In Prague, the European auto industry is gathered at Automotive News Europe’s 5th Annual Congress event. The speakers are drawn from the OEMs and large suppliers and the event serves as a useful guide to the key issues currently being discussed at all levels in the automotive industry.
Managing editor Dave Leggett is attending for just-auto and has filed this quick-fire summary of the proceedings on the first day.
Michael J. Burns, president, General Motors Europe
Main theme of address:
Talked about GM’s strategy of striking alliances with other automakers in preference to outright purchase, concentrating on the alliance with Fiat.
- Three factors underpin the strategy: (1) the need for a global sales footprint; (2) building multi-brand strategies; (3) exploiting scale economies.
- GM is concentrating on growing presence in high-growth emerging markets such as China, Korea, Brazil and Russia.
- Examples of alliance strategies: Chevrolet YGM-1 developed with Suzuki. A car for the Asian market produced in Japan. In the US, the Dumax diesel engine produced by Isuzu and fitted to the Silverado heavy-duty pick-up. In Europe, cooperation with Suzuki spawned Opel/Vauxhall Agila minicar. Also Chevy Borego concept – a sports truck designed by GM and running on a Subaru chassis.
- ‘Preferred partner approach’ means management actively engaged on capital efficiency and focussing on business results.
- Fiat/GM powertrain JV is producing aggressive shared powertrain convergence:
- Examples of additional areas of Fiat/GM cooperation: shared parts warehousing in Argentina has cut costs by 40 percent. In 2002, a GM facility in Thailand will assemble the Alfa Romeo 156.
- Also, Fiat and GM plan to develop ‘joint architecture’ for the premium brands of Alfa Romeo, Lancia and Saab. A new technical centre in Sweden has been set-up to achieve this. Burns stressed that the joint architecture would not lead to any fuzzing of the brands – ‘no compromise on that’. It’s not platform sharing; more flexible and allows for different vehicle dimensions. Cadillac won’t be joining the premium club though.
- Burns talks to Testore 3-4 times per week – an indication of how closely they liase.
- Sales in Russia are looking up (Saab and Opel). Dave Herman is doing a ‘great job’.
- Saab will have 4WD in the ‘not too distant future’.
- GM’s problems in the European marketplace will ‘take time to fix’, but there’s a ‘good team’ working on it.
Jose Maria Alapont, VP Europe, Middle East & Africa, Delphi Automotive Systems
Main theme of address:
The tier one supplier perspective.
- Consolidation in the supplier industry has led to the decline of the total number of global Tier 1 companies from 800 in 1999 to a future level of 30. Tier 2s are also on a shrinking trend from 10,000 in 1999 to 800 in the future. As carmakers have become global, so they have developed key relationships with global programme suppliers and modularisation has increased auto supplier industry concentration. Demands on Tier 1s have changed as they have to increasingly manage Tier 2s and 3s.
- Systems integration and modularity is an irresistible force. Delphi produced 34 million module units in 2000.
- ‘Supplied-in-line-sequence’ is becoming more important, with direct EDI links to the customer.
- In terms of advanced technology, Alapont dwelt on the need for OEM/supplier cooperation. R&D in electronics is expensive; it can account for up to 15 percent of the eventual revenue. The upstream view is essential for the OEM to get the right product for the end-user.
- Mobile multi-media: will grow from US$9 billion sales to US$42 billion by 2010.
- The diesel share of the European car market will expand to at least 40 percent over the next five years. At present, the market is constrained by capacity factors (especially diesel injectors).
- Look for ‘steer-by-wire’ (yikes!) in 2004/5.
- Consumers’ perception may be the problem with that technology.
- 42 volt is coming within the next 24 months. Duality of voltage may be part of the offering to start with but the weight of demands on the electrics is driving this. 12v is suffering big time.
- Delphi has exited some $7 billion of business it doesn’t need. Another $4 billion needs to be ‘strengthened or exited’ = $11 billion restructuring in total.
