Delegates at the first day
(19th June, 2000) of Automotive News Europe’s annual Congress, being held at
Montreux in Switzerland, heard from the industry’s leaders that the automotive
industry stands at the brink of great change. Web-based electronic trading will
radically reconfigure the automotive industry’s supply chain. There is general
agreement about that. But there is less agreement about the structures through
which this will be achieved.

 

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The
e-commerce ‘tidal wave’ is coming

E-commerce in the automotive
supply chain is a tidal wave on the way. Presentations from top industry executives
emphasised the scale of the change on the way and the cultural shift that is
involved. Efficiency gains stem from the performing of more tasks in real-time
and the benefits identified include:

  • inventory is greatly
    decreased – a potentially massive cost saving as build-to-order becomes the
    norm;
  • global trading platform
    reduces costs as parts and configuration complexity is reduced;
  • speed of purchasing
    transactions accelerates;
  • quality is improved by
    better information at all parts of the supply chain;
  • capacity planning is
    enhanced by more information;
  • product development data
    is enhanced and development times for new models could fall from the current
    42 months to just 12-18 months;
  • virtual test models can
    be developed.

The e-commerce vision presented
is compelling with a global trading framework embracing OEMs, Tier 1, Tier 2
and Tier 3 participants helping to put the final customer in control through
build-to-order. Some 10-15% of the final vehicle cost could be saved through
the widespread adoption of supply chain management on the web.

There are
still lingering suspicions about the motives behind the common electronic
trading platform proposed by the OEMs – squeezing suppliers’ margins
could be a worry, with an over-emphasis on price – and political disagreements
mean that multiple systems could well be developed. That could compromise
the benefits inherent in a common web-based trading platform for global
parts procurement. Nevertheless, COVISINT seems to have momentum and
is the leading player. E-commerce is coming in a big way and providing
that FTC and EC approval is forthcoming (a likely yes) business procedures
in the automotive sector will be transformed soon.

 

New
millennium, old challenges: OEMs adding value in a crowded market

The day saw a number of
OEM presentations, including presentations from Toyota, Renault, Citroën
and Ferrari (yes, Ferrari). Brand management was a constant theme.

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Mr Juan José Díaz
Ruiz of Toyota described Toyota’s European ambitions in the context of the company’s
“glocal” philosophy. The idea is to build a strong family of Toyota
vehicles with Toyota ‘DNA’ on a global basis whilst making the most of global
scale economies. However, at the local level products should be closely targeted
to local market conditions. This is illustrated by Toyota’s European performance
right now. Toyota is now enjoying success with the European- designed (and shortly
European-built) Yaris range. The car is ‘more emotional’ in its design theme
– meeting the criticism that Toyota makes extremely reliable and acceptable
cars, but cars that are dull and devoid of character. Clearly, building a brand
image in Toyota’s weak market – Europe – is well underway.

Renault’s presentation (Mr
Pierre-Alain De Smedt) emphasised that Nissan is at the core of the Group’s
strategy. Nissan will be ‘profitable this year’ and the revival plan is on track.
The Renault and Nissan cultures and companies were described as ‘complimentary’.
Nissan is a leader in plant productivity and Renault is learning from that.
Already Renault’s assembly time index has been reduced by some 40% since 1995.
The cost reduction plan for Renault is ‘on target’ to achieve a cumulative €3
billion saving over the 1998-2000 period. Operating margin for Renault has increased
to 5.9% – 1999 – from 1.8% in 1997.

The ultimate goal is annual
production for the group of 4 million units by 2010. That means adding more
than a million units and these additional sales are planned for emerging regions
and markets: Mercosur, Korea, Eastern Europe, Mexico and Russia.

A highly innovative product
strategy is at the heart of Renault’s plans, allied to competitiveness strengthened
by the alliance with Nissan. The Avantime (luxury coupespace) and Vel Satis
reinforce the commitment to innovation in design that has characterised Renault
models such as the Twingo, Scenic, Espace and Kangoo.

Work on common platforms
is moving ahead: the ‘B’ platform will serve the next generation – 2002 – of
small cars sold under both brands. The current 42 platforms (27 Nissan, 15 Renault)
is planned to be reduced to just 10 common platforms by 2010. 8 families of
engines and 7 families of transmissions would accompany that. Nissan cars will
certainly be made at Renault plants and vice versa.

In terms of industry consolidation,
the group also has Volvo Truck Corporation, Dacia of Romania and Samsung of
South Korea. Dacia will produce a €5,000 priced vehicle for Romania and
Eastern Europe – using the ‘B’ platform.

Toyota is
getting its act together at last but still has a long way to go to
reach its ambitious volume targets in a crowded European market. One
problem is that the competition is not standing still. Renault for
example, appears to be setting about the task of building synergies
from its alliance with Nissan very effectively. It’s early days still
– and Nissan’s debts remain a millstone – but the sceptics’ assertions
that culture clash alone would doom the marriage have been largely
confounded. The platform reduction objective is central to further
cost reduction in the future.

 

Passion,
technology, design.

For Ferrari, Mr Luca di
Montezemolo described the perspective for a highly specialist low-volume maker.
The melding of sporting passion, technology and design has produced an extremely
valuable brand. Royalties from branding on video games, models and toys currently
brings in US$ 20 million per annum and the company is looking to double that
within two years. Protecting the brand and especially its exclusivity has been
a core objective and has informed product development to prevent the emergence
of higher volume Ferraris. Indeed, for Ferrari, that is where its ‘other’ brand,
Maserati, comes in. New models, including the 3200 Spyder and a 4-door model
working with Pininfarina, will help to raise Maserati output. Maserati will
also be returning to the US.

But don’t look for creeping
technology share between the two marques. Differentiation is sacred. One development
to look out for in the future is the spread of aluminium and magnesium across
the Ferrari range. This builds on the extensive use of aluminium in the 360
Modena.

Citroën: lean, functional,
innovative?

Lean, functional and innovative
are core brand values for Citroën. The company is under pressure to broaden
its range – in part as a response to what Renault is doing. Most recently the
Xsara Picasso compact minivan (MPV) has emphasised Citroën’s move into
market niches. Coming up – in 2002 – will be a Citroën C3-based model that
sits in between the Saxo and Xsara segments. The Pluriel concept, on which it
is to be based, features a modular design and multiple body variants (pick-up,
soft top) aimed at emphasising recreational and ‘fun’ associations.

The C6 Lignage – due 2003/4
– will be a lean and functional luxury car (if that is not, at least in part,
a contradiction in terms).

It is hard
to see how a regional player like PSA can stay independent in the
long run. Supporting two brands with full volume line-ups and similar
market geography is difficult from both a manufacturing and marketing
standpoint. While cars are certainly not commodity purchases, maintaining
brand differentiation between Peugeot and Citroën imposes costs
that will be increasingly difficult to justify in the future.