rise up the world ranking or remain global leaders in the future shouldaddress these challenges by making sure their R&D capabilities are superior.When rethinking their future R&Dstrategy, automakers and supplierswill facemany diverse challenges and will have to avoid the temptation to »chase toomany rabbits.« To avoid that, they should remember a few basic principles.

›DO THE RIGHT THING‹Automakers and suppliers must focus their R&D efforts on areas that arevalued by customers. An Oliver Wyman survey shows that 17 percentof proposed innovations are purchased by customers regardless of price.An effective customer feedback loop is essential to drive developments in theright direction. For example, a successful European automaker has set up apowerful innovation process that ensures a wide open capture of ideas (openinnovation) combined with a very strict filter to determine which innovationsbring themost value added to customers in the fields of comfort, safety,design or environment – four or five out of thousands of ideas.To limit R&Dcosts and reduce time to market, automakers and suppliers also shouldmaximize their re-use and carry over of components becauseR&Dmodularityis a must. Several automakers have started doing this. Success in this area hascome when the right balance is struck between the level of standardizationofmodule sub-components (off-the shelf) and the freedom for differentiationleft to every new vehicle on the parts valued by the customers.

›DO THE THINGS RIGHT‹Once the target is clear, efficient execution is a prerequisite to be one of theleaders. Developing a new car involves multiple skills including styling, pro-duct planning, marketing, purchasing, engineering, quality, manufacturing,logistics, etc., as well as input frommany suppliers,making theprocess highlycomplex.Todeliver on time and avoid over spending,extreme rigor is amust.

BOOSTING R&D OUTPUTWITHOUT BREAKING THE BUDGET

Rémi Cornubert,Marc Boilard

»The best automotiveplayers leverageR&Das an acceleratorto bring more newmodels to marketfaster, while R&D is abottleneck for rivals.«

12

Amaturedevelopmentprocess is commonatmajorautomakers and suppliers,with a detailed sequence of project »gates.« But it is often too »checklist«oriented, and lacks clarity on thequality andmaturity of deliverables expected.What'smore, because of time pressure and a lack of tolerance for failures,we see projects frequently affected by the »watermelon indicator« syndrom:green outside, but red inside. Projects pass through gatesbefore they should,leading to huge amounts of rework later in the process. In addition to theproject management basics, many other performance levers are availableto reduce R&D cost, final product cost, or development time such as projectteamworkload sizing, design to cost, R&D offshoring, digital prototypingand systems engineering. Based on these dimensions, R&Ddepartmentsneed todo an honest assessmentof their performance to activate theappropriate levers.

LAY THE GROUND FOR SUCCESSFUL IMPLEMENTATIONThese »enablers,« which are mostly related to the soft dimension, do notdirectly generate a tangible P&L or time-to-market effect, but they areprerequisites for a successful R&D transformationplan.The corporate culturecan be either a booster or a barrier. Innovative companies such as Googleand 3M have set up environments that foster the emergence of new ideas,such as intranet portals, workshops, innovation contests and awards. In theautomotive business,where innovation is often brought by suppliers, it isa real challenge tomotivate suppliers to proactively propose innovationswhen relations with automakers are usually dominated by tough commercialnegotiations. Automakers andTier1parts makers must rebuild trust withtheir suppliers, starting by providing transparent agreements on how theycan share the risks and benefits from innovations. Another hot topic is howto address competencies. Many automotive players lack a clear medium-or long-term vision of their technical and management skills needs.This vision is vital in order to anticipate risks of shortage or loss of technicalknowledge.Last but not least,R&D performancemeasurement is oftenpoorlydefined. Appropriate KPIs are required to manage R&D on projects andto guidemedium-term progress in a continuous improvementphilosophy.Our recent projects have demonstrated that it is possible to measureR&D performance.

LEAD THE TRANSFORMATION IN SUCCESSIVE WAVESRome was not built in a day. The journey that leads to R&D excellence islong. Automakers and suppliers should focus on the most valuable topicsbecause to succeed here requires the following: resources; involvement bytop management – most likely the CEO and EVP R&D; strong buy-in by theteams; and the ability to manage change. The most effective way to ensuresustainable progress is to make the changes through successive wavesbased on pilots before starting a global rollout. As is the case with any majortransformation program, strong C-level commitment and sponsorship is akey success factor. According to our experience, all major automakers andsuppliers address some of these performance topics, but most often they doso in a scatteredway.They rarely have a holistic view of their R&Dperformancetrack, their strengths, their weaknesses, and the true priorities to focus on.That is the first value added of smart R&D programs.

Time tomarket

reduction

R&Dspend

reduction

Productcost

reduction

25%

50%

14%

30%

2%

11%

MaximumAverageMinimum

Main levers for boostingR&D performanceOliverWymanproject results

13

17%of proposed innovations are purchasedby customers regardless of price

CUSTOMER › R&D › PROCUREMENT/SUPPLIER › PRODUCTION › SALES › SERVICES

The Chinese automotive market is among the world’s fastest growing – withthe trend continuously movingupward.China is determined tobe thedrivingforce behind electric cars as well. While about1million e-vehicles are expectedto be rolling down German streets by 2020, the total in China is projected toreach about 2.7 million.To ensure that this happens, theChinesegovernmentis pumping financial incentives for companies and customers into thismarketsegment like no other country. The new Five-Year Plan has earmarked about11billion euros for research and development involving hybrid and electriccars. Anumber of pilot programsare alsobeing fundedwith theaimofgainingsome initial practical experiencewith electric vehicles.Massive amounts ofmoney are also flowing into infrastructure. In a reflection of this, capacities forproducing500,000electric vehiclesannuallyhavebeencreated, an investmenton which Beijing has expended 1.1 billion euros. Incentives such asgovernment subsidies of up to 6,800 euros are helping to generate stronginterest in the purchase of electric vehicles.

