Automotive Industry Analysis of the Big 3

GLOBAL AUTOMOTIVE
INDUSTRY ANALYSIS
Adjusting Organizational Strategy
to Meet Changing Consumer Needs
in Uncertain Economic Climates

TEAM 3 Abhishek Purohit | Janelle Dangerfield | Matt Blair | Taj Peeran

Agenda
2

Market Overview

Company Profiles

Automotive Trends

Key Opportunities

Market Overview Company Profiles Industry Trends Key Opportunities

The automotive industry is the world’s largest industry
valued at $67 billion with over 60 million cars produced
3

World Vehicle Production by Manufacturer Toyota is the market leader
Units Produced
with GM close behind.
0 2,000,000 4,000,000 6,000,000 8,000,000
Despite all its economic
TOYOTA
G.M
turmoil, Ford is #4 in the
VOLKSWAGEN global market
FORD
HYUNDAI
PSA
HONDA
NISSAN Market Capitalization per
FIAT Manufacturer
SUZUKI
RENAULT 140

Market Cap (Billions)
120
DAIMLER AG 100
80
CHANA AUTOMOBILE 60
B.M.W. 40
20
0
Cars Light Commercial Vehicles
Heavy Commercial Vehicles Heavy Bus


Asia produces and consumes more cars than other
global regions
4

Top Vehicle Producers by Region China is the new market
leader while Germany,
Units Produced

40,000,000
30,000,000 South Korea, and Brazil have
20,000,000 increased growth
10,000,000
0
EUROPE EUROPEAN EUROPEAN AMERICA
UNION 27 UNION 15
COUNTRIES COUNTRIES
NAFTA ASIA -
OCEANIA Global Car Sales in 2010
Number of Units Sold (Millions)
0 10 20 30 40 50 60
Factors Driving Growth: Total Sales 57.1M
North America 13.9M
Canada 1.6M
11.5M
Consolidation of Car Companies United States
Mexico 0.9M
Western Europe 12.8M
Cheaper Labor and Materials Germany 2.9M
Eastern Europe 3.7M
1.9M
Government Incentives Russia
Asia 22.5M
China 9.5M
India 1.8M
South America 4.3M
Brazil 2.7M


Ford Company Profile
5

Goes public in 2005, Ford
Founded in 1903 by 1956. Cars, SUVs posted a pre-tax
Henry Ford: T Model and trucks profit loss of
sells 15 million vehicles market over $1.3 billion

1920s: Holds 1994: Ford owns 2006-2009:
50% market largest car Restructure,
share rental company sells off luxury
Hertz brands

Current Scenario at Ford
Ford has been able to
• Global revenues in 2009 of $106 billion, net gain back its reputation
profit of $2.7 billion. Sales in 2009: 1,615,799
and has regained its
• Efforts towards more lean organization no. 2 position in US in
• Focus shift to small cars segment and away 2010.
from trucks
• Outsold GM in Feb 2010
http://topics.nytimes.com/top/news/business/companies/ford_motor_company/index.html
http://online.wsj.com/mdc/public/page/2_3022-autosales.html

General Motors Company Profile
6

1979: Becomes
largest 2009: files for
employer in the bankruptcy:
Founded in 1908 by country: 618365 fourth largest
Willian Durant employees filing in history

1954s: makes 50 1991: loses 2009-2010
millionth car record $4.45 US govt takes
billion majority stake.
Re-listed in
stock exchanges

Current Scenario at GM If GM can reign in
escalating costs and offer
• 2010 Calendar year sales: 2,211,091 up by 7.2% cost-competitive
• Focus on increasing market share in growing products, it can once
markets again assert its dominance
• Hybrid Cars to increase fuel efficient offerings of the market.
• Signs of growth with increase in Chevrolet sales
http://www.srl.gatech.edu/Members/bbradley/me6753.industryanalysis.teamA.pdf

Toyota Company Profile
7

2006-2009: Posts
1984: Began auto- impressive results despite
Founded in 1933 by production in US industry breakdown in US:
Sakichi Toyoda through a JV with GM 6% profit margin

1957-1968: Enters US 2003: Steadily
market, becomes grows to 3rd
successful with Corona largest
and Corolla automotive
manufacturer
Current Scenario at Toyota

• Net Revenues: 18.95 trillion yen (2010), a decrease of 7.7
percent YoY basis. Sales in 2010: 1,763,595 Toyota is well position
• Successful due to forward thinking, innovative for future success with
management style, “lean”, “JIT” manufacturing well targeted high-
• Ahead of competitors in investing in new technologies: quality products
Prius (1997) first mainstream hybrid vehicle
• Recall of about 2.3 million Toyota models to fix sticky
pedals
http://www.reuters.com/article/idUST13898620080210


The gap between automotive competition has
narrowed in recent decades
8

US automotive players have GM and Ford operated in Failure to innovate core
faced cost disadvantage: excess production capacity product: GM was more
Other players have been and took too long to focused on profiting from
able to leverage low labor produce products at high finance while Toyota
costs outside US costs continued to innovate