Main theme of address:
How well Peugeot is performing.
Mr S-G gave a very upbeat market assessment. Peugeot global sales have grown from 1,203,000 unit sales in 1997 to a forecasted 1,800,000 units in 2001.
- Redefining the marque has gone hand-in-hand with a vast product renewal plan that began in 1994. The marque signature has been developed too: ‘the drive of your life’. It’s about styling and aesthetics, dynamism and know-how, reliability and innovation.
- On the product side, 1997 saw the 406 coupe. In 1998, the 206 arrived (now being produced at 3,500 units per day). In 2000, Peugeot brought out the 607 and the 206 coupe cabrio (described as the ‘perfect illustration of driving pleasure’). On the engine side, Peugeot now has high-pressure diesel injection engines (HDi), the HDi particle filter and the high pressure direct injection petrol engine (HPi). All of this is underpinned by a policy of raising quality standards and maintaining a competitive pricing policy.
- For the future, Peugeot is looking to maintain its innovation, growth and profitability (yesterday evening, PSA won the PWC shareholder return for European auto vehicle manufacturer award over both one and three year periods). A lot is riding on the 307 in the ‘M1’ (lower medium or ‘C’ segment) part of the market. More diesel engines too (looking to do 9,000 per day jointly with Ford by 2005).
- On product, Peugeot is moving from seven to three generic platforms; the 2004 objective is to have 85 percent of vehicles in the group produced on the three main platforms. In terms of rollout, it is planned to introduce 25 new models between 2001 and 2004.
- ‘Concerned’ about the effects of the reform of Block Exemption in Europe. Direct control of around 25 percent of sales is fine.
- Still looking to do a small car with another maker- eg Toyota.
- Looking too to raise its share of the German new car market from just over 3 percent now to 5 percent by 2004.
Juan Jose Diaz Ruiz
Executive VP sales and marketing, Fiat Auto SpA
JJDR is a firm conference favourite having addressed in past years for his previous employers who include Ford, Audi and Toyota. If he speaks next year will it he be representing Fiat? Like an in-demand footballer, who can say with certainty? However, he seems happy at Fiat and gave an upbeat assessment of the Italian maker and its brands strategy.
Main theme of address:
Getting the basics right at Fiat; the Fiat brand strategy
- The European market is changing with consumers becoming much more demanding. Fiat has had to change from a company with a predominantly mono cultured and manufacturing-led culture to one with a multi-culture – multi-brand, multi-products and multi-markets outlook. The only constant now is ‘change’ and Fiat is aiming for three strong brands and ‘satisfied and loyal customers’. The starting point is the need for three distinct brand identities, three different brand visions and three clear brand missions.
- The brands in a nutshell: Fiat embodies ‘youth, form and energy’. It is being moved upmarket and away from its small car (segments A and B) reliance and into a greater presence in segments C and D. The Fiat Stilo (Bravo/a replacement) due in September 2001 has some very ambitious (in my view) targets attached to it. Volume will be up but it is planned that the transaction price will be up by around 30 percent on the predecessor too. It looks like a nice car, but I do not see how the market will wear that. Good luck Fiat.
- The Alfa Romeo brand is about sporting passion, driving enthusiasm and elegance of design. Its products are increasingly targeted at young executives and professionals.
- The Lancia brand is being repositioned above that as a luxury brand, with cars that have Italian style, exclusivity and are overtly luxurious. They will occupy a ‘new luxury’ segment that is being re-defined by the likes of Jaguar, Bentley and Maybach. ‘Il Granturismo’. Lancia sales growth stands at 22 percent in 2000.
- From a group perspective, the linear line is Fiat products for when you are young, Alfa when you are a little older and Lancia when you are hugely successful in middle age and beyond. Fiat is concentrating on ‘loyalty’ (1 percent loyalty = 16 million euros!). Fiat is becoming a process-oriented organisation, able to react to new market wants. A lot of time and effort is being spent with the dealers.
