The European restructuring processes: The European restructuring processes: carmakers strategies and public policies- carmakers strategies and public policies-

Gerpisa 2013Gerpisa 2013An interpretation by Francesco Garibaldo – An interpretation by Francesco Garibaldo –

fgaribaldo@gmail.com-

www.francescogaribaldo.it

Europe in the global Europe in the global context -1context -1

• FT FT 2013 2013 forecast for cars and other light forecast for cars and other light vehicles production:vehicles production:

China China 19,619,6 millions vs. Europe millions vs. Europe 18,3 18,3 m. (m. (2222m. m. in 2007)in 2007)

Total global production Total global production 82,482,4 m. m.

China China 23,8%23,8% vs. Europe vs. Europe 20%20%

In In 20012001

China China 3,5%3,5% vs. Europe vs. Europe 35%35%

Europe in the global Europe in the global context -2context -2

•The picture can be misleading The picture can be misleading because of the western OEMs because of the western OEMs process of offshoring; for instance process of offshoring; for instance one in ever three VW cars are one in ever three VW cars are produced in Asiaproduced in Asia

The actual situation: The actual situation: offshoring to offshoring to be present in the new marketsbe present in the new markets

• The automobile industry is now fully and evenly globalised, meaning that the processes of structuring and restructuring capacity are intertwined and distributed on a global scale.

• One of the net effect of global offshoring was a combined process of structuring, through additional capacity in the new markets, and restructuring of the existing capacity in the old markets, namely Europe.

• Structuring and re-structuring are the two sides of the same process.

The actual situation:The actual situation:outsourcing and offshoring because of lower

level of wages and job protection

• The European OEMs can reach this goal within Europe, both the EU countries, as in the case of Poland and Spain and eastward and southward on the borders of the EU. This depends also on the need of the OEMs, in this sector, to have a reduced distance between the production sites and the market.

• In this case there is a very fine tuned, by processes and corporate functions, process of outsourcing.

Europe from within:Europe from within:Divergent trends -1Divergent trends -1

Europe from within:Europe from within:Divergent trends- 2Divergent trends- 2

Europe from within:Europe from within:Divergent trends-3Divergent trends-3

Overcapacity and Overcapacity and demand - 1demand - 1

• In Europe there is an overcapacity problem that is In Europe there is an overcapacity problem that is both a consequence of the process of structuring both a consequence of the process of structuring and restructuring and of lack of demand ( see and restructuring and of lack of demand ( see later on), as well as of the economic crisis.later on), as well as of the economic crisis.

• The global figure can be misleading because of The global figure can be misleading because of the divergent trends by countries, by brands and the divergent trends by countries, by brands and by plants of the same brands ( see previous by plants of the same brands ( see previous figures).figures).

• Europe – EU 27 - has hit at the same time by a Europe – EU 27 - has hit at the same time by a global overcapacity and by an uneven distribution global overcapacity and by an uneven distribution of it, by countries and by brands. of it, by countries and by brands.

Overcapacity and Overcapacity and demand - 2demand - 2

• Besides Besides the negative demographic trends, namely in most EU countries, largely compounded by a cultural shift among the youngsters on the usage of cars and the desire for physical mobility.

• A European trend towards the economy segment A European trend towards the economy segment since before the economic crisis. since before the economic crisis.

• Urbanisation of the majority of people with a fundamental split of the car market in two different spheres, one primarily looking for all-purposes vehicles and one primarily looking for single-purpose vehicles.

• It implies both product innovations and business model innovation.

Overcapacity and Overcapacity and demand - 3demand - 3

• A crisis o the traditional model of a personal ownership of the car: “Zipcar, recently acquired by AVIS, and other car-sharing services have been more successful than traditional car rental companies at reacting to the trend towards declining car ownership in many industrialised countries”. (FT, 08/01/2013)

•  It implies the search for new business models.  

Overcapacity and Overcapacity and demand - 4demand - 4

• A crisis of efficiency and efficacy of the mobility based on cars in metropolitan areas because of congestion and of the social costs of pollution.

• It implies an integrated approach of urban planning, of the introduction of smart shared vehicles and their integration in a hybrid mobility platform, based on ICT – based technologies, made up of public systems and car-sharing schemes and the search for the integration of different kind of knowledge, of different professions, of different economic activities with the overall task of improving the mobility of people. ( open innovation models)

Lack of Demand: Lack of Demand: At the At the aggregate level the economic crisisaggregate level the economic crisis

The European Car The European Car Market 2012Market 2012

• ““in the EU in 2012 reached 12.1m units, down 8.2 per in the EU in 2012 reached 12.1m units, down 8.2 per cent from 2011.The worst hit countries were those cent from 2011.The worst hit countries were those suffering from the biggest economic difficulties suffering from the biggest economic difficulties arising from the broad economic woes of the arising from the broad economic woes of the Eurozone, with Italy suffering a year-on-year fall in Eurozone, with Italy suffering a year-on-year fall in registrations of 19.9 per cent, France of 13.9 per cent registrations of 19.9 per cent, France of 13.9 per cent and Spain 13.4 per cent. Peter Fuss, a partner at the and Spain 13.4 per cent. Peter Fuss, a partner at the Ernst & Young consultancy, said the decline in sales Ernst & Young consultancy, said the decline in sales was “much worse” than the statistics made out as was “much worse” than the statistics made out as “sales figures for the year were artificially inflated as “sales figures for the year were artificially inflated as a result of self-registrations by dealers and a result of self-registrations by dealers and automakers, especially in the region’s biggest automakers, especially in the region’s biggest market, Germany”.market, Germany”.

