Representatives from Europe’s automotive industry gathered in Paris this week for the seventh annual Automotive News Europe Congress. The speaker line-up was as impressive as ever and Crain Communications ensured the usual slick organisation. ‘Maintaining Growth in a Ruthless Market’ proved an apt theme for this year’s Congress. David Leggett went along.

Things aren’t exactly great in Europe right now. The European market is set to decline in 2003; margins are under pressure at all points in the production chain; exporters to the US are coming under pressure from euro appreciation against the dollar. Block Exemption changes are providing an opportunity for vehicle makers to restructure distribution operations, but it is an opportunity for further slimming down that the industry would prefer not to have to exploit.

The PwC European Automotive shareholder value awards said it all: in the European Vehicle Manufacturers category, one-year period, the winner was Renault with -25.1% (against the index for all makes of -39.7%). Yes, an investment of 100 euros in 31 May 2002 in Renault shares would have declined to just 75 euros a year later and that sorry result was ‘best in class’. Little wonder that Louis Schweitzer looked a tad embarrassed accepting the award.

But it is against this rather unfavourable environment that manufacturers and suppliers must devise their strategies for future growth. As usual, the Congress programme was filled with a healthy mixture of executives from the OEMs and suppliers. What follows is a summary of some of the main points from the presentations and proceedings.

Let’s start with some Crain ‘house business’. Good wishes go to Richard Johnson, ANE’s editor who is returning to the US. I’ve been reading ANE since its inception and in my opinion he’s done a great job in setting the editorial tone, editorial standards and building ANE into the influential publication that it is today. He’ll certainly be a hard act to follow.

Difficult times and embracing change
The Congress presentations began with Steve Young from AT Kearney – the event’s main sponsor – setting the global scene. Shareholder returns over the 2000-2002 period looked pretty good for Nissan, Hyundai and Porsche, but suppliers in particular seemed polarised between good performers and financial strugglers. Once again, a chart based on ‘Altman’s Z score’ highlighted the financial difficulties facing a significant section of the industry. But he also pointed out that China presents the industry globally with a massive opportunity. “By 2015, China will have half of the middle income consumers in the world.” An issue of paramount importance therefore, is what do companies need to do now to be positioned to exploit that opportunity? Similarly, the growth of electronics content in vehicles (doubled over last ten years) presents a strategic challenge and a need to know how to ’embrace change’. Can’t argue with that.

Executing the premium brand small car – the case of BMW’s Mini
Michael Ganal, member of BMW’s board, sales and marketing, delivered a presentation that concentrated on BMW’s small car strategy. Ganal laid out BMW’s premium brand principles – ‘authentic’ premium products that possess uncompromising quality – applying from, in BMW’s case, the Mini brand through to BMW and ultimately Rolls Royce.

BMW sees the small car premium segment as a strong growth area for the future. Mini should appeal to both the young and the ‘young at heart’ with strong design and brand values that embody ‘clever use of space’, ‘driving fun’ and individualistic expression (there are 260 colour scheme options).

BMW’s Ganal in full flow

Ganal said that the Internet is and would be important to communicating the mini brand identity and he said that marketing strategy includes a ‘guerrilla marketing’ element. Mini should be young and dynamic. But it is also important that the mini products should incorporate core BMW group values in areas like safety and quality. The average age of the Mini purchaser was put at 7-8 years younger than the average BMW buyer.

In summary, Ganal claimed that the Mini is the first global small premium car and that it is enabling BMW to grow a new segment of the market. What about the upcoming 1 Series I hear you ask? Is there a degree of overlap? Ganal said that the new small BMW has ‘zero overlap’ with Mini. It is ‘unmistakeably a BMW’ (eg RWD; shares quite a bit of componentry with 3 Series). He made the point strongly that BMW would not have two brands in the same segment.

Ganal also said that future Mini production growth would be in England and not outsourced to other plants within the BMW group (eg in the US). Ganal also admitted that BMW is developing Mini sales from its BMW customer base, at least in the beginning. He also said, in response to a question, that BMW is reviewing Mini engine supply as it looks to get out of the Brazilian Tritec Chrysler engine joint venture supply deal.

He was also confident that 2003 would see an increase to BMW Group car sales in spite of sluggish demand in Europe.