THE E-RACEWILL BE DECIDED IN CHINA

Matthias Bentenrieder,SvenWandres

China is one of the world’s most appealing marketsfor electric vehicles. Enormous government subsidiesare generating massive momentum in research anddevelopment as well as production and unit sales. This isthe time for international manufacturers and suppliersto establish a position in China by forming strategicpartnerships that will enable them to capitalize on electricmobility’s overwhelmingmarket potential over the longterm. Quick action is required because the most attractivepartners are already being heavily courted.

14

»Over the next five to10 years, China willdevelop ahighlydynamic value-chainsystem for electricvehicles, and thissystem will bebiggerthan any other inthe world.«

15

Product quality

Productioncapacities

Technologicalknow-how

Research anddevelopment

Access torawmaterials

-1 0 +1 +2

weaker stronger

EXCELLENT CONDITIONSAside from the enormousgovernment support and the country’s hugemarket, a promising industry devoted to the critical issue of batterytechnology is taking shape. A very good cost structure, including wagesand rawmaterials, is also shaping the development and production ofe-vehicles. The costs here are considerably lower than those in Westerncountries thanks in part to China’s access to limited, but critically important,rawmaterials.Furthermore, the country’s many cities with populationsof 1million people or more include many customers who are eager toopen up their wallets to get electric cars, forming an excellent basis fordeveloping inner-city concepts for these vehicles.

MINIMIZING FINANCIAL RISKSIn order to enter the ranks of leading electric-vehicle producers asquickly as possible, Chinese companies have to draw on the technologicalinput and know-how of international OEMs and suppliers. For this reason,the Chinese government is encouraging partnerships with non-Chinesecompanies. For non-Chinese competitors, partnerships, joint ventures andinvestments are the essential step they need to take to open the door toChina’s e-vehicle market and exploit the low-cost conditions. In this manner,the enormous amounts of money being devoured by the R&D work onelectric vehicles and their components can be borne jointly. Both partnerscan also bundle their know-how to address the technological challenges thatoften arise in their work.All R&D partnerships in electro-mobility are verypromising at the moment. This is particularly true of batteries. Electricmotors also have potential. In this area, international manufacturers andsuppliers must ensure that they have access to important rawmaterials andexploit the opportunities that Chinese companies offer in terms of low-costmass production. Initial partnerships have already been forged. Particularlyin the early phase of the new electric-car market, partnerships are essentialfor helping companies figure out which partnerships can be successfullyestablished. The early phases also provide an opportunity to gain sufficientexperience with the partners and an understanding of the entire market’smomentum. Overall, international companies have a tremendous learningcurve ahead of them, and they must be prepared to make mistakes.

ENSURING A GOOD STARTING POSITIONQuick action is required because the most attractive companies in Chinaare already being heavily courted. Nonetheless, international automakersand suppliers should enter partnerships in a systematic, strategically basedmanner that includes a dash of caution. For international companies,the order of the day is to precisely analyze their portfolios, strengths andproducts, to find the right partner and to create the right alliance with thiscompany. At the same time, it makes sense for international companies tocarefully contribute their ownexpertise to the partnership, joint venture orinvestment. These companies must prevent know-how from being drainedaway or competitive advantages from being lost if these arrangementsshould collapse.

Source: Oliver Wyman study »E-partnerships in China«

Power electronicsElectric motorsBatteries

CUSTOMER › R&D › PROCUREMENT/SUPPLIER › PRODUCTION › SALES › SERVICES

A head start in costs, productioncapacities and access to rawmaterialsChinese suppliers vs. internationalcompetitors

Costs

Although the automotive industry is growing strongly,it remains under immense cost pressure. Suppliers arefeeling most of this pressure because of their large shareof value creation. The pressure will continue to mount inthe future. Therefore suppliers – more than ever – musttake steps to continually lower costs andprofessionalizetheir sales operations.

NewOliver Wyman studies highlight trends sweeping through the supplierindustry. Cost pressure will continue to build in the future. Functional inno-vations and the improvement of individual components will be able to easethis pressure only to a limited extent. In the next five years, manufacturerswill demand an average price cut of 4.3 percent annually and will actuallyachieve a decrease of about 2.5 percent. Functional improvements made atthe beginning of a new product life cycle can rarely cushion the price drops.The introduction of a new series is expected to produce only a small pricedecrease averagingabout0.3percent.Specializedcomponentmanufacturerswithin a niche do continue to have an opportunity to generate profitablegrowth in their segment. But suppliers can push through price increasesamongmanufacturers only in exceptional cases. Premium brands arenot exempt from this trend. Because most modules and vehicle segmentsare being subjected to cost pressure, suppliers in this segment are alsogearing up for increased price pressure.

