automotive industry analysis of the big 3

GLOBAL AUTOMOTIVE INDUSTRY ANALYSIS

Abhishek Purohit | Janelle Dangerfield | Matt Blair | Taj Peeran 3 TEAM

Adjusting Organizational Strategy to Meet Changing Consumer Needs

in Uncertain Economic Climates

2

Agenda

Market Overview Company Profiles Industry Trends Key Opportunities

Market Overview

Company Profiles

Automotive Trends

Key Opportunities

3

The automotive industry is the world’s largest industry valued at $67 billion with over 60 million cars produced


Toyota is the market leader with GM close behind.

Despite all its economic turmoil, Ford is #4 in the

global market

0 2,000,000 4,000,000 6,000,000 8,000,000

TOYOTAG.M

VOLKSWAGENFORD

HYUNDAIPSA

HONDANISSAN

FIATSUZUKI

RENAULTDAIMLER AG

CHANA AUTOMOBILEB.M.W.

Units Produced

World Vehicle Production by Manufacturer

Cars Light Commercial Vehicles

Heavy Commercial Vehicles Heavy Bus

020406080

100120140

Mar

ket C

ap (B

illio

ns)

Market Capitalization per Manufacturer

4

Asia produces and consumes more cars than other global regions


China is the new market leader while Germany,

South Korea, and Brazil have increased growth

010,000,00020,000,00030,000,00040,000,000

EUROPE EUROPEANUNION 27

COUNTRIES

EUROPEANUNION 15

COUNTRIES

AMERICA NAFTA ASIA -OCEANIA

Uni

ts P

rodu

ced

Top Vehicle Producers by Region

Consolidation of Car Companies

Cheaper Labor and Materials

Government Incentives

Factors Driving Growth: 0 10 20 30 40 50 60

Total SalesNorth America

CanadaUnited States

MexicoWestern Europe

GermanyEastern Europe

RussiaAsia

ChinaIndia

South AmericaBrazil

57.1M 13.9M

1.6M 11.5M

0.9M 12.8M

2.9M 3.7M

1.9M 22.5M

9.5M 1.8M

4.3M 2.7M

Number of Units Sold (Millions)

Global Car Sales in 2010

5

Ford Company Profile

Founded in 1903 by Henry Ford: T Model

sells 15 million vehicles

1920s: Holds 50% market

share

Goes public in 1956. Cars, SUVs

and trucks market

1994: Ford owns largest car

rental company Hertz

2005, Ford posted a pre-tax

profit loss of over $1.3 billion

2006-2009: Restructure,

sells off luxury brands

Ford has been able to gain back its reputation

and has regained its no. 2 position in US in

2010.

• Global revenues in 2009 of $106 billion, net profit of $2.7 billion. Sales in 2009: 1,615,799

• Efforts towards more lean organization • Focus shift to small cars segment and away

from trucks • Outsold GM in Feb 2010

Current Scenario at Ford

http://topics.nytimes.com/top/news/business/companies/ford_motor_company/index.html http://online.wsj.com/mdc/public/page/2_3022-autosales.html


http://topics.nytimes.com/top/news/business/companies/ford_motor_company/index.html

http://online.wsj.com/mdc/public/page/2_3022-autosales.html

6

General Motors Company Profile

Founded in 1908 by Willian Durant

1954s: makes 50 millionth car

1979: Becomes largest

employer in the country: 618365

employees

1991: loses record $4.45

billion

2009: files for bankruptcy:

fourth largest filing in history

2009-2010 US govt takes

majority stake. Re-listed in

stock exchanges

If GM can reign in escalating costs and offer

cost-competitive products, it can once

again assert its dominance of the market.

