i/2 012 automo tive manager - oliver wyman · most people who hear about a product, even a great...

AUTOMOTIVE MANAGERTRENDS, OPPORTUNITIES AND SOLUTIONS ALONG THE ENTIRE VALUE CHAINCOVER STORY: CREATING DEMAND IN THE AUTO INDUSTRY

I/2012

Many products are good. Few are magnetic.“Magnetic” is defined by a simple equation: M = F×E. Magnetic equals best functionality times most powerful emotional connection with customers. Demand creators understandthat very good functionality is not enough.Cover story on creating demand in the auto industry, page 6

M=F Ex

The car is the symbol of unlimited personal freedom.Only very few peoplecan go without this most commonly used form of transport. But personalmobility is currently facing a major upheaval. Although many customerscontinue to prefer to own a car, many are prepared to significantly changetheir mobility behavior because of rising fuel prices and growing regulation.Innovative services and different modes of transport that can be flexiblycombined are becoming an increasingly attractive alternative.This trendhas led automotive executives to think of the car as more than a product—rather as part of a highly imaginative solution to the customer’s hassle mapwhich defines all of the actual steps that characterize the negative experiences of the customer such as the emotional hot spots, irritations,frustrations, time wasted, etc.

In his new book “Demand”, Adrian Slywotzky explores the critical role ofdemand creation in today’s economy and analyzes how some companies’products are doing exponentially better than their competitors’by creating“magnetic”products and services. In an economy that’s increasinglydemand-driven,understanding what Adrian calls the customer’s hassle mapand creating a product that customers love, will be the key to a company’ssuccess. For our title story, we applied his principles to the automotiveindustry and they have helped us to identify significant opportunities for reducing the customer’s hassle map when buying a new car, going for service and repair, and evaluating the evolving mobility services.

Another important topic in times of changing technologies: the growingrelevance of electronics and software in cars. It is presenting the automotiveindustry—suppliers in particular—with major technical and strategic challenges. Although the suppliers’management has largely recognizedthis, many of them believe that there is a significant need for action if theywant to keep pace with new technologies. We would like to offer you some food for thought and help you optimally exploit your opportunities. Let yourself be inspired by our publication.Get in touch with us! We look forward to beginning a dialog with you!

Best regards,

AuguSt JOAS

Head of the Oliver Wyman

Automotive Practice

3

Dear Readers,

EDITORIAL

CONTENTS ALONG THE ENTIRE VALUE CHAIN

06CREAtIng WHAt PEOPlE lOvE bEFORE tHEy KnOWtHEy WAnt It

The demand for cars and the hasslemaps of potential customers varyby region. Demand creation is adiscipline.Like any other discipline,it can be learned and applied byany leader and by any team.

COvER StORy

14gERMAn SuPPlIERSDESERvE tRuSt

The automotive market is undergoing significant changes.Many German suppliers are well-positioned to exploit thesedevelopments as an opportunity,but need sufficient financial power to do so.

11In-CAR It IS REvOlutIOnIzIngSuPPlIERS

The emerging role of electronics and software holds enormousopportunities for suppliers: with in-car IT, they can unlock new revenue sources and break out of their traditional role in the supply chain.

CuStOMER R&DPROCuREMEntSuPPlIER

23SMARt PRICIng tO ACHIEvE tHE DESIRED RESultS

Until now, OEMs have rarely focused on optimizing their pricingstrategy. But the professionalizationof pricing offers much potential for securing and further increasingthe manufacturers’profitability and future viability.

25COnnECtED CARS EnSuRE A HEAD StARt InCuStOMER REtEntIOn

The ever stronger trend to completevehicle networking presents amajor opportunity for all OEMs inthe lucrative after-sales business toretain vehicle users even after thewarranty period has ended.

17It IS All AbOut PEOPlE SyStEMS

Lean’s systems and tools are valuable. But it is how a companyexecutes them—supports their use—that makes the difference between success and failure. It takes time and needs the rightpeople systems.

20SOutH AMERICAn AutO MAnuFACtuRIng

As OEMs expand their footprint into South America’s rural areas,they are inventing new ways to address their most pressing challenge: building a supplier network that can deliver the samevalue the OEMs enjoy in other parts of the world.

27tHE ROlE OF tHE AutOMObIlE nEEDS tO bE REInvEntED

Many customers are prepared tosignificantly change their mobilitybehavior. If OEMs want to stay in the game, they must position the car as a key component of themobility mix and combine the different modes of transport in auser-friendly way.

30AutHORS In tHIS ISSuE

31PublISHER’SInFORMAtIOn

5

PRODuCtIOn SAlES SERvICES

Why do consumers disproportionately demand one product over a seemingly similar one, often by a factor offour or five to one? think Facebook versus MySpace, iPod versus Sansa, Eurostar versus british Air, iPad versuseverybody, Amazon online versus everybody, nespressoversus Illy, toyota Prius versus Honda Hybrid, and manyother head-to-head competitors with a strong number one and weak number two. Functionally and technically,the respective products are close; emotionally, they areworlds apart. Why do seemingly similar products produceradically different demand curves?

Demand creators, a special breed of people who design products that truly excite people, are obsessed with understanding the hassle map of thecustomer, and connecting the dots from multiple value chains to fix it (see“The Urbanite’s Dilemma”).They don’t assume that buying = wanting. They use the hassle map to recognize the huge gaps between what peoplebuy and what they really want—and use those gaps as a springboard to seedifferently. Demand creators crack the mystery of the demand equation bydoing a radically better job answering a small set of critical questions:

1 What is the hassle map of my customer?

2 Is my product good, very good, or magnetic?

3 How strong is the backstory behind my product?

4 What are the most productive triggers that will catalyze customers to try and buy?

5 Is our improvement trajectory 5 percent, or 45 percent?

6 How cost effectively do we respond to customer variation?

7 How special and excited is my team?

CREATING WHAT PEOPLE LOVE BEFORE THEY KNOW THEY WANT IT

Adrian Slywotzky,August Joas, Rémi Cornubert

7CuStOMER › R&D › PROCuREMEnt/SuPPlIER › PRODuCtIOn › SAlES › SERvICES

8

tHE 7 lEvERS OF DEMAnD

The answers to those questions create a framework of seven demandlevers—and provide a path to creating products and total offers customerscan’t resist and competitors cannot copy.

Draw the Customer’s Hassle Map

Most products and buying processes are flawed, generating hassles thatinclude time- or money-wasters—unclear instructions, needless risks, andother annoying bugs.The best demand creators map these hassles—andproceed to fix them one by one.That process can lead to explosive demand.Progressive Insurance, for example, radically simplified the process of filingan auto-insurance claim and picking up a rental car, turning a multi-stephassle into an easy, convenient turnkey operation.

Make the Product Magnetic

Many products are good. Few are magnetic.“Magnetic” is defined by asimple equation: M = F × E. Magnetic equals best functionality times mostpowerful emotional connection. Most products fail to create an extraordinaryemotional connection with customers. Demand creators understand thatvery good functionality is not enough.Their products need a powerful, emotional component that makes them magnetic. When it comes to creatingdemand, it is not the first mover that wins; it is the first to create and capturethe emotional space (ergonomics, aesthetics, message, affect, feel, the total experience) in the market.