ECONOMIZINGAND PROFESSIONALIZING

Lars Stolz,Lutz Jaede

16

4.3%are the average price cuts demanded

by OEMs annually. They actually achieve

a decrease of about 2.5 percent

CUTTING COSTSAgainst this backdrop, automotive suppliers must constantly optimize theircosts even during times of strong economic growth. In a reflection of this,85 percent of surveyed suppliers increased their cost-cutting efforts duringthe crisis. But only about half of them think they are sufficiently prepared toachieve a competitive cost position over the long term. During the crisis,production was the target of cuts. Today, the aim is to develop a cost-cuttingattitude throughout the company. First, the available levers inprocurement,product cost cuttingandproduction improvement should bemore intensivelyapplied. Here, programs designed to systematically optimize the productcosts of current and future series can be shared with procurement, develop-ment and suppliers. Second, an effort must be made to developmaterials,technologies anddesignswith improved price levels. And, third, suppliersmust focus on process optimization and cost innovations.

PROFESSIONALIZING SALESThe latest crisis in the automotive industry has shown that the workingrelationship between manufacturers and suppliers is not always a collabora-tive one. About 80 percent of surveyed suppliers say that manufacturers’behavior changed dramatically during the crisis. Sixty-five percent reportedthat cost pressure rose markedly during the crisis. Complaints rangingfrom the OEMs’ lack of understanding to their irrational actions were alsoexpressed. During the current upswing, supplier bottlenecks, paired withincreased demands arising from volume growth, have exacerbated thesituation.To assert their interests in a better, more strategic manner, suppliersmust professionalize and strengthen their sales operations. The foundationof this approach is extensive market and competitive information,a margin-based incentive and remuneration systemand the introductionofprofessional methods and processes to manage profitability.

»Suppliers mustconstantly scrutinizetheir cost positionsandmakeprofitabilityof their salesoperations a higherpriority.«

17

Electrical systems/electronics

Chassis

Powertrain

Engine & periphery

ExteriorBody

Interior

-6.2-3.7

-3.2

-3.8

-3.8-3.8

-4.5

-3.6 -1.7 -2.3

-2.3

-2.5

-3.0

-2.5

CUSTOMER › R&D › PROCUREMENT/SUPPLIER › PRODUCTION › SALES › SERVICES

Source: Oliver Wyman study »The supplier industry caught between cost pressure and value growth«

Trends in procurement prices for current seriesChanges per main module and year in percent

Customers’ needs are in constant flux. Car buyers wantmuchmore than a broad range of vehicle models. Theyalso expect to have wide selection of the latest options forinfotainment, safety,designanddrive systems. In response,manufacturers have come up with new, flexible productionmodels that are prompting a paradigm shift frommassproduction to mass customization.Welcome to the newage of automaking.

Car customers’expectations are higher than ever. Buyers want a vast rangeof models that come with the broadest number of functions and featurespossible. Some want powerful engines. Others want hybrids or electricvehicles that reflect their own interest in conserving fuel. Other critical factorsare comfort and user friendliness. People no longer accept that moderninfotainment functions such mp3, Bluetooth and navigation systems are justfor luxury cars. Opinions about safety issues also differ. Some customersthink cars must include electronic stability control and multiple airbags.Others do not want to pay one extra cent for these features. Finally, customersexpect to be able to pick up their dream car a day after they have placedtheir option-filled order – while paying a reasonable price and receiving agood-quality, reliable means of transportation in return. Manufacturers mustefficiently manage the increased complexity – and do it in real time.

THE KEY: STANDARDIZATIONConsumers have a continually expanding selection of vehicles and optionsfrom which to choose when they purchase a car. The number of producedcars per model is falling as a consequence. A typical assembly plant producesabout 250,000 vehicles a year, while fewer than 100,000 units of individualmodels are made sometimes. As a result, the days when an entire plant couldbe dedicated to one model are over. And because innovations are beingintroduced to the market more frequently, a changeover must be performedwithout disrupting the production of current models. The magicalword is»standardization.« For this reason, vehicle construction should provide fora joint assembly process regardless of the model being produced. Withouta joint strategic blueprint, it will be nearly impossible to produce severalvehicle models on the same assembly line.

INCREASING EFFICIENCY WITH GLOBAL STRATEGIESDuring development, a joint blueprint involves many success-definingconsiderations about such matters as shared fastening points on the vehiclebody and components. Uniform concepts for fastening devices and identicalfacilities in the plants are also critical for success. Here, computer technologywill play an increasing role. As a result, the creation of 3-D models during

REDEFININGFLEXIBILITY

Ron Harbour,John Lucci

»OEMs must respondto customers’changing needs andapply lean to theirentire value chain.«

18

parts development according to shared standards is a step that shouldbe taken to eliminate limitations on the vehicle after assembly. Software tosimulate production lines, material flows and expected interruptions canalso be used to bring a process up to the level of the defined standard.Manufacturers use standardization in order to produce the samevehiclesatmany different assembly sites around the world. Examples include theFord Fiesta and such compact models as the Ford Focus, Toyota Camryand Corolla, and Hyundai Sonata and Elantra. This global auto strategy hasmany strengths: higher returns on development investments, increasedefficiency in market introduction and, among the softer factors, shared datause and partnerships among regional departments.