• 2010 Calendar year sales: 2,211,091 up by 7.2% • Focus on increasing market share in growing

markets • Hybrid Cars to increase fuel efficient offerings • Signs of growth with increase in Chevrolet sales

Current Scenario at GM

http://www.srl.gatech.edu/Members/bbradley/me6753.industryanalysis.teamA.pdf http://online.wsj.com/mdc/public/page/2_3022-autosales.html


http://www.srl.gatech.edu/Members/bbradley/me6753.industryanalysis.teamA.pdf


7

Toyota Company Profile

Founded in 1933 by Sakichi Toyoda

1957-1968: Enters US market, becomes

successful with Corona and Corolla

1984: Began auto-production in US

through a JV with GM

2003: Steadily grows to 3rd

largest automotive

manufacturer

2006-2009: Posts impressive results despite industry breakdown in US:

6% profit margin

Toyota is well position for future success with

well targeted high-quality products

•Net Revenues: 18.95 trillion yen (2010), a decrease of 7.7 percent YoY basis. Sales in 2010: 1,763,595

•Successful due to forward thinking, innovative management style, “lean”, “JIT” manufacturing

•Ahead of competitors in investing in new technologies: Prius (1997) first mainstream hybrid vehicle

•Recall of about 2.3 million Toyota models to fix sticky pedals

Current Scenario at Toyota

http://www.reuters.com/article/idUST13898620080210 http://online.wsj.com/mdc/public/page/2_3022-autosales.html


http://www.reuters.com/article/idUST13898620080210


8

The gap between automotive competition has narrowed in recent decades

$0M$10M$20M$30M$40M$50M$60M

Ford

GM

Toyota

U.S. Total Vehicle Sales Market Share between Big 3, 1961-2009

Source: http://wardsauto.com/keydata/historical/UsaSa28summary/ http://www.dailyfinance.com/story/company-news/after-101-years-why-gm-failed/19052641/

US automotive players have faced cost disadvantage: Other players have been

able to leverage low labor costs outside US

GM and Ford operated in excess production capacity

and took too long to produce products at high

costs

Failure to innovate core product: GM was more

focused on profiting from finance while Toyota

continued to innovate


http://wardsauto.com/keydata/historical/UsaSa28summary/

http://www.dailyfinance.com/story/company-news/after-101-years-why-gm-failed/19052641/

http://www.kpmg.com/Global/en/IssuesAndInsights/ArticlesPublications/Documents/Global-Auto-Executive-Survey-2011.pdf

9

Consumers view safety and fuel-efficiency as prime factors in car purchases

Fuel efficiency is the most prominent decision factor of

consumers this year.

37%

31%

21%

11%

Poll: Primary R&D Investments in Next Five Years Hybrid Electric/Gas

Battery/Electric

Hydrogen

Others (Solar, Ethanol,Biodiesel)0% 20% 40% 60% 80% 100%

Fuel Efficiency

Safety Innovation

Vehicle Styling

Green-ness

Ergonomics

Built-in Tech

Poll: Top Consumer Values in 2011

-3% +11%

+15% -7%

+14% N/A%

http://www.kpmg.com/Global/en/IssuesAndInsights/ArticlesPublications/Documents/Global-Auto-Executive-Survey-2011.pdf http://issuu.com/jandaroscher/docs/automotivemanager_i_2010_en?mode=embed&layout=http://skin.issuu.com/v/softlight/layout.xml&showFlipBtn=true

$0 $10,000 $20,000 $30,000 $40,000

2025 Gas

2025 Hybrid

2015 Gas

2015 Hybrid

Depreciation Fuel/Elec Costs Other

Total Cost of Ownership



http://issuu.com/jandaroscher/docs/automotivemanager_i_2010_en?mode=embed&layout=http://skin.issuu.com/v/softlight/layout.xml&showFlipBtn=true

10

New approaches to production have modulated cost and risk for manufacturers

Technology partnerships enhance the customer experience while standard car

platforms reduce manufacturing cost.

http://www.thecarconnection.com/tips-article/1012020_sync-no-turning-back-from-tech http://en.wikipedia.org/wiki/Ford_Fusion_(Americas)

Technology Partnerships

Standard Car Platforms

Chassis Steering Engine Type Wheelbase Suspension Powertrain

Electronics Interior Engine Size Exterior Interfaces Ergonomics

Fiat Croma Cadillac BLS Opel Vectra

Ford Fusion Fusion Hybrid Mercury Milan Lincoln Zephyr

Flexibility is a Necessity – Mazda GG Chassis

2007

2011

2011 Mazda 6 Mazda CX-7 Ford Edge Ford Flex


http://www.thecarconnection.com/tips-article/1012020_sync-no-turning-back-from-tech

http://en.wikipedia.org/wiki/Ford_Fusion_(Americas)

