1) Brand managers are too focused on incremental improvements and reacting to competitors rather than innovation and imagining new possibilities for customers. 2) The auto industry faces challenges like overcapacity, price destruction, and changing consumer behavior, but also opportunities from growing markets in places like China and India. 3) For the UK auto industry to have a successful future, it needs to invest more in new technologies, collaborate across sectors, and develop an integrated strategy around becoming a leader in low-carbon vehicles and energy.

1. Investing in the Future
David Smith

2. Or investing in the past?
Brand managers are obsessed on the ER words: Newer,
brighter, stronger, bolder. Rational benefits nailed by
comprehensive metrics. The job of brand managers
today is to stomp out intuition, instinct and imagination.
Analysis, research and information reign. Researchers
are locked into the rearview mirror (not the windscreen).
In a consumer-owned market, they're inevitably playing
constant catch-up. Consumers have been liberated by
the Internet, red-hot competition and a dazzling array of
customized choices - from "blobjects" to designer
organics. Brands today are table-stakes - they just let
you pull up a chair at the conversation. Brand
management processes don't have a chance today.
Kevin Roberts, CEO Saatchi & Saatchi Worldwide

3. Time for a model change?
Europe Auto Ind Market Cap as % of total market
6
5
4
3
2
1
0
1974 1977 1980 1983 1986 1989 1992 1995 1998 2001

4. Auto value creation or destruction?
ROIC-WACC
Value Destroyers Value Neutral Value Creation
• GM • BMW • Porsche ???
• Ford • PSA • Honda
• Chrysler • Toyota
• Daimler • Nissan ?
• Fiat • VW-Audi ?
• Renault • Hyundai ?
• Mitsubishi
• Mazda
Moving from domestic to
international?
Tata, Geeley, SAIC etc?

5. Sunset or sunrise industry?
• Saturated markets but • Lower cost sources –
long-term BRIC growth China and India
• Over-capacity but distinct • Environmental change –
regional footprints regulatory, competitive
• Product proliferation and and consumer driven.
brand cross-overs • New wealthy middle class
• Price destruction and in BRIC’s and continued
fragmenting power in affluence in mature
value chain markets
• Consumer behaviour • Changing business
• Impact of banking models down value chain
collapse/recession

6. What is the future of the car?
• Transportation linked to economic growth.
• Electrified but no technology silver bullet
• Lighter and smaller
• Traffic/usage management
• Incentives/fiscal distortions
• Different ownership models
– segmentation by battery size?
• Radical change inhibited by infrastructure
• Affordability is still key to consumers
• Must still deliver “reasons to buy”
• Premium growth driven by wealth/affluence

7. China
• China overtook US in 2009 to be largest auto
industry.
• Middle class -- by 2015 will have 4th largest
population of wealthy households
• More millionaires than France
• Rapid urbanization -- 39 cities with over 1 million
inhabitants – total 600 million (1 billion by 2010)
• Increasing competition from low-cost and high-
technology Chinese firms.
• Talent pool – constraint or driver?

8. So where does this leave “Team UK”?

9. State of the UK auto industry
• From turbulent labour and poor quality and
productivity to . . .
• Competitive, high quality, good labour relations,
2nd largest global premium industry but . . .
– Declining, now <1% of UK economy; <400k jobs.
– Fragmented ownership – lack of cohesion
– Significant and growing trade deficit.
– Fragile supply chain – hollowing out accelerating
– Badly under investing in technology
– Climate change agenda – are we being left behind?

10. Is UK innovation really just ancient history?

11. Industrial policy – “New Industries”
• New Industry, New Jobs outlines a programme of 40 initial commitments that will
keep Britain ahead of the game as we emerge from the downturn and towards our
successful economic future, including:
• Rolling out high speed broadband to give access to virtually all of Britain’s homes
and businesses
• Investing and laying the foundations in exciting but pre-commercial technologies like
wave and tidal energy, and electric vehicles
• Adapting Britain’s energy grid to link homes and businesses to the new forms of
power generation
• Continuing to protect and raise investment in science and research in the years
ahead
• Spearheading innovation in areas where there are business opportunities for future
growth
• Anticipating future growth in the economy in areas like low carbon or bioscience and
ensuring British people have the skills to take part
• Intervening, where necessary, to ensure start-ups and young businesses have
access to the finance they need to grow
• Helping UK companies, especially small and medium sized businesses to break into
new export markets.

12. UK auto technology road map
EU Fleet Average 130 95 TBD
CO2 Targets (g/km)
Demonstrators Fuel Cell Vehicle
H2 Infrastructure Fuel Cell & H2 Supply/Storage
Breakthrough
Niche EVs Mass Market EV Technology
Charging Infrastructure Energy Storage Breakthrough
Demonstrators Plug-In Hybrid
Energy Storage Breakthrough
Full Hybrid
Micro/Mild Hybrid
IC Engine and Transmission innovations (gasoline/diesel/gas/renewables)
Vehicle Weight and Drag Reduction
2000 2010 2020 2030 2040
19% of UK’s carbon emissions come from road vehicles

13. Case Studies -- Zytek
Zytek is now one of
the few companies
worldwide producing
electric vehicle
powertrains, and the
only one manufacturing
vehicles (the Smart
Fortwo ED) for a major car manufacturer,
Mercedes Benz. The Zytek electric engine
is a complex assembly of many high
technology products tightly packaged
into a single unit. This technology is also
being applied into Motorsport – Zytek is
developing a hybrid electric drive for a
leading Formula One team that has
already run competitively in the 2009
season.

14. Case Studies -- Modec
Modec is the first electric vehicle in the N2 class
to attain European Whole Vehicle Type Approval

15. GM Volt/Ampera?
Electric Human Machine Interface
Engine/Genera – displaying EV and
motor/Power
tor EV/generating modes
electronics
Battery packs
located under the
High Voltage central tunnel and
cables rear seats.
Limiting volt to a
4 seat vehicle.

16. Nissan Leaf?
The government last year extended Nissan loans and grants to help it finance
a £200m-plus plant producing lithium-ion car batteries in Sunderland,
now part of a new “low-carbon economic area”.

17. Even luxury we can afford!
Jaguar Range-Extended Hybrid

18. Should we be picking winners?
• UK innovation deficit -- Bosch/Siemens
• Test-Bed UK
• Business-University Collaboration
• Cross-sectoral collaboration
• Innovation funding -- UK Banks
• From reckless indifference to strategy in
Industrial Policy

19. Links to Energy Industry
• Well-to-wheel concept
• Renewables vs. carbon-based generation
• Clean and smart grid
• Standards
• Consumer usage patterns
• Hydrogen and fuel cells?

20. Investing in the Future --
unlocking the UK’s potential
• Can’t be based on yesterday’s models.
• Innovation – from “sustainability” to an
integrated low carbon economy.
• Export competitiveness – competing in global
markets
• Leverage global sources of cost competitiveness
• Use great British design talent
• Needs confident and urgent national leadership,
passion and skills
• Even now may be too late.