FT 24/01/2013FT 24/01/2013

The European Car The European Car Market 2013Market 2013

continued a contraction that in March reached its lowest level for at least 23 years. The further downturn in demand in Europe during the first quarter, particularly in Germany, caught many in the industry by surprise

UK on the contrary UK on the contrary

Consequences and the first political Consequences and the first political challenge - 1challenge - 1

• Redundancies and plant closures, namely in Redundancies and plant closures, namely in the South of Europe.the South of Europe.

• A corporative retrenching of Trade Unions and A corporative retrenching of Trade Unions and the rise of a nationalist stance by the the rise of a nationalist stance by the governments.governments.

• A declining level of working conditions and of A declining level of working conditions and of the degree of labour protection for the the degree of labour protection for the workforce.workforce.

• A strong pressure on the supply chain ( firms A strong pressure on the supply chain ( firms and their workers). and their workers).

Consequences and the first political Consequences and the first political challenge - 2challenge - 2

All theses consequences are in the framework of a All theses consequences are in the framework of a very uneven situation, by brands and countries, in very uneven situation, by brands and countries, in terms of R&D investments, besides the uneven terms of R&D investments, besides the uneven distribution of overcapacity, redundancies and distribution of overcapacity, redundancies and plant closures. The uneven distribution is also one plant closures. The uneven distribution is also one of the consequences of the EU internal balance of of the consequences of the EU internal balance of trade disequilibrium:trade disequilibrium:

•The firs political challenge is to reverse the The firs political challenge is to reverse the nationalist and corporative trends to design nationalist and corporative trends to design and to enact a EU-wide strategic project on and to enact a EU-wide strategic project on mobility; for instance how to supply products mobility; for instance how to supply products suitable for the new cultural stances and the suitable for the new cultural stances and the demand for cheaper but effective vehicles. demand for cheaper but effective vehicles.

Consequences and other Consequences and other political challenges political challenges

The overall trends imply:

1.both product innovations ( new power train technologies, new materials, new vehicle’s architectures) and business model innovation ( not only ownership);

2.an integrated approach of urban planning;

3.the introduction of smart shared vehicles and their integration in a hybrid mobility platform, based on ICT – based technologies, made up of public systems and car-sharing schemes;

4.the search for the integration of different kind of knowledge, of different professions, of different economic activities with the overall task of improving the mobility of people;

The main political The main political challenge - 1challenge - 1

These are strategic political challenges for the policy These are strategic political challenges for the policy makers, the industrialists and the Trade Unions, both at makers, the industrialists and the Trade Unions, both at the EU level and at the national/local level; to sum up:the EU level and at the national/local level; to sum up:

•A cultural shift is needed from car to mobility as the actual product. In other words if cars are a by-product of the real product, that is mobility, and if mobility to-day is for the majority of mankind a urban mobility, then the focus is on designing together the city and the infrastructure for mobility; cars are just part of a broader system. Besides, each new design implies the search for new products to support mobility and of new industrial processes to build them.

•It implies the necessity of a vertical integration between the classical automobile sector and a newly emerging urban design and management sector.

The main political The main political challenge - 2challenge - 2

But looking at the actual situation a But looking at the actual situation a long industrial and social transition is needed:

•a new EU macroeconomic model out of the actual intra-trade disequilibrium ( NSM as consumer markets and not only as productive place, new EU-wide labour standards);

•Employment levels in the car industry cannot be considered only in a short term perspective but also as an asset to support the transition; it implies a combined effort of governments, EU-authorities, firms and Trade Unions to avoid a collapse in terms of employment, not only as an aggregate EU-wide figure but also looking at an even distribution of it.

The main political The main political challenge - 3challenge - 3

• A new public authorities activism to contribute to designing and supporting the transition of the car industry toward a new paradigm. New powertrain technologies’ success depends more on a network economic effect than on the traditional economy of scale and for these reasons new public procurements policies for public fleets and public transport equipment; new standards for public and private fleets, etc., are relevant ;

• To moderate the rush for a neo-mercantilist approach, based on the premium market as the main road for the car industry, because a world-wide market for luxury goods of the new global middle-class exists, but it will not grow indefinitely at this pace, and it will not be for ever a captive market for the western brands. Beside these flows can be intercepted only from the OEMs specialised in producing cars in the E, F, S and also J segments; that are the segments with the highest level of economic returns.