Visteon‘s Tier 0.5 vision
Heinz Pfannschmidt, Visteon’s President of Europe and South America, delivered the conference’s first Tier 1 perspective. He conceded that the European sales environment has been difficult, with sales volumes softening in 2002 but said that some recovery is expected at the end of this year and into 2004. He also sees some support for Visteon in Europe from increased exports from Western Europe.

But Pfannschmidt had some interesting observations on where the industry’s production chain value added has been moving and may be headed. He presented figures that suggested the share of value added accounted for by suppliers had increased to close to the level accounted for by the vehicle manufacturers – ie a 50:50 split. That development has clearly been driven by the growth of modules and systems supplied by Tier 1s to the OEMs. But that raises issues: who has control? What about differentiating features on the vehicle – who controls them?

Pfannschmidt also touched on the increasing need to transfer production to low-cost locations such as Eastern Europe, as part of the need to be profitable even with low volume. The words ‘redeploying’ and ‘reshaping’ were used.

The second half of Pfannschmidt’s presentation lapsed into a more conventional marketing presentation – Visteon’s product development and so on. There was one interesting focus on the importance of ‘space-saving solutions for systems’ – packaging. I would have liked more on that before we were into telematics (rear seat DVD, bluetooth etc) but then we got a load of slides about Visteon’s internal organisation and cost saving procedures (including mantras) that we really did not particularly need to know.

New kid on the block
Stefan Jacoby, Mitsubishi‘s European boss, gave a convincing presentation about the forward-looking perspective of one of Europe’s smaller brands. I liked the way he started: A Town Called Malice by The Jam and a description of a company in dire straits. High management and distribution costs in Europe; an inefficient organisation and low brand awareness. What should they do? Leave Europe? They decided to stay.

He sounded enthusiastic and I was left to reflect that the great thing about small market share and a blank piece of paper is that it is all to play for. But small things come first. Like job descriptions! I would imagine the human resources people at MME have been busy lately, but his emphasis on the importance of people was refreshing to hear. It may sound basic, but having the right people in the right places – especially in a region like Europe – is crucial.

And for the Mitsubishi brand, establishing a multicultural organisation in Europe, against a backdrop of Japanese heritage, has been and is a priority. The facility in the Netherlands has been developed and expanded and a New Compact Car is coming. Mitsubishi – in common with other makers – is also taking steps to reduce distribution costs and is implementing selective distribution with new contracts.

Mitsubishi in Europe has a market share of around 1%, but is shooting for 2%-2.5% in the ‘medium term’. In terms of sales networks, MME does not want to combine with Hyundai – a direct competitor – but Jacoby seemed to think that Chrysler could possibly be a fit.

GM’s post-Olympia landscape – the great ‘all-rounder’
Jonathan Browning (VP Sales and Marketing and Aftersales, GM Europe) presented things from the GM point of view. The main theme of his presentation was the position of GM as an ‘all-rounder’ and the challenges that presents and how they are being met. He talked of the need for complete and integrated solutions as well as the requirement for a seamless interface between the VMs, sales channels and customers. ‘Get the basics right’ (product, brand, price, campaign management and a profitable network).

He made a point of pointing to GM’s better cars in Europe – such as the Meriva – and played up the future importance of GM’s multi-brand opportunities (Opel, Saab, Chevrolet, Cadillac and let’s not forget Daewoo).

In terms of costs, Browning estimated that transaction costs in Europe are around 3.4 billion euros annually. Of that, 60% is estimated as value added with some 40% falling into ‘non-value added’ and therefore offering potential for savings. Vehicle shopping and buying, aftersales service and administration are areas where he sees waste that can be ‘chased out of the system’.

Browning wants to see long-term and sustainable growth for GM in Europe on a low cost base. It’s a multi-brand vision with ‘expanded downstream capability’ and an ‘integrated set of customer deliverables’. Saab and Daewoo still have some way to go to be functioning properly. They will retain separate market-based organisations ‘for the time being’.

Will a Saab be built in the US? Browning said there are no plans and that generally, GM has plenty of capacity in Europe. He was pretty downbeat when asked about the possibility of an emerging crossover segment (a la US) in Europe (‘Europe is a mature place in terms of wagons and sport-wagons – NA is very different’). Should the Vauxhall brand go? It was the usual GM answer – an emphatic no and the statement that GM has a history of allowing local brands like Holden in Australia. Seems crazy to me; Vauxhall has a very poor image in Britain and Opel could be a brand that would at least carry connotations of German quality. Is pan-European branding not the way to go? Do the people at GM ever listen to customers rather than ultra-conservative dealers?