U.S. Total Vehicle Sales Market Share between Big 3, 1961-2009
$60M
$50M
$40M
Ford
$30M
GM
$20M
Toyota
$10M
$0M

Source: http://wardsauto.com/keydata/historical/UsaSa28summary/
http://www.dailyfinance.com/story/company-news/after-101-years-why-gm-failed/19052641/


Consumers view safety and fuel-efficiency as prime
factors in car purchases
9

Total Cost of Ownership
2015 Hybrid

Fuel efficiency is the most 2015 Gas
prominent decision factor of 2025 Hybrid
consumers this year. 2025 Gas

$0 $10,000 $20,000 $30,000 $40,000
Depreciation Fuel/Elec Costs Other
Poll: Top Consumer Values in 2011
Built-in Tech N/A% Poll: Primary R&D Investments in Next Five Years
Ergonomics +14% Hybrid Electric/Gas
Green-ness -7% 11%
Battery/Electric
Vehicle Styling 37%
+15% 21%
Safety Innovation +11% Hydrogen
Fuel Efficiency -3%
31% Others (Solar, Ethanol,
0% 20% 40% 60% 80% 100% Biodiesel)
http://www.kpmg.com/Global/en/IssuesAndInsights/ArticlesPublications/Documents/Global-Auto-Executive-Survey-2011.pdf
http://issuu.com/jandaroscher/docs/automotivemanager_i_2010_en?mode=embed&layout=http://skin.issuu.com/v/softlight/layout.xml&showFlipBtn=true


New approaches to production have modulated cost
and risk for manufacturers
10
Technology partnerships enhance the Standard Car Platforms
customer experience while standard car
Chassis Steering Engine Type
platforms reduce manufacturing cost.
Wheelbase Suspension Powertrain
Technology Partnerships
Electronics Interior Engine Size
Exterior Interfaces Ergonomics
2007

Fiat Croma Cadillac BLS Opel Vectra

2011
Flexibility is a Necessity – Mazda GG Chassis

Ford Fusion Fusion Hybrid Mercury Milan Lincoln Zephyr

2011
Mazda 6 Mazda CX-7 Ford Edge Ford Flex
http://www.thecarconnection.com/tips-article/1012020_sync-no-turning-back-from-tech
http://en.wikipedia.org/wiki/Ford_Fusion_(Americas)


Economic conditions have led manufacturers to
relocate production facilities to low-cost regions
11

Challenges of Moving Production to Low-Cost Regions
Extra shipping costs may reduce marginal gains.
To reduce unnecessary expenses,
manufacturers must move Facility distance from demand may increase supply lag times.
production to regions that
maintain lower costs of labor. Varying political requirements require close legal attention.

Differences in quality of living require addit’l continuity plans.

Poll: Top Countries in Sales & Poll: Investments in Emerging Markets
Production Volume in 2015 100%

China 83% 80%
86% No Plans
42% 60%
United States 51% Decrease
19%
40% Increase
India 24%
20% Begin
0% 20% 40% 60% 80% 100%
0%
Production Sales Russia Brazil India China

http://issuu.com/jandaroscher/docs/automotivemanager_i_2010_en?mode=embed&layout=http://skin.issuu.com/v/softlight/layout.xml&showFlipBtn=true
http://www.kpmg.com/Global/en/IssuesAndInsights/ArticlesPublications/Documents/Global-Auto-Executive-Survey-2011.pdf


Demand and Supply Chain Challenges in the Global
Automotive Industry
12

Vicious Cycle of the Automotive Industry Challenges of the current model

Excessive structural cost
Dissatisfied customers
Slow to respond
Lost revenue opportunities

Constrained, inflexible production and assembly
capacities and long delivery lead times contribute
to high dealer inventory levels in the form of safety
stock.


Overcapacity is one of the biggest problems grappling
the global automobile industry
13

The car industry can produce 94 million cars a year, against global demand of 64 million
Overcapacity in TRIAD significantly high
Make Cars-to-Order to Improve Auto Industry
Overcapacity major problem even in BRIC Performance
Remove Inventory Carrying Costs to Reduce Prices and
China India Brazil Russia
Increase Profits
100%
13%
23% 24% 23%
80%
31% Poll: Most Effective Solution to Overcapacity
60% 31% 28%
43%
Industry consolidation / joint-ventures/alliances 32%
Increase vehicle exports into existing and/or
new markets 25%
40%
43% 30% Further cutbacks in production capacity 21%
33%
20% 28%
Incentives from automobiles to drive sales 8%
7%
6% 7%
12%
Govt. Intervention 8%
0%
7% 3%
2% 6%
Now 1-2 yrs 3-5 yrs 6-10 yrs >10 yrs
Raising brand profiles to enhance market share 5%
Source: KPMG’s 2011 Global Auto Executive Survey


Automotive companies can leverage more external
partnerships to collaborate and drive innovation
14
The drive to innovate spurs process and market alliances
Estimate of loss due to lack of supply chain
Alliances can be a good way to access specialized
visibility ~ $16 million / country*
technological know-how
*see appendix