Write a Strong Backstory

Unseen“backstory”elements often make or break a product. Demand creators obsess about infrastructure (can I get it to the customer cheaplyand efficiently?), ecosystem and alliances (can I engage others in my demandprocess?), and business design (how do I structure my organization to serveand learn from customers?).Then they connect all the dots needed to fix the hassle map of the customer. Take the market for e-readers. The AmazonKindle provided instant, wireless access to the world’s biggest bookstore.The Sony Reader—released 10 months before the Kindle and technicallysuperior—offered wired access to only 20,000 titles. No contest.

Find the Trigger(s) to Demand

Most people who hear about a product, even a great product, remain fence-sitters, unwilling to try or buy until a trigger moves them to act. Somegreat products, like tap-and-go credit cards, failed to take off because theircreators did not figure out how to overcome consumer inertia. Great demandcreators constantly search for the right triggers, always experimenting untilthey get a response. Nespresso, for example, increased uptake six-fold whenit opened mini boutiques that not only demonstrated the machine, but alsooffered customers a chance to taste its pod coffees. Finding the right triggerhelped turn Nespresso into Europe’s leading coffee brand. And Eurostaruncorked demand when it cut the London-Paris travel time from three hoursto two hours and 15 minutes, making a one-day there-and-back-home-for-dinner trip a reality.

Build a Steep Trajectory of Improvement

A product’s launch is merely the first step in a series of attacks on the indifference of the market. On launch day, great demand creators jump intothe next phase by asking themselves: How fast can we get better? Whilerivals might focus on technical improvements, demand creators know that there are at least three other dimensions that matter: Emotional (see“Magnetic,”above), affordability (productivity enhancements, lower price,better value), and content/ecosystem (new add-ons, plug-ins, deeper library). Every improvement they make will unlock new layers of demand,and leave less open space for imitative competitors.

De-Average the Customer

“One size fits all” is an idea that great demand creators have discarded—because it does not work. Instead, they “de-average”complex markets, recognizing that the “average customer” is a myth, and that different customers (and even the same customers at different times) have widelyvarying hassle maps. Then they find efficient, cost-effective ways to createproduct variations that more perfectly match the varying needs of customers.Apple offers seven variations of the iPod, ranging in price from $49 to $399.Apple did a terrible job of variation with the iPhone, however, leaving market opportunities for multiple Android competitors.

Build a Special Team

Demand creators are skilled at conveying the notion of demand to manyother people. They build self-replicating teams that are obsessed with customers and their needs, obsessed with that magical difference betweenwhat customers buy and what they really want, and excited about buildingproducts that will inspire.


Adrian Slywotzky, Karl Weber: Demand—Creating What People lovebefore they Know they Want It Crown business, 2011

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CREAtIng DEMAnD In tHE AutOMOtIvE InDuStRyThe demand for cars and the hassle maps of potential customers vary by region, but the global automotive industry faces some fundamental barriers to demand. With increasing urbanization, more people are lookingfor practical mobility solutions, which includes car-sharing. Young people, who used to breathlessly await their18th birthday and hope for a set of car keys, are more taken by iPads and iPhones than the latest new cars. For the under-30 generation in Europe, usage is more important thanownership. Car owners in general worry about long-term maintenance costseven as they wonder about the upfront cost of purchase.The automotiveindustry clearly has significant opportunities to reduce the customer hasslemap when buying new cars, getting service and repairs, and evaluating the evolving mobility services (see“Holistic Optimization Approach”).Automotive executives have the latitude to think of the car as more than a product—rather as part of a highly imaginative solution to the customer’shassle map.

Think of Zipcar, the U.S. car-sharing service.The company focused on people in need for short-term, individual mobility solutions. Even thoughthese customers had chosen other modes of mobility (public transportation, car rentals, bikes, walking, etc.), this was not what they really wanted. Zipcar analyzed the hassles surrounding the existing mobility products and offered a comprehensive, hassle-free solution to customers. Instead of worrying about vehicle purchase costs, maintenance requirements, gas consumption, insurance, full-day rental fees or simply getting to thenext rental location, customers can simply pick up the nearest car in theirneighborhood and use it at a rate of $8 an hour. In a recent survey, 80 percentof Zipsters said they“loved”Zipcar and 88 percent had recommendedZipcar to a friend in the last month.That is magnetic.

Marketers need that kind of connection between customers and their products to build a meaningful brand.Today’s consumer is more swayed by the sum of his or her experiences—and what they read on the internet—than advertising messages. Consumers “see it when they believe it,” but not before. What advertisers say is far less important than what customerssay to each other. As Amazon’s CEO Jeff Bezos once noted: “Brand is what they say about you when you leave the room.”

Adrian Slywotzky’s new book Demand explores the critical role of demand creation in today’s economy and analyzes how some companies’products are doing exponentially better than their competitors’by creating“magnetic”products and services. In an economy that is increasinglydemand-driven, understanding what Adrian calls the customer’s hassle map and creating a product that customers love, will be the key to successfor both B2B and B2C companies.

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IN-CAR IT IS REVOLUTIONIZING SUPPLIERS

Juergen Reiner,Fabian Brandt

the growing relevance of electronics and software in cars is presenting suppliers with technical and strategicchallenges. their importance can be compared with that of electromobility or lightweight construction. However, this development also offers enormous opportunities: with in-car It, suppliers can unlock new revenue sourcesand break out of their traditional role in the supply chain.

CuStOMER › R&D › PROCuREMEnt/SuPPlIER › PRODuCtIOn › SAlES › SERvICES

Opportunity

Risk

12

Embedded computer systems are taking control of the car. Up to 90 percentof the innovations for future car generations would not be possible withoutIT. Electronics, software and associated services in and around the car will account for a considerable share of the car’s value in the years to come. The number of networked vehicles will increase to 210 million by 2016.More than 80percent of all new cars sold will thenbe“connected”. More over,car ITsystemsmake itpossible to implementnewsafetyandcomfort functions,innovative operating concepts and information services which, in turn, open up new business opportunities—provided the industry manages toadjust itself to the software industry's market mechanisms.

In-CAR It AS An IMPORtAnt CAPAbIlIty AREAThe industry’s top decision-makers participated in a study on the strategicevaluation of in-car IT by automotive suppliers.The survey showed that thelarge majority of the respondents has recognized the enormous importanceof in-car IT for their business and they hope to tap new revenue sources withsoftware and IT services. Compared with other important automotive tech-nology trends, embedded IT is high up on the priority lists of CEOs, CIOs,head strategists and R&D heads.Only cost pressure,globalization and inno-vation pressure take higher priority. This means that in-car IT is strategicallyalmost as important as electromobility and lightweight construction—in which it also plays an important part as an enabler. Suppliers believe thatdevelopments in in-car infotainment, telematics and driving safety hold promising business opportunities.