It’s all about product – Mark Fields
Mark Fields, Chairman and CEO Premier Automotive Group, worried me. No, it wasn’t the slightly laboured slides of cabbage patch dolls – or something like it – that started the presentation. It was his insistence on the over-riding importance of product and by implication, a message that branding is not so important. If he was in charge of the Ford brand, I’d like to hear that. Ditto Mazda. But PAG is all about premium brands. And there is something, don’t we all know, of smoke and mirrors about that end of the business. Brand is where profits are to be made. Premium rocks because it is high margin. Just take a look at BMW. Within PAG, a Jaguar X-Type may be on a Ford Mondeo platform, but it is a Jaguar and needs to be seen as such. It needs to carry Jaguar brand values in the market and then it should be able to enjoy big margins. The trick is not to shout about the manufacturing details under the skin in the marketplace. The consumer’s experience should be an undiluted Jaguar experience, unsullied by the upstream industrial origins of some elements of the car itself. I would have liked a little more insight into creating product differentiation and the processes that are pertinent to creating brand differentiation within Ford’s and PAG’s extensive brand family.

There wasn’t a whole lot of meat in what was, granted, a slickly delivered presentation. We heard about Jaguar’s developing ‘core competence’ in aluminium, the material of the future in large luxury sedans, as well as the ‘success’ of the X-Type in reaching 130,000 units pa volume. And there’s a diesel coming of course.

Does PAG have too many plants? There are no plans to close anything (which – if really true – means Jaguar will carry on making thumping losses). And no, Ford won’t be selling Volvo Car (I don’t believe it, but the persistence of that rumour is disturbing).

What about Land Rover’s abysmal quality? It just needs to have the Jaguar treatment. All will be well when it has had Ford processes and disciplines imposed.

But Fields went out on that product is everything line and I cringed. Don’t get me wrong. You need to have product right of course, but if you work as the main man at PAG, you should perhaps be stressing that it is about product in conjunction with something else a little bit special. These are most certainly not commodity products. Maybe it is all about emphasis and maybe I’m being unfair; maybe I am still thinking back to a very different presentation I once heard from Fields’ predecessor.

OEM-supplier relations panel session
ANE adopted its usual policy of breaking one of its congress sessions into parallel panel sessions. One looked at retailing issues and ‘fighting for customers in the post-Block Exemption world’ while the other was concerned with industrial issues: ‘In search of the win-win situation in OEM-Supplier relations’. I attended the OEM-Supplier relations session; the panel consisted of a selection of senior OEM and Tier 1 executives (Europe and US companies; no Japanese). Here is a selection of salient points to come out of the session:

  • China is an expensive place to manufacture parts right now, described as 20-40% more expensive than comparable operations in Europe;
  • PSA was low-key on its Faurecia involvement, claiming that it does not want full control and Faurecia also said that an ‘arms length’ relationship is preferred (VW, rather than PSA, being Faurecia’s biggest customer);
  • Faurecia said it is still growing in Europe, focusing on six modules;
  • PSA sees its Toyota small car JV in Czech Republic as a ‘fantastic opportunity’ to learn from Toyota but PSA also believes that it is well ahead of Toyota in terms of modularisation;
  • TVM (Team, Value, Management) is the acronym of the moment in Ford’s purchasing department and it is all about collaborative working with suppliers to reduce cost (not necessarily price!) looking at materials, logistics and all areas of supply chain;
  • E-commerce is seen as having a good future, but all participants stressed the limitations of online auctions in terms of non-commodity or high-engineering content parts/services;
  • Ford’s purchasing representative thought that there are opportunities for significant savings in the area of ‘packaging and logistics’, which tends to be an area of activity that is not very well resourced and undervalued – with slim management resources;
  • Increased warranty periods and increased warranty costs as a result are stimulating increasing debate between OEMs and system suppliers on where responsibility lies;
  • Valeo‘s ‘direct to dealer’ initiatives – which bypass the OEM customer – brought a sceptical reaction from suppliers present who felt that it is better to focus on the Tier 1-OEM relationship first and foremost;
  • OEMs and Tier 1s need to collaborate on ELV and designing in ease of separation for vehicle end of life.