DEVELOPMENT OF REAL PARTNERSHIPSRelationships with suppliers are frequently neglected although they playa critical role in a successful standardization strategy. A true partnershipmust be established with key suppliers. And suppliers should be broughtinto the development process at an early stage to ensure that they will meetthe standards and apply similar development and production strategies.Manufacturers can draw on suppliers’ expertise and latest technologiesas early as the development phase. Generally, though, a long-standing,trusting relationship is required before this can occur. Even such partnershipsmake it more difficult to achieve price concessions, the savings outweighthe disadvantages in the long run.

19

2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 20152.0

2.2

2.4

2.6

2.8

3.0

Mod

el/p

latform

CUSTOMER › R&D › PROCUREMENT/SUPPLIER › PRODUCTION › SALES › SERVICES

Source: Global Insight, csm

The average number ofmodels per platform in constantly risingAverage levels of the five largest American automakers

During thecrisis years,AutomotiveOEM salesdepartmentsfaced the challengeof hitting ambitious sales targets.Manufacturers lured customers into showrooms by takingintense tactical steps and offering discounts. Like govern-ment cash-for-clunker programs, though, the effect ofthese efforts was short-lived. Since demand has begun torise, profitability has moved back to center stage. It paysto take a close look at sales costs. After all, they make upone-third of a new car’s list price.

Manufacturers can lower their sales costs by up to 15percent if theysystematically analyze them and then methodically introduce optimizationprograms. Efficiency-boosting levers can be found on all sales levels:at headquarters,national sales companies anddealerships. An ideal way toidentify them is a sales-cost audit that can systematically examinecost-cuttingpotential. The audit focuses on all four major cost centers. Margins and salesincentives make up nearly 40 percent of sales costs, followed by marketingandcommunicationat 33percent, structure andoverheadcosts at 15percentaswell aswarehousing and transport at 12 percent.

MARGIN SYSTEM AND SALES INCENTIVESIn the past, dealer margin systems usually focused on the number of soldunits or revenue. In the future, though, they should be increasingly directedat contribution margin. By taking this step, dealers could be incentivized toencourage customers to buy vehicles equipped with more options andincrease their use of the service department. The interests of dealers andmanufacturers would be aligned. In addition, the financial incentives offeredby manufacturers do not have to be passed on to customers as high cashrebates.The more beneficial approach is alternative options such aswarrantyextensions that have a higher nominal value than cash rebates. In turn,this creates an additional layer of support for customer loyalty. Nonetheless,manufacturers should avoid taking a scattergun approach to incentivesand instead aim them at specific customer groups. Subsidized warrantyextensions, for example, are generally more appealing to drivers of compactcars than to those who pick upper-class vehicles.

INCREASINGTHE PROFITS OF SALES

Jan Sickmann,Fabian Brandt

20

67%

Manufacturing costs

8%

Manufacturers

10%

Nationalsalescompanies

15%

Dealers

One-third of the list price is sales costsCost centers in new car sales

33%

Sales costs

1 Ambitious, but realistic savings targets

2 Cross-functional working groups

3 Short, fast decision-making processes

4 Systematic approach and considerationof best practices

5 Attention and support of top managers

Success factors in a sales-cost initiative

COMMUNICATION AND MARKETINGCommunication and marketing expenses should be reviewed continually,and the mix should be optimized through the use of cost-benefit analysis.The expenses of dealers and national sales companies will fall as a result ofcentral support from the OEM. Centrally provided material can be modifiedeasily, thus eliminating the duplication of work. Another benefit is createdwhen just a few international marketing agencies support a manufacturerglobally. This enables standards to be maintained and produces economiesof scale. Increased digitalization of informational material and the shiftto online channels are both sensible and profitable steps to take becauseincreasing numbers of customers are using the Internet as a source ofinformation. This also eliminates paper and printing costs.

LOGISTICS AND WAREHOUSE POOLINGLogistics operations should be examined regularly, and the mix of transportmodes continually optimized. Here, too, economiesof scale canbegeneratedby employing national pooling. Additionally, warehousing costs can belowered by dealers in a region sharinga stock facility.This also ensures a largervariety of stock models per dealer, and the capital tie-up will be minimized.

STRUCTURE AND OVERHEAD COSTSThe structures of national sales companies and the number of resourcesused by each should be compared, and best practices should be defined.To lower costs, service functions such as IT and accounting in thenational sales companies and retail subsidiaries canbecombined.Theworkassociated with the internal reporting system at national sales companiesand dealers should be restricted to essential key performance indicatorsto enable resources to be channeled toward the customer. OEM standardsfor dealers must contribute extensively to brand positioning and shouldnot be defined too strictly in all areas.

THE SALES-COST AUDITThe systematic audit forms thebasis for structured reductions in sales costs.Before the audit begins, information should be collected about costs,including thoseof thenational sales companies,aboutperformance,includingthe volumeof sales per channel, and competitors. Interdisciplinary teamsconsisting of employees from sales, finance, human resources, quality andlogistics have proved themselves to be adept at conducting such audits.In workshops, they use the collected data as a basis for setting priorities,agree on specific steps to take and define cost-downmeasures. In additionto the cost-cutting impact, the effectiveness of the sales system is acritical criterion for evaluating the identified measures. The working groupsshould be kept in place until sufficient measures, including a risk cushion,have been evaluated, approved and launched. A large share of savingscan be achieved quickly, particularly through improved coordination ofprocesses and areas of responsibility across the three sales levels. To ensurethat manufacturers achieve all potential savings, they must undertakelong-term structural changes. These steps could include implementinginnovative warehousing concepts or introducing newmargin systemsfor dealers.

