The winds of change are blowing eastward. Stifled domestic markets, the Asian economic crisis, negative currency shifts and global OEM consolidation pressures all have adversely affected Japan/Korea's light vehicle manufacturers. In three short years, the region's vehicle manufacturing landscape has been altered forever.

One need not outline all the new [forced] alliances (see table) to underscore the monumental changes.

While their sphere of influence over selected Japanese OEMs has grown internationally in North America, Europe, ASEAN and Mercosul, production of light vehicles in Japan will not eclipse 10 million units over the next five years. In Korea, CSM is forecasting continued export growth at Hyundai although Daewoo's eventual suitor is a substantial wildcard. Extending to 3.1 million light vehicle units this year, Korea could reach nearly 4 million units by 2005.

Several issues have and will continue to affect Japan and Korea's OEMs. Financial difficulties plagued several manufactures and forced consolidations to survive. Asia Motors, Kia, Mitsubishi and Nissan all succumbed to new suitors. Ford even had to take tighter control of Mazda's operations to ensure survival. Daihatsu forged closer ties with Toyota and the "GM Trio", Isuzu, Suzuki and Fuji joined the world's largest automaker to extend into global markets. Only Honda has refrained from purchasing another OEM or swapping equity - not part of their current DNA.

The Dilemma

The root cause of each merger, purchase or equity stake has a separate and sorted history. Despite this, one common thread is clear. Until recently it was imperative that each Japanese and Korean OEM offered a full slate of mass-market offerings (no matter what the volume implications) to appease dealers and affect the maximum number of consumers. Mazda made mini-cars, Isuzu built small unibody cars, Daihatsu designed offerings to market against Toyota and Kia offered a full slate of mass-market entries. Although some could make a case for entering each viable segment as a precursor to long term survival it seems that many wore a full breadth of offerings more akin to a badge of honor than holding it to rigorous financial justification.

This pressure caused great stress on each of the smaller less-leveraged OEMs such as Mazda, Kia and Mitsubishi. Designing a platform for each segment was costly due to the lack of economies of scale. Otherwise a modified version of a previous platform led to a substandard entry that was doomed to mediocrity at best. Frequently, the lack of true economies also dictated that the offering was not competitive as an export and therefore relegated to domestic markets only.

Given the new reality in the Japanese auto industry and the events surrounding Korea's, distinct trends will be evident during the ensuing decade. Successful Japan/Korea OEMs will be forced to restructure operations, examine old paradigms, seek new supplier partnerships and be more globally accountable. The following are trends outlined by CSM Worldwide.

Inter-company Platform Consolidation

Quickly becoming the holy grail of mass vehicle production, platform consolidation within a company or brand is the initial step to efficiencies. Nissan's recent steps to combine the U.S. Altima (ZQ) and current Japan-sourced Maxima (PQ) under the FF-L platform underscore this trend. FF-L will also spawn a minivan and compact SUV entry (see platform profile below). Coupled with this initiative is the elimination of poor-performing offerings that occupy an entire platform. Examples include the Mazda Sentia (929) sedan, Nissan President and Mazda Carol mini-car.

Intra-company Platform Consolidation

Renault rationalized its equity stake in Nissan through global intra-company platform rationalization. The much-publicized upcoming B-car platform (see platform profile below) will become the basis for the next Renault Clio, Nissan March and Nissan Cube. Other bodystyles are possible. The U204 platform at Ford/Mazda derived two distinct offerings from a single platform for two companies. Suzuki's ongoing efforts with General Motors and the Chevrolet YGM-1 small hatchback copy this theme. Merging relationships such as the DaimlerChrysler/Mitsubishi linkup will generously use this principle to raise economies of scale in the future.

Capacity Reduction and Rationalization

Realignments of current capacity are underway at several OEMs. Nissan, Mitsubishi, Mazda and undoubtedly Daewoo will likely reduce build capability. As global platforms, Japan or western-designed are installed over time, internal production flexibility will increase - reducing the need for production area and limiting overhead costs. As the character of vehicle production alters over time, specifically in Japan, niche offering assembly will be emphasized, allowing international operations to concentrate on higher-volume mass-market entries. Flexibility will be key in this environment

Product Portfolio Rationalization

Not having to do everything for everybody is an important realization. Several companies are looking to their competitors as an avenue to increase volumes through the sharing of platforms on an OEM basis. For example, Suzuki rebages a version of the Wagon R for Mazda as the AZ wagon. Over several years, Hyundai and Kia borrowed Mitsubishi and Mazda platforms, respectively to lower development costs, remedy technology shortcomings and, generally, be careful not to reinvent the wheel. Offerings with lower annual volumes (less than 20-30,000 units per annum) and that are not found in strong performance or technology sectors are strong badge engineering candidates.

Regional Sourcing Shifts

Initially in Japan but more evident in Korea, currency stabilization, shorter order-to-delivery demands and political realities will drive more OEMs to expand operations not in Japan but in markets where growth is more apparent and new segments have emerged. Isuzu's operations in Thailand, Toyota's new facility in northern France and a new light truck plant for Renault/Nissan in the southern U.S. are evidence of regional sourcing initiatives underway. Any new capacity in Japan must certainly be a net affair - replacing an older, less efficient facility.

Supplier Rationalization and Westernization

Breakdown of the Keiretsu and Chaebol systems are well publicized. Although Toyota and Hyundai are still seeking to utilize their closely associated and affiliated supplier base, Nissan (through Renault) and Mazda (through Ford) are actively seeking to rationalize their supplier base, divest equity arrangements and utilize western suppliers (or at least technology) as a raft of global platforms reach Japan over the medium-term. This trend will take longer in Korea as a western OEM (GM or Fiat?) digests Daewoo. Hyundai will not take equivalent strides to welcome new technologies from outside their current group of suppliers.