According to the suppliers, the greatest benefits can be derived from theshift of hardware functionalities to software functionalities. A rationalizationeffect is achieved by modularizing the product concepts and reusing already developed modules. Almost 90 percent of the respondents believethat this makes it possible to reduce unit costs. However, first and foremost,it is a question of technological leadership. Because a company that developsits own IT platform, which is so attractive that it is adopted by OEMs, candefine its position in the supply chain all by itself. Expanding the productportfolio by adding innovative solutions such as the provision of software-related aftersales services is also believed to offer major new opportunities.Functions can be activated afterwards or offered as a download for a fee,and processes can run via app infrastructures.

nEW PlAyERS IntEnSIFy COMPEtItIOnIt is important not to underestimate the business and technical risks. The automotive suppliers who participated in the study are concerned aboutthe commoditization of hardware and software functions, as this can furtherincrease the pressure on traditional component and system suppliers’profitmargins. In addition, the structure of the innovation and value-adding contributions in the supply chain appears to be shifting toward content,dataand service—i.e. areas, in which operation and configuration managementplay an important role. New players from outside the automotive industryare already entering the market, increasing the competitive pressure.Suppliers are also concerned that the growing share of in-car IT in valuecreation will reduce the individual participants’value contribution.

In-car IT is considered to be a majoropportunity, both for the respondents’own company and for the industry as a whole

87%

13%

Opportunity

Risk

78%

22%

OPPORtunIty-RISK RAtIO OF In-CAR It FOR tHE AutOMOtIvE SuPPlIER InDuStRy

OPPORtunIty-RISK RAtIO OF In-CAR ItFOR tHE RESPOnDEntS‘ OWn COMPAny

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Besides,car systems are becomingmoreandmorecomplex, anddevelopmentcosts continue to rise. In addition, system integration is becoming more difficult. The number of malfunctions and breakdowns is increasing anddelaying or preventing market launches. Despite the many risks, suppliersbelieve that they are far outweighed by the opportunities.

Of the managers interviewed, 87percent believe that in-car IT offers attractiveopportunities for their company and for the industry as a whole. Because in-car IT is so important for their business, many companies have alreadyinitiated activities aimed at strengthening their position in this segment. The measures primarily serve to intensify research and development, followedby the development of appropriate innovation management, and the expansion of the product portfolio. Many companies have also begun tolook for suitable partners in industry and research.

It MInDSEt StIll unDERDEvElOPEDOverall, there is considerable need for action, especially regarding the transformation of market players from component suppliers to software andservice providers. The majority of the suppliers believe that their innovationmanagement and IT scouting still lack focus. Although many of them haveformed working groups and development partnerships within their industry,partnerships with research facilities are rare. To date, large-scale, compre-hensive partnerships with leading IT and software companies are equallydifficult to find. Suppliers say that they need to catch up when it comes todeveloping active portfolio management and professional requirementsmanagement. But they are right if they say that they are excellently positio-ned in the traditional development business.

However, they must become active in the field of software—regarding capabilities, processes, tools and configuration management as well asregarding business designs that include services and operation. Suppliersconsider that the urgency for them to introduce adequate IT project organizations is even greater: in particular, elements of IT-appropriate cost-benefit management of new functions from a customer perspective are largely lacking. The same is true for the management of IT service sales. No concrete distribution models for apps and online functionalities have been developed yet.

tHOSE WHO COntInuE lEARnIng WIll tAKE tHE lEADIt is important to continue to build up comprehensive IT capabilities for product development. Besides professionalizing innovation management,suppliers must enhance portfolio management and align it with the bestpractices of established companies in the IT industry. These companies havealready achieved a very high level of maturity thanks to their high agility anddistinct customer orientation. Suppliers must critically review their productportfolio management, the management and evaluation of their productsacross their life cycle, their partnership portfolio, and their developmentprocesses. Then they must initiate appropriate measures. The company thatmanages to position itself as an end-to-end operator for IT solutions in cars will win in the end.


87%believe that in-car It offers attractiveopportunities for their company and forthe industry as a whole.

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the automotive market is expected to continue on itsgrowth path. At the same time, it is undergoing significantchanges: the shift toward new markets and technologies,ever stronger Asian players, growing consolidation, and increasing cost pressure. Many german suppliers arewell-positioned to exploit these developments as anopportunity but need sufficient financial power to do so.because of uncertainty about the capital markets, it is important to proactively draw the investors’ attentionto possible risks, and to present a convincing strategy for the next years.

The global automotive industry recovered surprisingly quickly from its historic low in 2009. In 2011, some 76.8 million vehicles were producedworldwide, which corresponds to an increase of almost 10 percent over thepre-crisis year 2007, which saw the production of 70.4 million vehicles.However, the global market has changed since then. There has been a clearshift toward China, India, or Indonesia and, consequently, toward simplervehicle classes. Overall, Asia increased its vehicle production from 2007 to 2011 by about 31percent to 36.5 million vehicles. During the sameperiod, output in western Europe and North America shrank by 13 percent. Besides German premium manufacturers, Chinese and South Korean automakers, in particular, benefited from this development, increasing theirrevenue even during the crisis. From 2007 to 2010, their annual growth ratesamounted to 23 percent and 17percent respectively. In the same period,many European manufacturers, on the other hand, had only just reached the2007 level again after the massive revenue losses in 2009. The growth rateof U.S. and Japanese OEMs is still as much as 9 percent below the 2007 level.

The supplier industry has experienced a similar development. Chinese and South Korean competitors have achieved inflation-adjusted growth of 55 percent and 45 percent respectively over 2007. During the same period,many suppliers from Europe, the United States, and Japan were only able to compensate for the revenue losses incurred in 2009, or just barely reachthe 2007 level again. Moreover, in the meantime, Asian suppliers are on average much more profitable. Thus, in 2010,Chinese suppliers for example,on average realized an EBIT margin of 11percent whereas European competitors, on average, only achieved 6 percent. However, the success ofAsianmanufacturers and suppliers is not theWestern suppliers’only problem.The total market is threatened by an economic downturn, and OEMs haveovercapacities as severe as before the crisis.

GERMAN SUPPLIERS DESERVE TRUST

Lars Stolz, Lutz Jaede

76.8million vehicles were produced worldwidein 2011, which corresponds to an increase of almost 10 percent over the pre-crisis year 2007.

unDERStAnDIng MARKEt tREnDS AS An OPPORtunItyIt is also possible to anticipate other important developments in the worldwide automotive market in the coming years.The shift of productionto new markets will persist, increasing competitive pressure and redefiningthe rules of the game.The period of M&A stagnation as a result of the crisiswill come to an end, and industrial structures will undergo changes. In addition,alternative powertrain concepts will present new technological andstrategic challenges. Moreover, rising factor costs and the increased costpressure on OEMs will affect the suppliers’margins. And, last but not least,many modules of new series will have a smaller value share per vehicle.These developments are, nevertheless, an opportunity for many automotivesuppliers. Although there is a strong shift of the markets to Asia, manyGerman suppliers are still very well-positioned to be successful outside ofEurope. Particularly companies that are innovative and have a good strategic position will be able to assert themselves when competing againstplayers from the Far East.

Oliver Wyman’s current study identified the key factors of future success.Among these are a global business design combined with appropriate valuecreation in growth markets, independence from individual OEMs fromEurope, the United States, and Japan, as well as a strong technology positionor even a niche status. Additional factors are cost efficiency based on operational excellence, a competitive cost structure, and the opportunity to actively participate in the consolidation of the segment as a result of the refueling of M&A activities and new partnerships.