»It is not just volumethat counts.Profitdoes,too. This is whysales must becomemore efficient.«

21CUSTOMER › R&D › PROCUREMENT/SUPPLIER › PRODUCTION › SALES › SERVICES

For the most part, growth in sales will continue to takeplace outside Europe, North America and Japan incoming years. By 2015, the BRIC markets will account formore than half of the growth in worldwide vehicle sales.But instead of approaching international expansionwith a strategy backed by market considerations, OEMsfrequently allow production and partnership decisions toexclusively guide their internationalization strategies.

For foreign manufacturers, a presence in the rapidly growing emergingmarkets is oftenassociatedwith import duties and local content requirements.In China, cooperation with domestic manufacturers is even required by law.For this reason, it is not surprising that production considerations oftenprevail in strategic decisions about international expansion. But the develop-ment of global business must bemarket and sales-driven. After all, only a firmunderstanding of respective sales markets will lead to international success.

THINKING FROMTHE MARKET’S PERSPECTIVE

Matthias Bentenrieder,Alexander Hahn

22

DETERMINE A GLOBAL SALES STRATEGYEmerging countries will generate the greatest growth momentum over thenext few years. Nonetheless, establishing a presence in growth regions andthen expanding it will require work. As economies grow rapidly, customersegments and needs are changing quickly as well. Because the industrialbase in emerging markets frequently consists of a few industries, growth inGDP is very cyclical. For a global sales strategy, future growth fields, customerneeds and sales opportunities must be analyzed carefully. This basis ofinformation will enable detailed objectives for each market, product andcustomer segment to be definedandprioritized.The international productionnetwork should conform to the global sales strategy. Opportunistic decisionsinvolving such matters as the selection of a business partner cannot alwaysbe avoided. But the alternatives should be evaluated throughout the salesstrategy and – as much as possible – agree with it.

PRIORITY ON LOCAL DEALERSWithin just a fewmonths, a network of dealers must be systematicallyestablished. The top priorities here are to select locations and suitablepartners, modify standards and the local markets, and provide the partnerswith sales knowledge, tools and systems. Many local partners willnot have the necessary experience in selling high-priced quality productsand offering the related service. As a result, it becomes critically importantto provide training that covers customer identification and acquisition aswell as sales and aftersales processes. There are many dangers. If partnerselection is not made a high priority, the result could be unfavorabledecisions about locations, unprofessional customer assistance in salesand insufficient service quality. This, in turn, could mean unacceptablylowmarket exploitation.

WINNING OVER THE CUSTOMERCompetition in emerging countries is constantly rising. While internationalmanufacturers are increasing their local investments, the level of profession-alism among domestic manufacturers in emerging countries is improvingrapidly. To succeed in such highly competitive markets, companies mustpay particular attention to sales. A long-term customer relationship can beachieved particularly with high-quality standards and exceptional services.Because most customers are first-time buyers, they are easier to winover than those in the Triad markets. Despite an excellent product range,customers can be lost to the competition just as quickly. Furthermore,sales in most emerging countries are limited to vehicle sales. Downstreamservices such as financing, leasing, rental and aftersales services have had asignificantly lower share of total market volume up to now. If manufacturersdevelop and market convincing offers here, they can achieve competitiveadvantages and create a strong market position.

»Manufacturerscan be successfulinternationally onlyif they have a deepunderstandingof individual salesmarkets.«

23CUSTOMER › R&D › PROCUREMENT/SUPPLIER › PRODUCTION › SALES › SERVICES

Urbanmobility is undergoing massive changes. Drivenby the break-neck growth of megacities, by increasingnumbers of smart technologies and by the advanceof alternative drive systems, new transport conceptsare coming to life. The line between information andcommunication technology, energy, mobility, vehicles andthe home is becoming blurred. Convergence is emerging,posing a threat to current business models. At thesame time, opportunities are arising for new players.If manufacturers intend to be successful in this market,they will need innovative solutions. The time forentrepreneurial thinking has arrived.

By 2025, more than 60 percent of the world’s population will live in cities,and more than half of its 20 biggest megacities will be located in emergingcountries. The real per-capita income and the share of mobility expensesin customers’ budgets are climbing in these countries. The new urbanchallenges, including an overburdened infrastructure, environmentaldamage and energy shortages, will have to be addressed with new solutions.For manufacturers, innovative mobility concepts create new opportunitiesto set up more profitable business activities.

NEW MOBILITY PATTERNSCustomers’ mobility patterns are being shaped primarily by their livingenvironments, the existing infrastructure, available means of transportationand reasons for travel. Population totals and density characterize livingenvironments that can be broken down into megacities, major metropolitanareas, mid-sized cities and rural areas. While traditional mobility and buyingpatterns generally continue to hold sway in rural regions, the habits of urbanareas are increasingly changing. In one reflection of this, the desire to own acar continues to decline in cities. At the same time, fee-based usage conceptssuch as car-sharing are arriving in the marketplace. A smooth-runningpublic transportation network in developed countries is a requirement forthe use of integrated mobility services that provide customers withintegrated total solutions in real time.