Summary

Japanese and Korean OEMs have been forced to forge closer ties with Western OEMs to either survive or thrive in the future as the former business model breaks down under the stress of capital requirements and economies of scale. Several trends will define the structure of tomorrow's industry in the region. The onset of western OEMs and global platforms are only one aspect, expansion of the supplier base outside the traditional boundaries, new modes of operation and capacity restructuring will redefine Japan and Korea's participation in the global auto industry.

These findings are summarized from CSM's Japan/Korea Light Vehicle Production Service. An unparalleled analysis of the Japanese and Korean automotive industry.

Launched in October, this brings CSM's platform-focused approach to the region, in line with the existing North American, European and South American services.

Japan/Korea Light Vehicle Production Forecast



 


RENAULT/ NISSAN - FF-L PLATFORM

TOTAL PLATFORM PRODUCTION
Calendar Year Volumes 1996-2005

Production Outlook

The all-new Cefiro and Maxima will fall under the FF-L platform that accommodates medium to large sized front wheel drive vehicles and is scheduled for the third quarter of 2002. The FF-L platform is one of seven major Nissan platform designed to allow greater commonality and reduced cost to the cadre of current Nissan platforms. Both upper-middle sedans will continue to be manufactured at the Oppama plant. Volume is expected to reach 100-110,000 units per annum at full production.

Further utilizing the FF-L platform is a new luxury Compact SUV. The offering is being designed in the same vein as the Harrier compact SUV from a unibody base. Production of the offering for Japan and international markets will commence at its Kyushu plant in the third quarter of 2002. The SUV, code-named TT will compete with Toyota's Harrier (RX300) and is also slated to for export to the North America market. Additionally, is is expected that the next generation of the Presage and Bassara will utilize the FF-L platform for its basis in early 2003CY. Production would be added to the Cefiro and Maxima at Oppama.

The Maxima-based sedan, Samsung SM5 will also be replaced by the FF-L platform SM6 program in 2004CY. Nissan will slowly increase overall volume at Samsung as its resources are concentrated on the Korean market.

Product Outlook

New Cefiro and Maxima, the sporty-focused upper-middle sedans, will encase additional power and luxury by offering the refined 3.0L, 24-valve aluminum V6 engine. The new engine is slated to reach 250hp, 30hp more than the current 2.5L DOHC offering in the Japanese market. Both will be designed jointly with the XX Maxima under design for production at Nissan-Smyrna for mid-2002CY. Dimensions of the Maxima and Cefiro will not increase on the exterior but interior dimensions will increase - maximizing all areas of the vehicle.

With the Maxima and the Cefiro (Infinity I30), Nissan has aim to provide its buyer with a superior-quality, highly rational sedan that is distinctly different from currently available large sedans, which have tended to push luxuriousness to the forefront. At its Kyushu plant, Nissan will introduce the new luxury compact SUV, production is expected to average 70,000 units annually. This market is growing worldwide signalling Nissan's desire to enter the market against Toyota and Mitsibishi. A 3.0L DOHC gasoline powerplant borrowed from the Maxima/Cefiro will be the base engine for export markets. Expect exterior styling to be aggressive with tones carried over from the 20001CY smaller X-Trail.

In early 2003CY, CSM is forecasting the Presage and Bassara to join the FF-L platform. This will allow for lower overall production and component costs for the chiefly Japan market focused version. In the US, Nissan will derive the UL minivan from the FF-L platform starting in 2003CY.

 
RENAULT/ NISSAN - B PLATFORM

TOTAL PLATFORM PRODUCTION
Calendar Year Volumes 1996-2005

Production Outlook

In Japan, the B- platform supports replacement programs for the B segment Nissan March and Cube. Development of the "B" platform is the first joint product action of the Renault-Nissan alliance. The first generation model of the March [K10] was first introduced in 1982CY. The current model of the March [K11] is the second generation rolled out in 1992CY. It is unusual that an offering in the B segment would be remodeled after 10 years, while other models are likely to be replaced in 4 to 5-year-model cycles.

The March replacement is slated for April 2002. The third generation March will share its newly developed B-platform with the Micra, Twingo and the Clio in Europe although its upper body may have a distinctive design among those vehicles. Total output for the B-platform in Japan is expected to be in the 170,000 unit range after its first full year of production in 2003. A replacement for the Cube is expected shortly afterwards for 3Q 2002. Production will be centred at one of the lines in the
Nissan-Oppama facility.

Along with platform sharing alliances between Renault and Nissan, they have also jointly developed the small diesel engine that will comply with the stringent exhaust emission standards from both Japan and Europe. Renault/Nissan plan to load the small diesel engines onto the next B-platform derivatives March and Clio.

Product Outlook

The March directly competed with Toyota's Starlet, a small entry car. Toyota, however, has dropped its Starlet and introduced the Vitz in early 1999CY. The Vitz became a record-breaking success in its sub-compact segment and set new benchmarks in terms of build cost, practicality and the number of offerings which can be derived from the platform. Nissan will be developing the new March with an eye on Toyota's Vitz design and packaging. The March will continue to be 3.7 meters in length and utilize a 2.4 meter wheelbase along with an upgraded 1.0L and 1.3L direct fuel injection engine.

Global Outlook

In Europe the B- platform will support replacement programs for the Renault Clio and Twingo, as well as the Nissan Micra. After all models are fully launched, output is expected to reach over 1m units per year by 2005. Changeover of the Clio X65 to the B platform will begin in mid-2004 in South America's Ayrton Senna plant followed in 2005 by Sofasa in Colombia. After a full year of production output is expected to be under 60,000 units annually.

masakitaketani@csmauto.com
CSM Worldwide
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