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Sales Development 2007-2010Index 2007 = 100, adjusted for inflation

2007 2008 2009 2010

60

80

100

120

140

160

+ 24 %

+ 28 %

- 8 %

+11%

+15 %

Lehman collapse CAGR2007-2010

China

South Korea

Europe

u.S.

Japan

+15.6 %

+13.3 %

-1.5 %

-4.7 %

-5.4 %

Sales


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CREAtIng SuFFICIEnt FInAnCIAl POWERThe order of the day for suppliers is thus to understand this upheaval in the market as an opportunity, and to profit from it by implementing targetedmeasures. For this purpose, management and owners should align theircompanies with a Supplier Agenda 2015. To obtain a holistic view, it is important to systematically address the following topics: cost efficiency, market focus, innovations, distribution networks, partnerships, leadershipand organization. Ultimately, this will require significant investments. To secure the necessary financing, it is crucial to clearly communicate theoverall strategy and measures to banks.The reason is that banks tend toconsider every change in the market as a risk because of the recent financialcrisis and the new requirements stipulated by Basel III. This means thatmany banks are reluctant to grant loans, especially if they don’t have a detailed knowledge of the industry’s development. The more informative the dialog with banks, the easier it is for suppliers to obtain loans or follow-up financing with the help of convincing strategies.

However, it also is important to explain to other investors which strategiesare suitable for transforming risks into opportunities. In 2005 and 2006,financial investors acquired many automotive suppliers at prices that assumed strong growth. These companies are now up for sale, but many ofthem have been unable to achieve their growth plans because of the crisis.Conseque n tly, the suppliers must make sure that they either achieve themaximum sales value, or that the discounts of potential buyers are at leastkept within limits to avoid problems when paying back acquisition loans.This means proving that no risks exist or, if they do exist, that appropriatecountermeasures have already been planned or initiated. Suppliers needthe right story. If they are able to clearly demonstrate that they can controlthe risks in the market and competition, and to convincingly present their strategy, they will be able to win over banks and financial investors. And then the money they need will flow in.

FutuRE-ORIEntED APPROACHES ARE nEEDEDThanks to their strong position, German suppliers have a good chance touse the significant change in the market to their advantage, provided theymake suitable preparations. Therefore, investors should evaluate companiesin their investment or loan portfolio based on their chances of success in thelight of these changes,because assessments using classical rating systemswill not work. It is important to use a future-oriented approach that linksmarket developments to the companies’ positioning and performance.

Furthermore, the commitment of suppliers positioned in attractive marketsneeds to be strengthened. If it turns out that the market development andpositioning of a company contain both opportunities and risks, it is imperativeto intensify the dialog with management concerning the appropriate strategy.In the event that the market shows high risks and that suppliers are badlypre pared, investors should push for restructuring measures. If banks and financial investors financially support well-positioned German suppliers,it is likely that many of them will be able to assert themselves in the globalmarket in the future.

EBIT margin 2007 vs. 2010 in %For selected suppliers per region

2007

China

2010

6.5

11.1

Europe

7.0

6.0

Japan

5.9

2.5

South Korea

5.8

8.27.6

6.6

U.S.


too many companies view lean manufacturing as merely a set of business systems and tools that can be appliedimmediately and that should begin generating resultspromptly. lean’s systems and tools are valuable, to be sure.but it is how a company executes them—supports their use—that makes the difference between success and failure.Executing these systems and tools properly takes time.Most important, it takes the right people systems—includingclearly defined roles and responsibilities as well as soundtraining programs.

A manufacturer can have a brilliant layout and cutting-edge technologies in its plants, but these will have little value if the company does not also havethe right people systems in place. Moreover, establishing the appropriatepeople systems calls for a cultural and organizational transformation that mustinvolve shop-floor workers. And people constitute the most misunder stoodaspect of lean. People systems run through all four phases of what we callthe Lean Implementation Curve, though people play an especially criticalrole in the earlier phases. All four of these phases must be implemented inthe sequence shown in the figure. It is especially critical for an organizationto get Phase 1 right: Doing so builds a solid foundation for the remainder of the process. Moreover, a manufacturing business cannot expect to seecost, quality, or productivity improvements during Phase1; such outcomes occur during the later phases if the first phase has been managed correctly.However, if the enterprise neglects Phase1activities, it is unlikely to ever see the results promised by lean.With this in mind, let is take a quick look at the four phases.

IT IS ALL ABOUT PEOPLE SYSTEMS

Ron Harbour

HEnRy FORD’S PHIlOSOPHy

As long as a century ago, Henry Ford embodied lean manufacturing philosophy. He believed that by controllingevery link in his industry’s value chain,he could minimize the time it took to transform raw materials into manufactured vehicles. He could thus cut costs and create cars that could be sold at prices accessible to virtuallyeveryone. Ford owned iron ore mines for the production of steel, beaches where sand could be gathered to makeglass,even cattle ranches to serve as sources of leather for his autos’upholstery. In today’s world of fracturedvalue chains, where different entities own different links, few people remember Ford’s approach to taking timeand cost out of the auto manufacturing process. These days, owing to value-chain fragmentation, cost is addedto each step in the process—whether it takes the form of time, mark-ups, or materials-transportation expenses.Reflecting these higher costs, all new cars are purchased by only 20 percent of the population.

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Phase I—Organizational Development: In this phase, the manufacturer clarifies its vision, mission, values (“Who are we? What do we stand for?”);establishes key performance indicators (“How will we know we are succee-ding?”); and determines team structure (“Who will work with whom?”) and span of control (“How many direct reports will each manager have?”).(See “Spotlight on Span of Control.”) It also defines roles and responsibilities(“Who will do what? When?”). Involving all workers, unionized or not, is essential during this phase.

Phase II—Discipline building: During this phase, the organization beginsimplementing lean’s basic disciplines, such as 5S, visual management, TPMand basic maintenance. It may start seeing results in the form of lower costs,higher quality and greater productivity.

Phase III—lean tools of Quality, Delivery and Cost Improvement: This is thephase where the company implements lean systems and tools, such asandon cords and kanban systems.

Phase Iv—Continuous Improvement and Collaboration: In this final phase,the organization spreads its lean systems to suppliers,requiring them to follow the same direction.It also works with its own engineers to develop newmechanical systems on which to build production. And it creates easier-to-build designs. This is the phase during which the lean system is deployed toall areas of the organization and to all of its partners. Lean thus becomes a way of life. As with learning a new language, when one eventually beginsthinking in that language, all stakeholders in a lean organization begin“thinking in lean”.