11

Economic conditions have led manufacturers to relocate production facilities to low-cost regions

To reduce unnecessary expenses, manufacturers must move production to regions that

maintain lower costs of labor.

http://issuu.com/jandaroscher/docs/automotivemanager_i_2010_en?mode=embed&layout=http://skin.issuu.com/v/softlight/layout.xml&showFlipBtn=true http://www.kpmg.com/Global/en/IssuesAndInsights/ArticlesPublications/Documents/Global-Auto-Executive-Survey-2011.pdf

24%

51%

86%

19%

42%

83%

0% 20% 40% 60% 80% 100%

India

United States

China

Poll: Top Countries in Sales & Production Volume in 2015

Production Sales0%

20%

40%

60%

80%

100%

Russia Brazil India China

No Plans

Decrease

Increase

Begin

Poll: Investments in Emerging Markets

Challenges of Moving Production to Low-Cost Regions Extra shipping costs may reduce marginal gains.

Facility distance from demand may increase supply lag times.

Varying political requirements require close legal attention.

Differences in quality of living require addit’l continuity plans.


http://issuu.com/jandaroscher/docs/automotivemanager_i_2010_en?mode=embed&layout=http://skin.issuu.com/v/softlight/layout.xml&showFlipBtn=true


12

Demand and Supply Chain Challenges in the Global Automotive Industry

Vicious Cycle of the Automotive Industry


Challenges of the current model

Excessive structural cost

Dissatisfied customers

Slow to respond

Lost revenue opportunities

Constrained, inflexible production and assembly capacities and long delivery lead times contribute to high dealer inventory levels in the form of safety stock.

13

Overcapacity is one of the biggest problems grappling the global automobile industry


The car industry can produce 94 million cars a year, against global demand of 64 million

7% 2% 6% 12% 6% 3%

7% 7%

33%

28%

43% 30%

31% 43%

31% 28%

23% 24% 13%

23%

0%

20%

40%

60%

80%

100%China India Brazil Russia

Now 1-2 yrs 3-5 yrs 6-10 yrs >10 yrs

Overcapacity major problem even in BRIC

Overcapacity in TRIAD significantly high Make Cars-to-Order to Improve Auto Industry Performance

Remove Inventory Carrying Costs to Reduce Prices and Increase Profits

5%

8%

8%

21%

25%

32%

Raising brand profiles to enhance market share

Govt. Intervention

Incentives from automobiles to drive sales

Further cutbacks in production capacity

Increase vehicle exports into existing and/ornew markets

Industry consolidation / joint-ventures/alliances

Poll: Most Effective Solution to Overcapacity

Source: KPMG’s 2011 Global Auto Executive Survey


14

Automotive Collaboration gap

Automotive companies can leverage more external partnerships to collaborate and drive innovation


Alliances can be a good way to access specialized technological know-how Will help share and reduce cost in areas such as R&D

The drive to innovate spurs process and market alliances

Estimate of loss due to lack of supply chain visibility ~ $16 million / country*

*see appendix for benefits

Multitude of applications required

Varying technologies

Little or no integration

Different data exchange formats

Different interface requirements

Batch transactions

Disparate applications even from same DSP

Challenges present opportunities

*see appendix

76

52

66

39

0

10

20

30

40

50

60

70

80

Collaboration ofsignificant to critical

importance

Collaborated to a largeextent

AllAutomotive

15

Digital Loyalty Network model is to integrate the supply chain and align priorities with the needs of the customer


Digital technologies to optimize an automaker’s supply network based on customer value and loyalty

13% of manufacturing companies following DLN strategy are 70% more profitable

0% 5% 10% 15% 20% 25% 30%

Return toShareholders

Return to Assets

Market Share

Sales Growth

Loyalty NetworkersLoyalistsCollaboratorsMarket Takers

Source: Deloitte research

Percentage of Companies with Exceptional Performance on Goals

Automakers •Higher profitability, quicker time to market •Better targeted inventories • Long term relationships with customer

Suppliers •Reduced OTD times due to customer focused

production development •Align production capacity and better utilize capacity

Dealers – has better info. on customer loyalty • Identify profitable cross-selling •Can match more profitably different customer

demands with appropriate product •Marketing and sales are more efficient and less costly