Will help share and reduce cost in areas such as
80 76 All R&D *see appendix for benefits
66 Automotive
70
Challenges present opportunities
60 52 Automotive
Collaboration Multitude of applications required
50
gap
39 Varying technologies
40
30 Little or no integration
20 Different data exchange formats
10
Different interface requirements
0
Collaboration of Collaborated to a large Batch transactions
significant to critical extent
importance Disparate applications even from same DSP


Digital Loyalty Network model is to integrate the supply
chain and align priorities with the needs of the customer
15

Digital technologies to optimize an automaker’s supply network based on customer value and loyalty

Automakers
• Higher profitability, quicker time to market 13% of manufacturing companies following DLN
• Better targeted inventories strategy are 70% more profitable
• Long term relationships with customer

Suppliers
• Reduced OTD times due to customer focused Sales Growth
production development
• Align production capacity and better utilize capacity Market Share

Dealers – has better info. on customer loyalty
Loyalty Networkers
• Identify profitable cross-selling Return to Assets
Loyalists
• Can match more profitably different customer Collaborators
demands with appropriate product Return to
Shareholders Market Takers
• Marketing and sales are more efficient and less costly
Customers
0% 5% 10% 15% 20% 25% 30%
• Greater satisfaction with streamlined & integrated
on-line /off-line sales & marketing channels Percentage of Companies with Exceptional
• More personalized service and customer service Performance on Goals
options
Source: Deloitte research


Enhanced warranty systems can reduce liability and
increase profitability
16
Compartmentalized Approach
• Disjoint information flow across Business Impact
the enterprise
• Lack of partner collaboration Ineffective claims
41% of the companies recovering warranty costs processing
from liable suppliers was a significant challenge Present Decreased
Effectiveness of
15% of total number of claims being accepted are Scenario Design, Engineering
sub-standard [fraudulent or inaccurate] Technology limitations
Process inefficiencies Lack of Partner
• Old legacy systems
75% of the annual warranty expenses are • Bolt-on systems – limited span
• Delayed claims processing
Collaboration
consumed by repetitive and chronic problems • Inefficient detection of incorrect
• Generic ERP modules
claims
• Reporting systems with minimal
• Manual coding of claim data Compliance Issues
analytics

A holistic
approach Possible Solution

Comprehensive

Technology Driven

Connected

Source: Infosys paper


The Automobile industry is adapting to a changing
economic environment
17

Credit Meltdown
• Credit market disappearance Innovation and Collaboration
• Dependency of car sales on
credit
• OEM & supplier refinancing Change the business model
Global Recession Globalization
• Wealth destruction • OEM global
• Confidence hit presence Long live the brand
• Unemployment rates • Global sourcing
• Household financials • OEM
• Slowing growth in interdependencies Reduce inventory levels – OTD / JIT
emerging markets • Foreign investments
Green
• Oil price fluctuations Profit potential in spare parts
• CO2 targets
• Customer beliefs
• Need for innovation
• Budget pressure
Better integration tech & business

After the crisis, companies can achieve only 10% profit margin and 25% return on capital if they stick
to the right business design. Those who stick to the old paradigms will not be profitable!!!


Questions & Discussion
18

Appendix
1. Benefits of Collaboration / Alliances
2. Examples of Collaboration & How it can Help
3. Dealers are Focused on Sales, Services and IT
4. Benefits of Customer Integration
5. Aggregating Customer Touchpoints
6. Example Solution for a Warranty Management System
7. Profitability of Manufacturing Companies following DLN Strategy
8. Automotive Industry Competitor Analysis

Appendix 1: Benefits of collaboration / alliances
19

Parameter Value
Avg. discount offered per vehicle by an OEM $ 1600
Estimate of loss due to Assume the number of vehicles sold per year 1 million
lack of supply chain in US by the OEM
visibility
No. of vehicles for which such discount is 10,000
offered because of lack of better visibility
Total cost in discounts / year in one region $ 16 million

Best way to access new alternative fuel/hybrid technologies

Strategic co-development with
8% suppliers and/or alliances/joint
11% ventures with technology
partners
Outsource R&D to suitable
vendors
13%
Mergers and acquisitions with
68% technology partners

Employ in-house R&D experts

Appendix 2: Examples of collaboration and how it can
help
20

Appendix 3: Dealers are focused on sales, services and IT –
which is the right direction, but still plenty needs to be done
21

Dealers should invest in managing customer relations in order to keep ownership of the direct
interface with the customer
Level of business and
technology integration

Increasing trend on expenditure on IT systems indicate that dealers realize that
there is scope for better integration between technology and business

Appendix 4: Benefits of Customer Integration
22

Appendix 5: Aggregating Customer Touch Points – the
importance of customer; using technology to solve problems
23

Automobile
Customers

Appendix 6: Solution for Warranty Management System
– Infosys Warranty Management Solution
24

Appendix 7: 13% of manufacturing companies
following DLN strategy are 70% more profitable
25

Loyalty Networkers, excel in other
areas of business performance as
well, including sales growth,
market share, return on assets,
and return to shareholders.

Appendix 8: Automotive industry competitor analysis
26

http://www.carfreaks.info/automotive_industry_competitor_analysis_CPM

Automotive Industry Analysis of the Big 3

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