The Lean Implementation Curve™ Operating Systems

PDCA

vision, mission, values

Strategic alignment and development

Roles and responsibilities

Core competencies linked to performance

go see it management system

5S/workplace organization

Feedback and communication system

Standardized work/job instruction training

visual management

Problem solving

Empowered work force

value stream mapping

tPM (total Productive Maintenance)

In station process control

Error proofing

QCO (Quick Change Over)

level production continuous

Kanban

Andon

One piece flow

JIt ( Just in time)

Quality circles

Flexible workforce

PD linkage via DFA/DFM and QFD

Supplier development

PHASE IOrganizationalDevelopment

PHASE IIDiscipline Building

PHASE IvContinuous Improvement and Collaboration

PHASE IIILean Tools For Quality, Delivery and Cost Improvement

People

Workplace

Material

Quality

Partnering

Continuous improvement/waste elimination


What happens if an organization fails to establish the required people systems during Phase 1? Employees will not know how to use the systemsand tools the company equips them with later. For example, supposemanagement has given employees permission to pull an andon cord ifsomething goes wrong—but it has not spelled out roles and responsibilitiesregarding this lean tool. An employee pulls the cord when he spots a problem.But then he is forced to stand there, asking himself questions such as, “Now what? Who’s supposed to show up and help me? When is it okay tostart the line again? Should I get the plant manager involved?”To avoid such uncertainty, managers must establish the appropriate team structure, determine the correct span of control, and provide the right training before“empowering” employees to use lean tools and systems. By setting thestage in this way, managers enable workers to use the tools effectively andthus gain confidence and trust in the tools. Manufacturers that establishthese foundational elements also send a clear and vital message to workers:“We are serious about lean. We believe you can adopt these practices. Wewill support you.”As a result,workers embrace lean, back up lean’s principleswith effective behaviors and experience true empowerment.

In too many companies, executives see the enterprise’s manufacturingfunction as a necessary evil. But manufacturing is like a mirror that reflects allof the company’s decisions, actions and values. Everything the organi zationdoes and believes culminates in what goes on in its manufacturing function.A company that is lean and efficient in product and process developmentwill lay the foundation for achieving much greater manufacturing success.To ensure that manufacturing depicts what executives want it to depict, executives must build the right foundation for implementing lean. Theirreward? A manufacturing function that delivers a handsome return on thecompany’s investment in lean—and that produces the benefits promised bylean, in terms of cost, quality and productivity.Take Harley-Davidson. Bymastering lean, the U.S. motorcycle company turned around manufacturingplants in Pennsylvania, Wisconsin and Kansas—some of which might haveclosed or sent jobs to Mexico or China.The savvy use of lean practices and principles thus burnished this iconic American brand.

SPOtlIgHt On SPAn OF COntROl

Span of control is the ratio of supervisors to hourly people.The right span can depend on a manufacturing facility’s layout and density of the line. For exam p le, an assembly line that uses automation extensively and spreads workers over relatively long distances calls for a smaller span,perhaps a 1:2 or 1:3 ratio.A den sely packed line with nu merous manual operations may require a 1:8 or 1:9 ratio. If a manufacturer’s definition of roles and responsibilities does not include arrangements for a team leader to step in for an ab sent employ ee, the span might be1:10. A typical assembly line is 1:5 or 1:6.

20

Attracted by explosive economic growth in South America,OEMs from around the globe have stepped up their investment and operations in the region. As OEMs expandtheir footprint into South America’s rural areas, they are inventing new ways to address their most pressing challenge: building a supplier network that can deliver thesame value the OEMs enjoy in other parts of the world.

SOUTH AMERICAN AUTO MANUFACTURING

During 2005 and 2010, combined sales for OEM operations in Brazil andArgentina showed double-digit volume increases, jumping from 2.1millionunits to 5.2 million. And their compound annual growth rate (CAGR) has hit 20 percent.The industry’s remarkable growth in this region stems fromnewly available credit that the growing middle class is quickly putting touse. Moreover, an influx of foreign investment on the assurance of recentmacroeconomic stability as well as a rich diversity of natural resources is driving unprecedented purchasing power in the region.The wave of OEMinvestment in new manufacturing facilities is simultaneously creating andcapitalizing on growing demand. Following the global economic crisis of2008, companies are taking advantage of newly found liquidity to enlargetheir manufacturing footprint in South America’s Mercosur region—includingmodernizing older plants, building additional ones and increasing plantcapacity and output. Some are establishing a footprint for the first time.Manufacturers that continue to pursue the antiquated model of hand-me-down equipment and past-generation vehicles for their South Americanoperations will quickly be left behind.

CAllIng All lOCAl SuPPlIERSIn Brazil and Argentina state and local governments have lured foreigninvestors by providing auto manufacturing and other industries with a varietyof incentives. As local governments compete for new projects with offers ofcheap or free land, tax incentives, government-funded education programsand promises of infrastructural investment, OEMs have expanded theirmanufacturing footprint beyond traditional manufacturing zones in searchof the best possible offering. As vehicle manufacturers establish operationsin increasingly remote locations, they are counting on their suppliers to provide the same value delivered in other regions—whether that value consists of modules, logistics services or general and preventive maintenanceservices. However, constrained infrastructure in these countries’ rural areascan imperil on-time delivery.

In aworld of just-in-time manufacturing,this presents a significant challengeto manufacturers who set up shops in more out-of-the-way locations. Ruralareas seeing expanded OEM footprints have historically lacked an existing

Chris Powers,John Lucci

5.2million units were sold by OEMs in braziland Argentina in 2010. their CAgR has hit20 percent.


local supply base.To ensure that their rising expectations will be met, manufacturers have sought to draw their supplier base to them. In SouthAmerica, for example,17percent of major modules are assembled in supplier parks within minutes of the vehicle assembly sites.Take Ford’s operation in Cama ça ri, on Brazil’s east coast, a region that had no history ofauto manufacturing. Ford arranged for 26 suppliers to establish operations in and around its manufac tu ring site, promising them a larger share of vehiclework content as incentive. Protectionist policies in Brazil and Argentina aregiving local suppliers further competitive advantage in the region over suppliers located abroad. For instance, import tariffs on passenger cars are35 percent in Brazil and 21.5 percent in Argentina; for auto parts, the tariffsare 16.5 percent and 17.5 percent, respectively. And thanks to local contentrequirements, as much as 30 percent to 60 percent of a vehicle’s components must be sourced from within the South American country stipulating therequirements.This becomes a major challenge if a high-cost component issourced from abroad. To illustrate, a manufacturer choosing to source anengine and transmission from overseas could run through the majority of itsforeign-content allotment from only two components. Though the currentvalue of the Brazilian real has offset some cost barriers for importers, the net impact still favors sourcing of local content.

In addition to governments, consumers have played a role in heighteningSouth American OEMs’need for a local supply base. Like members of theexpanding middle classes in other regions around the world, up-and-comingSouth Americans want modern, high-quality products tailored to their life-styles. And they want them available when and where it is most convenientfor them. As these consumers have pushed for such offerings, automakershave increasingly relied on their suppliers for on-time delivery of high-qualityparts, especially for new-product launches. Capable suppliers are critical to these companies’ success. Indeed, a disappointing product launch canoften be attributed to a weak supplier network. But establishing a strongnetwork to support a new offering developed in South America can be challenging, because the manufacturing process has not been tested andproved first at overseas facilities.

lEAn IMPlEMEntAtIOn AnD OEM SuPPlIERSLean implementation methods among South America-based auto OEMs will further influence how localization of their supplier base evolves. SomeOEMs in South America are still in the early stages of lean implementation.Others perform at benchmark levels. These exemplars of lean productionare also collaborating with suppliers to ensure that they meet the same highstandards on cost, quality and productivity metrics. Such manufacturerstend to maintain integrated supplier relationships—pushing lean learningacross their industry’s value chain.