Customers •Greater satisfaction with streamlined & integrated

on-line /off-line sales & marketing channels •More personalized service and customer service

options

http://www.deloitte.com/assets/Dcom-Kazakhstan/Local Assets/Documents/dtt_research_globalautomotive_021203(1).pdf

16

Enhanced warranty systems can reduce liability and increase profitability


Compartmentalized Approach • Disjoint information flow across

the enterprise • Lack of partner collaboration

Process inefficiencies • Delayed claims processing • Inefficient detection of incorrect

claims • Manual coding of claim data

Technology limitations • Old legacy systems • Bolt-on systems – limited span • Generic ERP modules • Reporting systems with minimal

analytics

Present Scenario

41% of the companies recovering warranty costs from liable suppliers was a significant challenge

15% of total number of claims being accepted are sub-standard [fraudulent or inaccurate]

75% of the annual warranty expenses are consumed by repetitive and chronic problems

Business Impact Ineffective claims

processing

Decreased Effectiveness of

Design, Engineering

Lack of Partner Collaboration

Compliance Issues

Possible Solution

Comprehensive

Technology Driven

Connected

A holistic approach

Source: Infosys paper

http://www.infosys.com/offerings/industries/automotive/white-papers/Documents/liability-to-competitive-advantage.pdf

17

The Automobile industry is adapting to a changing economic environment


Reduce inventory levels – OTD / JIT

Credit Meltdown • Credit market disappearance • Dependency of car sales on

credit • OEM & supplier refinancing

Green • Oil price fluctuations • CO2 targets • Customer beliefs • Need for innovation • Budget pressure

Global Recession • Wealth destruction • Confidence hit • Unemployment rates • Household financials • Slowing growth in

emerging markets

Globalization • OEM global

presence • Global sourcing • OEM

interdependencies • Foreign investments

Profit potential in spare parts

Better integration tech & business

Innovation and Collaboration

Change the business model

Long live the brand

After the crisis, companies can achieve only 10% profit margin and 25% return on capital if they stick to the right business design. Those who stick to the old paradigms will not be profitable!!!

18

Questions & Discussion

Appendix 1. Benefits of Collaboration / Alliances 2. Examples of Collaboration & How it can Help 3. Dealers are Focused on Sales, Services and IT 4. Benefits of Customer Integration 5. Aggregating Customer Touchpoints 6. Example Solution for a Warranty Management System 7. Profitability of Manufacturing Companies following DLN Strategy 8. Automotive Industry Competitor Analysis

19

Appendix 1: Benefits of collaboration / alliances

68%

13%

11% 8% Strategic co-development with

suppliers and/or alliances/jointventures with technologypartnersOutsource R&D to suitablevendors

Mergers and acquisitions withtechnology partners

Employ in-house R&D experts

Best way to access new alternative fuel/hybrid technologies

Parameter Value Avg. discount offered per vehicle by an OEM $ 1600

Assume the number of vehicles sold per year in US by the OEM

1 million

No. of vehicles for which such discount is offered because of lack of better visibility

10,000

Total cost in discounts / year in one region $ 16 million

Estimate of loss due to lack of supply chain

visibility

20

Appendix 2: Examples of collaboration and how it can help

21

Appendix 3: Dealers are focused on sales, services and IT – which is the right direction, but still plenty needs to be done

Dealers should invest in managing customer relations in order to keep ownership of the direct interface with the customer

Increasing trend on expenditure on IT systems indicate that dealers realize that there is scope for better integration between technology and business

Level of business and technology integration

22

Appendix 4: Benefits of Customer Integration

23

Appendix 5: Aggregating Customer Touch Points – the importance of customer; using technology to solve problems

Automobile Customers

24

Appendix 6: Solution for Warranty Management System – Infosys Warranty Management Solution

25

Appendix 7: 13% of manufacturing companies following DLN strategy are 70% more profitable

Loyalty Networkers, excel in other areas of business performance as well, including sales growth, market share, return on assets, and return to shareholders.

26

Appendix 8: Automotive industry competitor analysis

http://www.carfreaks.info/automotive_industry_competitor_analysis_CPM

http://www.carfreaks.info/automotive_industry_competitor_analysis_CPM