URBAN, INNOVATIVE,MULTIFACETED

Matthias Bentenrieder,SvenWandres

24

ALTERNATIVE MEANS OF TRANSPORTATION 2.0Alternative drive systems are creating new transportation options.The reason for a trip or journey will be the factor that decides which mobilityconcept is the right one. For their shopping trips downtown, customerscan use electric scooters offered by car-sharing providers. For their weekendexcursions into the country, they can climb into a rented hybrid vehicle.To serve themultifacetedneedsof customers in a variety of regions, increasingnumbers of innovative mobility products and services are now beingoffered. In Toulouse, France, for instance, car drivers are being directedto available parking spaces by a special traffic-management system anda smartphone app.

NEW COMPETITORSInnovative technologies such as electric cars and smart building equipmentare fueling the convergence of various industries. Current businessmodels face a growing threat. At the same time, opportunities are arisingfor new players and competitors from other industries. To occupy strategiccheckpoints of their core business and to conquer new business fields,many companies are positioning themselves along the value chain. Currentprojects being undertaken by players outside the industry show a clearstrategic direction. Utilities are investing in smart electricity networks,charging technology and infrastructure to secure access to the market fore-mobility services. Public transportation providers have begun to set upcombined mobility platforms and to invest in car-sharing concepts.ICT companies are focusing on energy management and informationand communication services covering all areas of mobility.

25

1 Gain an understanding of variousmobility patterns and trends in therelevant markets.

2 Identify attractive areas for valuecreation. Be open to integration in orderto develop innovative products andservices that fulfill customer needs.

3 Establish a strategic network ofpartners to gain access to the necessarytechnology and infrastructure.

Success factors forurbanmobility services

CUSTOMER › R&D › PROCUREMENT/SUPPLIER › PRODUCTION › SALES › SERVICES

Publications are filled today with articles about thesweeping changes that the automotive industry will face.Although supplies of rawmaterials will become tighter,we will not see anyquantitativedrop in the amount of trafficin decades to come. Rather, the exact opposite will occur.An expanding worldpopulationwill surge fromrural regionsinto metropolitan areas and demand new solutions –particularly in the area of urban transportation.

One hundred twenty-five years after its invention, the automobile remainsthe driving force of mobility.The latest sales records impressivelydemonstratethis fact. At the same time, though, problems associated with cars, includingreduced parking space and rising emissions, are prompting political leadersto apply a tighter regulatory grip.

CAR2GO:DAIMLER’S SMART SOLUTION

Robert Henrich,CEO of car2go GmbH

26

Users’ relationship to the car is changing, particularly amongyoungurbanites.Necessary trips are no longer automatically taken in their own cars.Rather, the most comfortable means of transportation is selected each time.Sometimes, this can be public transportation or a taxi. Other times, this canbe a person’s own car or bicycle. Occasionally, people consciously decidenot to own a car. How can we as a car manufacturer look beyond our corebusiness and come up with intelligent answers to customers’ new needs?

To answer this question, Daimler AG created its »Business Innovation«department 3 years ago with the mission of identifying and developing newbusiness models.One of the unit’s first creations was car2go,a fully automaticmobility service that offers a rental vehicle for short trips in downtown areasat a moment’s notice. Car2go is a newmobility solution for residents of andvisitors to heavily populated metropolitan areas who do not have a car.As car2go members, they can simply get in and drive off. Car2go differs fromtraditional car-sharing concepts in two ways: its flexibility and its free-floatingconcept. After a one-time registration, customers can hop into one of thecountless smart fortwo vehicles at any time and any place in a city, drive thecar to their hearts’ content and then simply leave it at any public parkingspace – without committing to a specific return time or return location.They only pay for the time they use the car, charges are based on minutesused. All other costs are covered in the rental price. And there are noadditional fees and monthly payments. Access and service are as simpleas can be. It is as though you are using your own car.

We view the car2go concept as a new link in anemerging intermodalnetwork of modes of transportation. This thinking has been confirmed bythe results of the program launched in the pilot cities of Ulm, Germany,and Austin, Texas, where we have set up or plan to set up partnerships withpublic transportation operators. Car2go is not competing against publictransportation or taxi operators. Instead, it is complimenting those alreadyestablished means of transportation and it gives customers a new optionfor shaping their modal split in a much richer manner.

Over the past 2 years, more than 40,000 customers have rented the fleet ofmore than 1,000 cars in four cities (Ulm, Germany; Austin, USA; Hamburg,Germany; Vancouver, Canada) more than 750,000 times. On the basis of thismajor success, we are ready to expand car2go to other European and NorthAmerican cities this year. The smart fortwo is one of the most environmentallyfriendly, conventionally powered vehicles available in large numbers today.The smart »car2go edition« is specially designed and manufactured forcar-sharing, making it the world’s first series-produced car-sharing vehicle.