Suppliers developing their own lean systems will be better prepared to serve OEM customers across the full spectrum of lean maturity. Indeed, thedegree of lean implementation will play a major role in OEMs’ expectationsof their suppliers. This is particularly challenging because inter- and intra -regional differences in lean maturity mean that suppliers may not be serving

22

a uniform customer across the operations of a single OEM.To illustrate, olderOEM facilities in traditional manufacturing zones might differ dramaticallyfrom more recently developed sites. Within South America alone, labor pro-ductivity can range from 20 to more than 50 labor hours per unit produced.

tO In-SOuRCE OR OutSOuRCE?As conditions continue to evolve in the South American auto manufacturingindustry, OEMs will have to carefully consider their in-sourcing/outsourcingbalance. An OEM may decide to outsource more when it lacks capacity,when suppliers are in convenient locations and have the required capabilities,and when the OEM wants to optimize its main-line work force. In some cases,OEM and supplier integration reaches such levels that suppliers workingwithin an OEM facility might be virtually indistinguishable from the coreOEM operation. It has become more common than ever for suppliers to provide logistics and maintenance support, module subassembly and evenmain-line assembly within the four walls of their client’s plant.

Labor regulation also informs such decisions.While auto manufacturing unions have ceded some control in North America, unions still constitute amajor force in Argentina and Brazil. And while uncompetitive wage rates in North America led to outsourcing, the opposite is true in South America.Labor contracts at many South American manufacturing facilities dictatethat OEMs must bring in new workers even when work force reductionsoccur naturally through attrition. Moreover, OEMs believe that labor freedthrough productivity improvements can be redeployed within a plant. Thus more OEMs in South America are self-funding in-plant initiatives withsuch freed-up labor. In some cases, suppliers looking for additional workmust compete with a paid-for work force already trained in the OEM’s manufacturing techniques.

Service providers may find opportunities to work with OEMs seeking to optimize their main-line work force to increase output. As manufacturersstrive to increase line speed, they must increase the ratio of value-addedversus non-value-added work at each station. Logistics solutions that improvemain-line optimization are particularly important in the post-downturn era,when OEMs are still leery of capital expansion unless absolutely necessary.Providers of logistics solutions can help manufacturers lower walk and picktime so operators can enhance line speed.OEMs that have begun producingmultiple vehicle models in one facility may find sophisticated logistics solutions even more attractive.To make these relationships work, suppliersmust understand and be privy to an OEM’s core-parts strategy and integrate themselves into its manufacturing system.

A number of powerful forces are driving localization of automotive OEMsuppliers in South America. As the auto manufacturing landscape continuesto shift in the region,OEMs and their suppliers are finding new ways tostructure their working relationship so that, together, they can serve customers’ ever-increasing demand for quality vehicles. In this brave newworld, OEMs and suppliers that partner in innovative ways will be thosemost likely to pull ahead of rivals—and stay there.

20to more than 50 hours per unit producedcan be the range of labour productivity,within South America alone.

23

Pricing directly impacts a company’s profit, revenue, and market share. However, until now, automotive manu-facturers have rarely focused on optimizing their pricingstrategy. Other industries such as, for example, retail, aremuch better organized in this area. Holistic approaches todetermining the prices of vehicles and options appropriatefor the respective brand and for achieving optimum profit are only slowly gaining ground. Frequently, the keyaspect—the customers’ willingness to pay—only plays asubordinate role in this. the professionalization of pricingoffers much potential for securing and further increasingthe manufacturers’ profitability and future viability.

The mood of the automotive industry is good. Customers are buying morevehicles again, and manufacturers are breaking one sales record after theother. However, today’s euphoria should not mask the enormous challengesautomotive manufacturers will face in the years to come.To master issuessuch as stricter consumption-efficiency goals, additional safety and comfort requirements, or electromobility, manufacturers need to fulfill oneprerequisite: they must have sufficient funds.

SMART PRICING TO ACHIEVE THE DESIRED RESULTS

Jan Sickmann,Jochen Gast


24

Besides competitive products and a highly efficient sales system, pricing isone of the key levers that manufacturers can use to continue to secure andincrease their high profitability in the future. But finding the right price is not an easy task.To achieve this, it is important to understand the perceivedvalue of one’s own products and the willingness of traditional and new customer groups to pay. At the same time, the overall price system must be consistent across models, variants, and types of engine—and this in view of the ever growing complexity of the manufacturers’ offerings. The verydynamic market environment and different life-cycle phases call for a holistic, dynamic pricing approach.

ADJuStMEntS ACROSS tHE PRODuCt lIFE CyClEIn practice, many manufacturers focus too strongly on the initial pricing for market launches and facelifts, very one-sidedly taking their competitors’prices, adjusted for options, as their guideline. Although these figures arehelpful for finding a basic value, the latter should be dynamically adjustedalong the product life cycle to obtain an optimum result—in particular, keeping an eye on one’s own customers’willingness to pay. Moreover, it is essential to have a good understanding of the competitors’ expectedresponse and to take this into account in pricing decisions.

Methods based on market research such as the Strategic Choice Analysis©

developedbyOliverWymanhelp to identify thosepoints along the respectiveprice-sales function that promise maximum profit. At the same time, it isimportant to attach special importance to so-called signal prices for options.Customers pay particular attention to these prices, which strongly influencetheir price feeling. Furthermore, knowing a segment’s price elasticity isessential for pricing the basic vehicle and engine type. And price elasticityplays an even more important role when pricing the options offering.This isbecause, although customers often compare competitors’prices whenchoosing a vehicle or engine type, the combination of options is frequently a subsequent, separate purchasing decision.

DEvElOPIng A HOlIStIC PRICE SyStEMIn order to systematically and firmly establish fact-based price decisions,automotive manufacturers must develop an integrated pricing model that takes all of the above-mentioned factors into account. Subsequently, this model must be further optimized for each specific market. Quantitativeparameters must always be taken as the key basis for price decisions. At the same time, it may also be important to take strategic goals, e.g.regarding market penetration and market positioning, into account in thefinal price decision. Oliver Wyman’s project experience has shown that a professional and holistic price system leads to margin improvements of the order of up to five percentage points. Only manufacturers that haveoptimally mastered the art of pricing will be able to assert themselves in the tough competitive environment.

5percentage points are the margin improvements a professional and holisticprice system can lead to.


the fight for customers is entering a new round in thelucrative after-sales business. the ever stronger trend toconnected cars presents a major opportunity for all auto-motive manufacturers to gain ground against independentproviders in the highly competitive environment, and toretain customers even after the warranty period has ended.

