Coasting in the auto industry is a recipe for disaster. One never knows what obstacle is lurking around the corner which the organization needs to react to. The infamous “external event” such as political uprisings, labor strife or any number of natural disasters can upend any well planned growth strategy—ask any Japanese OEM about life after March 11, 2011, the day the Tohoku earthquake and tsunami occurred. Internal issues such as quality issues, an errant ”tweet,” or an inadvertent overestimation of fuel economy will derail momentum. In the end, a sound strategy based on the evolving industry constructs continues to be the only solid basis for future growth.
What are those constructs? There are several, though a quick review of those OEMs experiencing competitiveness issues is all one requires to understand the ability to prosper in the automotive industry. We have discussed it before, though it bears repeating. Global scale is increasingly critical to sustained success. The latest salvo by Volkswagen is to offer up the expansive MQB platform (more of a development methodology and ideology than a platform per se). Spanning several segments, it focuses more on system commonality, build process, speed-to-market, and investment efficiency. By the end of the decade, VW Group will have an unparalleled advantage in economies of scale for B- and C- & D-segment platforms. The MQB approach results in an average of 1.4-million units per annum—the next closest will be near 1.1-million units per year. Competitors are reviewing VW’s latest move with more than cursory interest; they should be gravely concerned of how this sea change impacts the industry and, in turn, their competitiveness.
Several OEMs are impacted by the geographic imbalance of having the bulk of their sales and production in one or two regions. The lessons from the last two decades should be a rally cry for global geographic diversification as a primary strategy for any global mass-market OEM. The ability to shift sourcing, not have too many eggs in one basket, or to be beholden to any one market should be on the first page of the OEM playbook. A review of the troubles of Renault/Nissan versus PSA is a textbook example. Through the prosperous times of the 1990s, Renault chose to look to Asia—casting a lifeline to a flailing Nissan. More often than not, automotive mergers are doomed from the start though this mix of sushi and champagne has prospered. In the case of PSA, their success in core B and C segments in the European market could have enabled for the ability to seek opportunities abroad. For a myriad of reasons, their only strong outpost is South America, with production facilities and more than token market share in Brazil and Argentina. Outside of South America and a couple of select markets in the Middle East, PSA is still challenged to build appreciable scale—especially in emerging Asia. Seeking consolidation with GM’s European operations was required to build future scale and increase capacity utilization.
Understanding, mitigating and controlling risk through technology, platform sharing or joint procurement activities is a key tenant. Upon review of the top 10 global OEMs, over 80% have a level of partnership with a competitor to reduce technology development risk, reach a new geography, increase scale economies or fill a niche segment. Whatever the driving force, affiliations or partnerships will be the norm going forward.
Other pillars of a successful, long-term strategy includes investment and internal efficiencies; strong supplier, labor, employee and dealer relationships; and the ability to make course corrections but follow the constructs of a strategy over the long-term. Being a successful OEM in a highly competitive, fast-moving world with legislative, economic and political obstacles is not easy, though following the core strategies is a critical starting point.
Michael Robinet has been a managing director of IHS Automotive Consulting since 2011. Prior to that, he was the director of Global Production Forecasts for IHS Automotive. His areas of expertise include global vehicle production and capacity forecasting, future product program intelligence, platform consolidation and globalization trends, trade flow/sourcing strategies, and OEM footprint/logistics trends.