And we are already thinking one step ahead: The smart fortwo electricdrive is set for series production next year and will be ideally suited for anurban mobility concept such as car2go. Before end of 2011, we are goingto launch Europe’s first all-electric car-sharing program in Amsterdam andNorth America’s first all-electric car-sharing program in San Diego with300 smart electric drive vehicles in each city. To sum up: We truly believethat we are ready to meet the future demands in urban mobility.

27

750,000car rents in four cities over the past 2 years

CUSTOMER › R&D › PROCUREMENT/SUPPLIER › PRODUCTION › SALES › SERVICES

A portrait of Lars Stolz, Partner at Oliver Wyman and supplier expert

28

he brought along not only his new degree,

but also the hands-on, practical way of

thinking of an American. To him, consulting

was the logical continuation of his broad

economic-technical focus in college and

graduate school. He got his start in 1999,

when he interned at an international

management consulting firm and worked

in its global automotive practice. He joined

Oliver Wyman in 2006 and is a Partner

today.

The consultant works with automakers in

the premium and volume segments as

well as with suppliers in the area of product

development, sales andmarketing. His focal

points include product-cost optimization,

products and market strategies as well as

brand management, restructuring and

increased efficiency. What does the expert

consider to be his biggest success? »There

was this project to lower the product costs

at one of the world’s leading automakers.

When the work was done, the ratio

of savings to spending was 100 to 1.«

The biggest challenges in the growth year

of 2011? At OEMs, Stolz thinks they involve

a focus on sales and marketing: »While

manufacturers have made huge strides in

nearly all areas in recent years, sales and

marketing have fallen behind.« He thinks

the biggest problem facing suppliers is the

cost pressure that is being exerted on the

industry: »The value of most components

in a vehicle is falling. Unlike manufacturers,

only a few suppliers can succeed through

differentiation and innovation. Rather,

the aim here is to generate profits through

volume growth and continuous cost

cutting.«

And what about Stolz’s private life?

He patiently answers all of the interview

questions: »I have been happily married

for 10 years and have three children.

The youngest is just a few weeks old.«

In his leisure time, the 38-year-old Stolz

enjoys traveling with his family. The German

native of Bad Homburg, a city just north

of Frankfurt, visits the United States at

least once a year. He also likes to visit other

European cities. His other hobbies include

skiing and photography. And what would

he do if he could take a year off from work?

Lars Stolz does not think too long and

laughs: »A year without anything to do?

I’m not sure whether I’m ready for that.«

RESULTS, NOT WORDS

Lars Stolz is sitting behind the wheel of his

BMW X6. He is talking on the phone during

a break between two meetings with clients.

Stress? No. Stolz has been a consultant for

12 years, having focused on the automotive

industry from day one. And he has been

doing this although as a child he did not

tinker with old cars and never dreamed of

being a train engineer or a racecar driver.

The blend of professionalism, speed and

reliability is what he finds appealing about

his job and the industry.

His motto is: »Consulting ideas must be

practical.« Lars Stolz is more interested in

creating added value for his clients than

peddling theories to them.»Doable projects,

a fair working relationship and systematic

implementation – this is what first-class

consulting services are all about.«

Stolz majored in industrial engineering at

the Technical University of Karlsruhe and

then earned his MBA at the University of

Massachusetts in Boston. When he returned

to Germany from the United States,

29

High Beam, a commentary by Matthias Bentenrieder

Does this mean that the curtain isfalling on the days when people’sown cars served as their main meansof transportation? Once and for all?The trend is obvious. While mobilityneeds will continue to grow, fewercars will be sold in Western countriesover the long term. New mobilityconcepts are taking hold in mid-sizedand major cities as well as in rapidlygrowing metropolitan areas. As aresult, the potential for car-sharinglikely will grow tenfold between2010 and 2030. This trend poses aserious challenge to manufacturers.Over the next 10 to 20 years, though,the face of mobility will not changedramatically compared with today.The ownership feeling still carriesa lot of weight in buying decisions,particularly among members of therapidly growing middle class inemerging markets such as China andIndia as well as in regions outsidemetropolitan areas in industrialcountries. E-vehicles and car-sharingprograms are not initially applyingpressure to mobility on a broad scale.Rather, they are slowing emergingfrom niches. As a result, we will notonly drive, but also own cars fora long time – even more so whenmanufacturers create strong brandrelationships with customersby offering innovative services andgenerate new sources of revenue.

The real revolution is taking place onanother level. Thanks to communica-tion technology, the car is becoming»connected.« On the one hand, a com-pletely new environment is emerging,one in which display concepts tailoredto the driver’s needs enable people toretrieve data and surf the Internet atthe same time. On the other hand, thecar is being incorporated into a worldof innovative online services coveringall aspects of mobility. As a result,mobility can be chosen,planned,bookedand even used in a completely newway. Such a scenario would have beentotally out of this world when I got mydriver’s license. I couldn’t wait for it!

A perfect summer day. My timehas come! I’ve got it right here inmy pocket: the driver’s license I’vecraved for so long. And the car’sright outside, my red Golf GTI. Thefirst car, a true rite of passage in thelife of a young person. Or has thistime come and gone?