- On info-mobility, we were shown a video about Fiat’s ‘connect’ product. It puts the driver in contact with operators (800 at a central base) who can advise on traffic etc. The woman in the video would surely have crashed from looking at the console screen!
- Between 2001 and 2005, Fiat is planning to rollout 19 new models. Globally, much weight was put on the success of the Palio range. It is sales leader in Latin America and 2001 sees the car introduced in India (Sept. 2001) and China (Oct. 2001). The Palio family is forecast to hit 450,000 sales this year.
- Work with GM is on ‘common architecture’ and it is planned that brand identities will be protected. Fiat is working on monospace model variants in many segments of the market; in the main segments the vehicles will be more conventional than the Multipla, which is ‘still growing’. For Lancia, much rides on the ‘Thesis’ model.
- No plans to enter US market.
Dr Takis Athanasopoulos, Executive VP and COO, Toyota Motor Europe marketing and engineering
JJDR’s successor at Toyota began with an overview of conditions in Europe. The market is down by over three percent in the first five months of the year and Toyota is also facing adverse exchange rates (yen versus the euro and yen versus sterling) as well as the 10 percent import duty to the EU. But in spite of this, Toyota is ‘doing well’ in Europe. It has just had its best-ever May (295,000 units). The Yaris is only part of the explanation in terms of product, with other models like Avensis, RAV-4 and Celica also performing well. Toyota’s European market share is 3.7 percent and rising; 800,000 annual sales and a five percent share are planned for 2005.
On the production side, annual output is being increased at the Yaris plant in Valenciennes, France, from 150,000 to 180,000 by 2003. Toyota Motor Manufacturing UK is increasing production from 170,000 units annually to 220,000 by 2002. Design, as well as manufacturing, is being increasingly devolved to local regions too. European Design Development (ED2) is in Nice.
In global terms, Japan leads its home market with 42.3 percent share and in the US is moving towards 10 percent share. But Europe is a strategic focus, where it is felt that Toyota needs to be stronger and more profitable – at the moment, European operations are losing money, due to their heavy investment and unfavourable exchange rates. By 2003, Toyota is looking for European activity to be profitable. One key development, in addition to stronger core models, is better diesel engine options. 1.4-litre and two-litre common rail diesels in the Corolla and Avensis will make a ‘big difference’.
The Yaris is broadening the appeal of Toyota products to younger buyers. Toyota is also investing in its distribution network in the formerly volume-constrained markets of Italy, France and Spain. In Finland, Norway, Iceland and Greece, Toyota is market leader. Toyota believes that its focus on the customer’s wants will naturally take it to the top in markets where there is no dominant national player. It’s about giving the ‘best vehicle purchase and ownership experience’.
- Relishes F1 involvement.
- Toyota will invest more in hybrid technology in segments besides the Prius – including trucks. The target is to be making and selling 300,000 hybrid units per annum by 2005 (10x today’s level).
- Fuel cell hybrids will be out by 2003.
- Toyota is still talking to Bmw about diesel engines for the Mini. An assembly plant in central/eastern Europe looks likely on the basis of the response to that question.
Vratislav Kulhanek, chairman of the board of management, Skoda Auto
Skoda’s history and its revival
- Stemming from the involvement of Volkswagen in 1989 (100 percent ownership only being confirmed as recently as May 2000), Skoda’s revival encompassed three main phases – (1) product/quality improvements; (2) product range enhancements; (3) brand image.
- In the first phase, Skoda worked hard on quality and also on developing a good quality local supplier base. It now has modular production processes. Phase 2 got into gear with the launch in 1996 of the Octavia, which took Skoda into a new segment of the vehicle market. It was a major image breaker and the model’s success led to a big increase in Skoda production volume (90,000 annual output of Octavia was planned, but it has worked out at closer to 160,000 p.a.). In 1991 Skoda output totalled 172,000 units; by 2000 it was 435,000 units.
- The Fabia built on the success of the Octavia and exports have risen strongly (82 percent of production is for export). But Skoda still has a commanding 52.6 percent share of the local market (2000 full year).