Competition between automotive manufacturers and independent providers in the potentially highly profitable after-sales business is as intenseas ever—particularly after the warranty periods have expired. Independentrepair shops lure customers of authorized repair shops with aggressivefixed-price offerings for car servicing and repairs. However, with profit contributions ranging from 30 to 50 percent, service and spare parts stillrank among the OEMs’and their dealers’major sources of income. But inthe upcoming era of connected cars, the manufacturers’and authorizeddealers’prospects for stabilizing their after-sales market shares in the younger car segment and reconquering lost ground in the older vehicle segment in the longer term look much more promising. Market analystsforecast that in 2016, around 210 million vehicles will already be connectedworldwide, compared to 45 million in 2011.Western Europe, in particular,will make a significant leap forward in this area. And eCall legislation will bean important driver of this development. In the EU, this automatic emergencycall system will probably become mandatory from 2015 onwards. After thisdate, all new vehicles must then be equipped with an eCall system.

HIgH CuStOMER ACCEPtAnCEIn the foreseeable future, powerful on-board diagnostic systems as well as technologies such as the new mobile communication standard LTE will ensure total transparency of a vehicle’s operating data. Monitoring systems will inform the authorized dealer not only about the wear and tear

CONNECTED CARS ENSURE A HEAD START IN CUSTOMER RETENTION

Sven Wandres,Matthias Bentenrieder,Marc Boilard

26

of components, but also about the degree of engine stress,or the conditionof the oil. Based on this data, the authorized dealer can, for example, schedule the best and least expensive maintenance date for the customer. If the vehicle is at risk of damage,he can immediately notify the vehicle ownerand make him a preventive maintenance or repair offer.The manufacturers,on the other hand, can recognize how their vehicles respond in the field, or which fault patterns occur. Moreover, in future, it will be possible to carryout software updates via the Internet and thus execute field updates at thepush of a button, saving the car owner from driving to a repair shop.

Customer acceptance is high. Surveys reveal that car users are very willingto pay for Internet functions which transmit vehicle data to repair shops forremote diagnosis.Furthermore, the first pilot tests such as BMW’sTeleServi cesin the U.S. show that car owners are more likely to go to authorized repairshops if it is the dealers who are informed about due maintenance dates orservice needs, and then suggest dates and repair shops to the customer.Manufacturers have clear advantages, if they act quickly.The new car businessputs them in pole position. They are in possession of the customer, the vehicle data, and the networking, and can thus, for the time being, hold theindependent repair shops at bay in the private customer business.

SPEED IS tHE KEyHowever, this requires OEMs to already set the course today. The aim must be to quickly incorporate the necessary technology in the car and tooffer a low-cost basic functionality and thus establish a direct connection to the customer. At the same time, automotive manufacturers must invest inthe infrastructure that is necessary for the evaluation of data and targetedcustomer contacts: control centers and call centers. In a next step, it isimportant to identify those additional services that are attractive for the customers,that are targeted at fulfilling their needs,and thus ensure that theystay loyal to the authorized repair shop even after the warranty has expired.The same is true for business models and billing models. Because of thetransparency of the operating data, it is possible to bill differentiated hourlyrates which are based on the utilization of the repair shop's capacity.This alsoimproves the competitiveness of the authorized repair shops’maintenanceand repair costs. In a nutshell: in future, manufacturers and dealers will be in a position to provide each customer with services specifically tailoredto him and at considerably lower prices, thus securing their customers’ loyalty over the longer term.

However, the after-sales business will also require substantial effort fromOEMs in the future, because independent providers will not be prepared toassume a passive bystander role in the field of vehicle networking. Start-upssuch as Smarter Car have already developed on-board diagnostic tools thatenable independent repair shops to retain customers. Consequently, oldervehicles will continue to be the Achilles heel of independent providers in theafter-sales business. As vehicle networking progresses, however, OEMs andauthorized repair shops will be able to catch up significantly in this area.That is why manufacturers must go full speed ahead now. The first moverwill have a clear advantage in this market.

210million vehicles will already be networked worldwide in 2016. In 2011, it was 45 million.


Personal mobility is facing a major upheaval. Althoughmany customers continue to prefer to own a car, many areprepared to significantly change their mobility behavior because of rising fuel prices and growing regulation.Innovative services that can be flexibly combined arebecoming an increasingly attractive alternative. However,the criteria for choosing a mode of transport remain thesame: cost and convenience are still the decisive factors. If OEMs want to stay in the game, they must position thecar as a key component of the mobility mix and combinethe different modes of transport in a user-friendly way.

THE ROLE OF THE AUTOMOBILENEEDS TO BE REINVENTED

Matthias Bentenrieder, Daniel Kronenwett

28

Reasons for not owning a car2011, worldwide

Parking hassle at home or work

Ecological reasons

Higher speed with other transport modes

High purchasing cost

High running cost

1 2 3 4 5

1.7

1.8

2.3

2.9

3.0

Important not important

In the coming years, mobility will undergo fundamental changes: More and more people around the world are willing to go without owning a car.Particularly in metropolitan areas and primarily in Asia, people are morethan willing to switch from owning a car to using a mix of different modes of transport.The key parameters involved in deciding whether to own a caror to use other modes of transport are a car’s purchase costs and, even moreso, its maintenance costs.This is more or less true for all people interviewed,regardless of their age, gender or social status.The second strong driver for this change in behavior is the convenient access to alternative modes of transport. Ecological considerations, on the other hand, only have aminor influence on the choice of the mode of transport.

The scenario for sustainable mobility in 2030 that was presented to theinterviewees clearly illustrates this willingness to change. It envisions moretraffic congestion in individual transport, better-quality public transport offerings and the possibility of completely planning multimodal trips usingsmartphone apps.The survey also tested factors such as fuel prices exceeding four euros per liter and a number of regulatory measures thatinfluence the choice on the mode of transport. Given this scenario, up to 40 percent of the interviewees would go without owning a car completely,but only 20 percent would switch to an electric vehicle. If fuel prices increasedramatically, as many as 77percent are willing to change their mobilitybehavior by either switching to smaller cars, electric cars or by using varyingmodes of transport. People interviewed in Shanghai and also in France areparticularly open to the coming change. Young, well-educated city dwellersand smartphone users are the most flexible group, and with 86 percent, students are the group most willing to switch.Top earners and people forwhom status is important have a lower tendency to choose alternativemodes of transport.Women and families also are more likely to maintaintheir traditional mobility patterns.

InDIvIDuAl MObIlIty—A MODulAR SyStEMThe analysis confirms that innovative mobility services such as car sharingare becoming more and more important. Especially young people no longerplace as much importance on owning a car as previous generations.Today’syoung,urban smartphone generation is more open to novel mobility conce ptsand will drive the changes in the industry. Until today, an average of only 1.4 percent of those interviewed worldwide have been using car sharing,however, this percentage is already much higher in Singapore and Shanghai.In Europe, this model is particularly attractive to the British. Besides the distinct increase in the preference for flexible use models such as car sharing,the importance of electric vehicles is also on the rise as they make a valuablecontribution to the mix of the different modes of transport. Modern informa-tion and communications technology that uses the smartphone as a controlcenter organizes the interplay at the individual level. It is crucial that all elements can be easily and seamlessly combined into an integrated model if users are to accept this concept. If you want to achieve better mobility, it is not enough to just change the type of powertrain. A potentially successfulconcept must not only be easy to use for different groups of users, it mustalso be possible to combine it intelligently with other transport concepts.