Today’s young people actually havesomething else on their minds. For along time now, the iPhone, Facebook,Foursquare and Twitter have beensetting the pace. Young people wouldrather spend their money on smart-phones and laptops. And when itcomes to cars, they may be dreaming,at best, about a small, hip electriccar that, naturally, comes with agreen-electricity flat rate. Any personwho really wants to keep up with thetimes won’t own a car at all because,one day soon, the car-sharing vehicleswill be parked right around the corner.Just jump in and tool along non-con-gested streets. The car has a parkingspace reserved for it as well, and youcan even pay the bill by mobile phone.A brave new world of mobility!

High Beam illuminates current topics bycasting its view beyond the horizon of theeveryday business world.Sometimes,critically;sometimes,euphorically–butalways pointedly.Not everything is to be takenseriously.Instead, it isdesigned to provide entertainingthoughts in the battle over themost successfulstrategy. Theauthor looks forwardtoreceivingreaders’ letters, ideas and comments atmatthias.bentenrieder@oliverwyman.com.

A MOBILITY REVOLUTION?

RÉMI CORNUBERT

+33145 02 33 95

remi.cornubert@oliverwyman.com

- Strategy development and

implementation

- Effectiveness andefficiency in research

anddevelopment

- Performance improvement and

cost reductionprograms

30

MATTHIAS BENTENRIEDER

+49 89 939 49 553

matthias.bentenrieder@oliverwyman.com

- Sales and downstream strategies

- Mobility scenarios and e-mobility

- Rollout programs

MARC BOILARD

+33156 681515

marc.boilard@oliverwyman.com

- Performance improvement in research

and development

- Strategy and growth

- Distribution

FABIAN BRANDT

+49 89 939 49 605

fabian.brandt@oliverwyman.com

- Sales and aftersales

- Quality management

- Commercial vehicles

HOSUK CHUNG

+82 2 399 5522

hosuk.chung@oliverwyman.com

- Growth strategies and portfolio

management

- Procurement management

- Business-model development

- Process and organization design

ALEXANDER HAHN

+49 89 939 49 576

alexander.hahn@oliverwyman.com

- Sales and downstream strategies

- Growth strategies

- Rollout programs

RON HARBOUR

+1248 9067912

ron.harbour@oliverwyman.com

- Production increase and optimization

- Production strategies and processes,

redesign and cost optimization

- Benchmark analyses, product teardown,

operational due diligence support

AUTHORSIN THIS ISSUE

JAN SICKMANN

+49 89 939 49 530

jan.sickmann@oliverwyman.com

- Sales

- Efficiency improvement

- Strategy

LUTZ JAEDE

+49 89 939 49 440

lutz.jaede@oliverwyman.com

- Strategy and organization

- Restructuring

- Automotive suppliers

AUGUST JOAS

+49 89 939 49 417

august.joas@oliverwyman.com

- Growth strategies, business designs

- Organization, change

- Performance improvement, efficiency

ROMED KELP

+49 89 939 49 485

romed.kelp@oliverwyman.com

- Commercial and off-highway vehicles

- Profit improvement

- Strategy and organization

JOHN LUCCI

+1 248 930 8216

john.lucci@oliverwyman.com

- Manufacturing strategy development

and deployment

- Operational due diligence

- Shop floor transformation

LARS STOLZ

+49 89 939 49 434

lars.stolz@oliverwyman.com

- Product development and procurement

- Suppliers: strategies and operations

- Automotive downstream

SVEN WANDRES

+49 89 939 49 532

sven.wandres@oliverwyman.com

- Growth strategies and international rollout

- Mobility, sales and aftersales

- Passenger cars and commercial vehicles

31

PUBLISHER’S INFORMATION

Publisher: Oliver Wyman, Marstallstraße11,80539Munich,Germany,www.oliverwyman.com

Editorial staff: Julia Karas / julia.karas@oliverwyman.com,RomanMueller / roman.mueller@oliverwyman.com

Concept and design: Vogt,Sedlmeir,Reise.GmbH,Munich,Germany

Photography: iStockphoto, car2go GmbH

Responsible: August Joas / august.joas@oliverwyman.com

With offices in 50+ cities across 25 countries, Oliver Wyman is a leading global management consulting firmthat combines deep industry knowledge with specialized expertise in strategy, operations, risk management,organizational transformation, and leadership development.The firm's 3,000 professionals help clients optimizetheir businesses, improve their operations and risk profile, and accelerate their organizational performance toseize the most attractive opportunities. Oliver Wyman is part of Marsh &McLennan Companies [NYSE: MMC].

For more information, visit www.oliverwyman.com

Oliver Wyman’s automotive experts have broad industry experience and a commanding track record ofsuccessful consulting projects for leading automotive OEMs and suppliers in Europe, America and Asia.We offer consulting services along theentire value chain of the auto industry: R&D, purchasing,manufacturing,sales andchannelmanagement, after-sales and financial services.

Oliver Wyman’s global Automotive Practice supports clients with strategictopicslikebrandmanagement,customerorientation, corporate and business strategies, market, competitive, and technology analyses, productdevelopment, innovation management, sales strategies and after-sales programs. Operational optimizationincludes purchasing, production optimization, efficiency improvement programs, reengineering, turnaroundmanagement and restructuring. In addition, Oliver Wyman offers the whole range of mergers&acquisitionsconsulting services, from partner search to evaluation, transaction support, and post-merger integration.

© 2011 Oliver Wyman. All rights reserved.