The BP LS double-act
In the evening of the main Congress day, we were treated to some standard Crain things. The PwC European Automotive Shareholder Value Awards were one thing – Porsche again (vehicle maker 3 year period); Beru AG in the supplier category (3 Year period); ElringKlinger (supplier, 1 year period); Ryland Group plc (retail distributor, 3 year period); Bilia AB (retail distributor, 1 year period) and of course, Renault on vehicle maker, 1 year period.

Would you mind moving your head please?
Cristina Siletto, head of ‘Project 199’ at Fiat, received the ‘Woman of the Year’ award (I liked her anecdote about the presumptions made by some over Engineer Siletto’s gender: ‘No, I want to speak to Engineer Siletto…’).

We were then treated to the Louis Schweitzer and Bernd Pischetsrieder as after dinner speakers. Schweitzer in particular, seems to be ideal for these occasions. He really knows how to work the audience and get a few laughs.

Main points – BP:

  • Euro appreciation versus the dollar and squeezed margins won’t mean any changes on VW prices or volume in the US: “Market prices and our market position won’t be sacrificed”;
    Also, VW is happy with its NAFTA capacity and has no plans to add a plant for the region;
  • BP predicted a shakeout in the car dealerships sector in Europe, noting that there are more than 60,000 dealerships in Europe and about 20,000 in the US for markets that are about the same size;
  • BP also said that he expects to see a two tier retail system in Europe, with fewer but bigger dealers and more service points;
  • BP said that the Phaeton roll-out has been marred by the wrong sequence of engines – more sales success will come with the introduction of an eight cylinder powerplant;
  • Touareg should prepare the ground for premium VWs (10 cylinder diesel will be sold in US);
  • China is the ‘golden boy’ for VW – second largest market – and motorisation there is a tenth of South Africa’s level;
  • BP does not see China developing as a platform for major vehicle exports to the rest of the world. The overall Balance of Trade is favourable for China, manufacturing costs in China are high and the main focus of production in China will be to serve the growing domestic market;
  • The next emerging market after China? India.
  • How will outsourcing go at VW? – more in manufacturing, less in engineering and especially software engineering that VMs need to get a grip on.

Main points LS:

  • Analysis of market value of OEMs between 1996 and 2003 shows Renault now on 12.7 billion euros – a multiple of 2.14 on the ’96 value. Porsche was easily the winner over the period, standing at 9.1 billion euros – a multiple of 11.9 on the ’96 value;
  • Would Renault still be interested in Volvo Car if Ford wanted to sell? “If the price was right, yes,” Schweitzer said. “Volvo is a great brand, it always has been. It is profitable and doing well”.
  • Renault has no specific plan to return to the US market, but after 13 years ‘rest’ since exit, around 2010 may be the time;
  • Renault plans to get into China via Nissan’s Dongfeng operations – in twelve months time, we’ll know more;
  • Will Renault cars be made at Nissan’s Sunderland plant? Ask Nissan.

Other ANE Congress highlights:
Where is the big electronics opportunity right now? Bosch says ESP, that’s where. Installation rates vary across the world, but are just 6% in NA versus 23% in Europe. Asia is also low. Even In Europe there is potential in some countries/makers. Germany has 47% ESP fitment versus 24% in France, 12 % in UK and 11% in Italy.

Fabrizio Giugiaro believes that India with its low cost designers will be an increasing force in automobile design, with new design houses.

Mercedes-Benz cars plans to consolidate its global market position with a product blitz – 14 new products in the 2002-2005 period, stressing the need for niche models to meet changing customer needs and wants.

The A-class will not be going on sale in the US. The next one will be ‘refined’ but not fundamentally different to the current A-class.

PSA’s strategy of developing more niche variants of the same model is called the ‘daisy strategy’. Its Chinese model produced by Dongfeng and on the 307 platform is planned to rise from 30K production in 2004 to 100K by 2007.

PSA is happy not to have an SUV in its range for the time being and happy with its range – covering 90% of the passenger vehicle market.

The French market will stay weak this year – further impaired by political unrest.

As far as Renault and Nissan common platforms go, there is a B and a C, but a decision on a D is pending.

The greater integration of Renault and Nissan dealers will be a ‘long-term process’.

Giugiaro: I drive a Daewoo Matiz at the moment