Overall, the choice of a specific mode of transport is determined by strongconstants. Driving to the place of work, for instance, is the most importantmotive for using a car in all regions.The importance of cars is particularlyhigh in areas where public transport is not widely accessible—especially inrural regions. However, the study also reveals geographic differences: while 97percent of the people interviewed rated the quality of local publictransport in urban regions in Germany as “good”or “very good”, only 81 percent of the interviewees in Singapore gave such positive ratings.Nevertheless, 71percent of Germans own a car, compared with only 51 percent in Singapore.

tAKIng REgIOnAl MObIlIty nEEDS IntO ACCOuntFor the automotive industry, Asian megacities with their high share ofyoung, technology-oriented inhabitants and a transport policy willing tomake significant investments are very attractive places for trend-setting projects focused on the IT-assisted combination of mobility options. OEMsmust act quickly if they want to be among the first in the race to create an optimum mobility offering for the young urban generation. Although developing and manufacturing cars will continue to be the automotivemanufacturers’core business for many years, they must become more experienced in operating vehicle fleets based on flexible use models and, in particular, they must network the vehicle with other mobility services.“Ease of use”will be decisive for market success. If automotive manufacturersalso want to maintain their position as the leading mobility provider in thefuture, they should retain control over the customer interface and assume astrong role in partnerships. Manufacturers don’t have to offer all mobilityoptions. But in tomorrow’s multimodal world, it is important to continue toposition oneself as the key contact person in the mobility chain with theattractive car option and thus reinvent the role of the car.

tHE StuDyFor the study titled The Future of Mobility, Oliver Wyman and the ESB Business School Reutlingen, Germany, asked approximately 3,000 peoplein Germany, France, the UK, Shanghai and Singapore which mode of trans-port they use today and how their mobility behavior will change in future.Among other factors, the questions took rising fuel prices and differentincentives and regulations such as a superhighway toll for passenger cars,restricted access to cities and financial subsidies for electric cars into account.The authors of the study developed two scenarios: the first scenario is amoderate one, assuming, among other things, a fuel price of 2.50 euros perliter until 2030 and a better developed local public transport network. The second scenario is more aggressive in terms of promoting sustainablemobility and is based on a fuel price of 4 euros per liter as well as other charges such as city and superhighway tolls.

Share of people choosingnon-car ownership2030, germany only

Fuel €2.50/l/l

Public transport

Smart phones

Congestion

11.8 %

24.4 %

0.8 %

25.2 %

1.6 %

26.8%

SCEnARIO 1—COntInuOuS DEvElOPMEnt

Scenario 1

Fuel €4.00/l

Parking fees

City toll

7.0 %

33.7 %

0.9 %

34.6 %

0.5%

35.2 %

4.2 %

39.4 %

Mobility charge

0.5%

Highway toll

SCEnARIO 2—SuStAInAblE MObIlIty

12.6 %

26.8%

39.9%

30

MAttH IAS bEntEnRI EDER

+ 49 89 939 49 553matthias.bentenrieder[at]oliverwyman.com

- Sales and downstream strategies- Mobility services and connected car- Rollout programs

JOCHEn gASt

+ 49 69 170 08 377jochen.gast[at]oliverwyman.com

- Process improvement and cost optimization- Program management- Pricing

ROn HARbOuR

+1 248 906 79 12ron.harbour[at]oliverwyman.com

- Production increase and optimization- Production strategies, processes, redesign and cost optimization- benchmark analyses, product teardown,

operational due diligence support

AuguSt JOAS

+ 49 89 939 49 417august.joas[at]oliverwyman.com

- growth strategies, business designs- Organization, change- Performance improvement, efficiency

lutz JAEDE

+ 49 89 939 49 440lutz.jaede[at]oliverwyman.com

- Strategy and organization- Restructuring- Automotive suppliers

DAn I El KROnEnWEtt

+ 49 89 939 49 591 daniel.kronenwett[at]oliverwyman.com

- Passenger cars and commercial vehicles- M&A, strategy & profit improvement- Sales programs

AUTHORS IN THIS ISSUE

JOHn luCCI

+1 248 906 79 14john.lucci[at]oliverwyman.com

- Manufacturing strategy development and development- Operational due diligence- Shop floor transformation

FAbIAn bRAnDt

+ 49 89 939 49 605fabian.brandt[at]oliverwyman.com

- Sales and after-sales- Quality management- Commercial vehicles

RÉMI CORnubERt

+33 1 45 02 33 95remi.cornubert[at]oliverwyman.com

- Strategy development and implementation- Effectiveness and efficiency in research and development- Performance improvement and cost reduction programs

MARC bOI lARD

+ 33 1 56 68 15 15marc.boilard[at]oliverwyman.com

- Performance improvement in research and development- Strategy and growth- Distribution

ADRIAn SlyWOtzKy

+1 617 424 3850adrian.slywotzky[at]oliverwyman.com

- new business development- value growth- broad cross-section of industries

CHRIS POWERS

+1 248 906 7927chris.powers[at]oliverwyman.com

- benchmarking analysis- Operational efficiency- Production cost

lARS StOlz

+ 49 89 939 49 434lars.stolz[at]oliverwyman.com

- Product development and procurement- Suppliers: strategies and operations- Automotive downstream

SvEn WAnDRES

+ 49 89 939 49 532sven.wandres[at]oliverwyman.com

- growth strategies and international rollout- Mobility, sales and after-sales- Passenger cars and commercial vehicles

31

JuERgEn REInER

+ 49 89 939 49 577juergen.reiner[at]oliverwyman.com

- Research and development- technology and It strategies - Software development and management

JAn SICKMAnn

+ 49 89 939 49 530jan.sickmann[at]oliverwyman.com

- Strategy and organization- brand management, sales and after-sales- Efficiency programs

Publisher: Oliver Wyman, Marstallstraße 11, 80539 Munich, germany, www.oliverwyman.com

Editorial staff:Julia Karas / julia.karas[at]oliverwyman.com, Roman Mueller / roman.mueller[at]oliverwyman.com

Concept and design: vogt, Sedlmeir, Reise.gmbH, Munich, germany

Photography: iStockphoto, vogt, Sedlmeir, Reise.gmbH, Fabian Helmich

Responsible: August Joas / august.joas[at]oliverwyman.com

PublISHER’S InFORMAtIOn

AbOut OlIvER WyMAnOliver Wyman is a global leader in management consulting. With offices in 50+ cities across 25 countries, Oliver Wyman 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 optimize their business, improve their operations and risk profile, and accelerate their organizationalperformance to seize the most attractive opportunities. Oliver Wyman is a wholly owned subsidiary of Marsh & Mclennan Companies [nySE: MMC]. For more information, visit www.oliverwyman.com. Follow Oliver Wyman on twitter @OliverWyman.

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

Oliver Wyman’s global Automotive Practice supports clients with strategic topics like brand management,customer orientation, 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, reengineer ing, turnaroundmanagement and restructuring. In addition, Oliver Wyman offers the whole range of mergers & acquisitions consulting services, from partner search to evaluation, transaction support, and post-merger integration.

© 2012 Oliver Wyman. All rights reserved.

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