- The Skoda brand image is based on ‘top quality and value for money’. In the future, Skoda wants to move the brand towards association with elegant design too. The value for money label should not be confused with cheapness, however.
- It was argued that internal studies show that there is very little cannibalisation of other VW marques by Skoda (‘single digit percentage’).
- Employees of Skoda employed in manufacturing in the Czech Republic are between four and seven times cheaper than their Wolfsburg counterparts.
- The ‘Montreux’ upper class sedan (Passat platform) will not be called Montreux and is ‘not going too far with brand stretch’.
- Skoda is looking at setting up an SKD assembly operation in Russia next year – probably involving the Octavia. Prospective sites are being evaluated now.
Hans-Olov Olsson, president and CEO, Volvo Car Corporation
The change in brand image of Volvo over the past decade (‘revolvolution’).
- Volvo’s brand image has changed over the last 10 years – more sporty, more active and emotional – but it has not lost its identity; the traditional Volvo values remain. The sporty Volvo S60 introduced last year illustrates that. Volvo products are now grouped into three distinct types: entry (S/V40 and next generation small Volvos); core (S60, V70, XC) and luxury (S80, V70).
- An SUV building on the Adventure Concept will hit the market in 2002. Volvo also has a new diesel engine that Mr Olsson seemed excited about. The new Volvo design centre is in Barcelona.
- In a Ford PAG context, Volvo is the biggest volume player and will play a big part in the new PAG distribution process, which will see two or three brands sold at the same dealer point (though separately). Brands will be kept apart and exclusive in visible areas, with the cost savings at the back end.
- VCC has worked to reduce the number of its suppliers from around 375 in the 1980s to 175 now. Single sourcing and modularisation has brought this about.
- SUV will be a ‘true Volvo’.
- Dealers will stay central to VCC distribution.
- ‘There are cars. And there are Volvo cars.’
Dr Robert Büchelhofer, Board member with responsibility for sales and marketing, Volkswagen AG
The power of brands.
- The rapid development of the ‘infotainment society’ is having a profound impact on the automotive industry. In particular, space and time are becoming luxury goods.
- For a car-making group like VW, it is essential that the brands have personalities that provoke emotion and fascination. There must be transparency and distinction. The group has nine brands to cover most segments of the vehicle market.
- At the core are the group values shared by all brands – quality, safety, environmental awareness and social competence. Building on that base are the distinctive brand values associated with each brand.
- Bentley: powerful, sports, British heritage. Being revitalised – Le Mans.
- Volkswagen: human, sympathetic, leading – ‘Golf generation’.
- Audi: advanced technology and sports.
- Seat: happiness, Mediterranean, ‘Auto emocion’.
- Skoda: top quality, value-for-money, functional.
- VW commercial vehicles: individual transport solutions for business.
- The vehicle market is becoming more and more fragmented (1987, nine segments, now 30+) and the brands focus the manufacturer response. The brands must be allied to a manufacturing strategy that protects model differentiation in spite of modular production techniques. Brand cannibalisation within the VW Group is ‘low’.
- The Internet is having profound effects on purchasing behaviour and also connectivity wants within the car – dynamic navigation, e-mail on the way to work, locality information, reserve parking spaces. ‘My mobile office’ links the PC with PDA and WAP. VW believes that it is important.
- Gläserne Manufaktur in Dresden and Autostadt develop the manufacturer’s interaction with the consumer via the dynamic brand. Compelling stuff: see your car being made, participate in the process. Develop emotional tie to brand and to car purchase. Disney are, apparently, regular visitors to Autostadt.
- There are ‘no plans’ to spin-off a VW version of Ford’s PAG. The VW brand is ‘strong enough’ to add the super luxury D1, which is clearly a VW and not, say, an Audi. There was a robust defence of the differentiation of the D1 and Audi A8.
- What about VW’s poor share price and low market capitalisation? A ‘mystery’ down to the analysts.