The Automobile Industry:The Automobile Industry:

A Never-ending Competition A Never-ending Competition SectorSector

Giuseppe VolpatoCa’ Foscari University of

Venice

YICGG – 2008 - Rome

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ContentsContents

Why Automobile Industry Is So Important ?

What’s the Shape of the Automobile Filière ?

Main Changes in the Automobile Demand

Main Changes in the Automobile Supply

How to compete effectively?

3

Automobile Industry as Employment Generator in Automobile Industry as Employment Generator in EUEU

Metal Raw Materials andMachine Tools

1,540,000

Textiles, Glasses and Chemical Row Materials

300,000

Tires and Rubber Parts

660.000

Automobile Component Manufacturing1,300,000

Automobile Industry (Final Assembly)1,854,000

ServicesConnected with the Vehicle Use

890,000

Vehicle Distribution and Maintenance

3,150,000

TransportationServices

9,360,000

Automobile Market

Employment of EU Automobile Industry No. 1,854,000 Employment of EU Automobile Filière (overall Supply Chain) No. 6,304,000 Employment of EU Automobile Industry & Related Activies as a whole No. 19,054,000

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The Automobile Industry is a The Automobile Industry is a Key Sector for:Key Sector for:

New Technologies Development

New Process Organization (Fordism, Lean Production, WCM)

Creating and Learning New Jobs

Industrial Practice Diffusion in all Industrial Activities

People and Goods Transportation

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ContentsContents

Why Automobile Industry Is So Important ?

What’s the Shape of the Automobile Filière ?

Main Changes in the Automotive Demand

Main Changes in the Automotive Supply

How to compete effectively?

6

Automobile Filière (whole supply chain)Automobile Filière (whole supply chain)

2° T

2° T

OES

OES

3° T

3° T

OEMOEM

Nat. BranchNat.

BranchDealerDealer

Customer

Orders

ServiceService

7

Cost Structure in Car Manufacturing and Cost Structure in Car Manufacturing and AssemblyAssembly

Total capacity

Break-even

Profit

Loss

Fix cost prevalence

8

Cost Structure in Car Distribution (Dealer)Cost Structure in Car Distribution (Dealer)

Quantity Cash Prizegiven to Dealers

by Manufacturers

Profit

Loss

Break-even

“sure”customers

“doubtful”customers

Maximumprofit

variable cost prevalence

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ContentsContents

Why Automobile Industry Is So Important ?

What’s the Shape of the Automobile Filière ?

Main Changes in the Automotive Demand

Main Changes in the Automotive Supply

How to compete effectively

Why Automobile Industry Is So Important ?

What’s the Shape of the Automobile Filière ?

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The Motorization ProcessThe Motorization Process

200019901960 19801970

Cars for 1.000 inhabitants in different countries

150

300

750

450

600

2010

2006USA 813Italy 673Germany 597France 595Japan 593UK 571Poland 385S.Korea 322Brasil 124China 23India 12

11

AffluentFamilies

Poor Families

1960

The Pattern of Motorization – The Italy CaseThe Pattern of Motorization – The Italy Case

Distribution of familiesby income

Familieswith a car

12

AffluentFamilies

Poor Families

1960

19701980

1990

2000

The Pattern of Motorization – The Italy CaseThe Pattern of Motorization – The Italy Case

In 2006, 95% of families has 1 car

and 43% owns 2 or more cars

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19,18% 18,60%

5,91%4,49%

1,77% 1,40%

0,00%

5,00%

10,00%

15,00%

20,00%

25,00%

Car Park Growth in W.EuropeCar Park Growth in W.Europe(Average growth ratio in the decades)(Average growth ratio in the decades)

‘50-’59

‘90-’98

‘80-’89

‘70-’79

‘60-’69

‘00-’07

14

13,70% 13,77%

0,27%

4,61%

0,61% 0,29%0,00%

2,00%

4,00%

6,00%

8,00%

10,00%

12,00%

14,00%

16,00%

New Cars Registration in W.EuropeNew Cars Registration in W.Europe(Average growth ratio in the decades)(Average growth ratio in the decades)

‘50-’59

‘90-’99

‘80-’89

‘70-’79

‘60-’69 ‘00-’07

15

Evolution of the Car Range in W.EuropeEvolution of the Car Range in W.Europe

0

500

1000

1500

2000

2500

3000

3500

1990 1995 20060

50

100

150

200

250

300

1990 1995 2006

No. of Models No. Of Versions

16

5,6 years (100%)

100

90

80

70

60

50

40

30

20

10

100

90

80

70

60

50

40

30

20

10

10,7 years (100%)

7,2 years (67,8%)

Uni

t so

ld a

s %

on

pea

k

Years

5,4 years (92,4%)

3,2 years (54,8%)

5,2 years (48,9%) 4,1 years (71,2%)

PLC 1970-1980 PLC 2000-2006

3,6 years (33,6%)

Model Car Cycle in W.Europe (1970-2006)

17

14

16

18

20

22

24

26

28

2003 2006 2009 2012

N.A.

Asia

W.Europe

New Car Registrations – Market Forecasting

Million of cars

18

11,5

22,5

33,5

44,5

55,5

6

2003 2006 2009 2012

E.Europe

Africa and M.E.

S.America

New Car Registrations – Market Forecasting

Million of cars

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ContentsContents

Why Automobile Industry Is So Important ?

What’s the Shape of the Automobile Filière ?

Main Changes in the Automotive Demand

Main Changes in the Automotive Supply

How to compete effectively

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A Sector Characterized by a Very Strong A Sector Characterized by a Very Strong Competion ProcessCompetion Process

Competion produces a concentration of makes

Competition reduces profit margins

New labor division between car manufacturers and suppliers

Competition spurs product and process innovation and cost reduction

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1960 = 51 1970 = 38 1980 = 33 1990 = 27 2007 = 16

Car Manufacturers – Concentration Car Manufacturers – Concentration ProcessProcess

Acquisitions and Mergers Among Makes

22

Component Suppliers – Concentration Process

30000

10000

4000

100

600

2000

0

5.000

10.000

15.000

20.000

25.000

30.000

35.000

1990 2000 2010

0

500

1.000

1.500

2.000

2.500

Total Suppliers 1° Tier Suppliers

23

Structural Overcapacity(milion units)

80

18

62

22,5%Capacity Production

20052005 20152015

87

15

72

17,2%

Capacity Production

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ContentsContents

Why Automobile Industry Is So Important ?

What’s the Shape of the Automobile Filière ?

Main Changes in the Automotive Demand

Main Changes in the Automotive Supply

How to compete effectively

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How to Compete How to Compete effectivelyeffectively

Invest in Low-cost countries

Utilize Word Class Manufacturing Procedures

Smart Standardization and Differenziation: less architectures, less components, more models

Reduce Time-To-Market

Industrial agreements for commonalizations

Product and Process Innovation

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Labor Cost per Hour(2003-2009 values in US $)

0,00

5,00

10,00

15,00

20,00

25,00

30,00

35,00

40,00

Germ

any

USA

Japan UK

France

ItalySpai

n

Korea

Taiwan

Czech

R.

Hungary

Brazil

Poland

Russia

India

Cina

Indones

ia

2003 2009

27

0

10

20

30

40

50

60

Mar

ch '07

April '0

7

May

'07

June '0

7

July

'07

Sept. '07

Oct. '07

Nov. '07

Dec. '0

7

Jan. '0

8

Feb. '

08

Mar

ch '08

April '0

8

May

'08

June '0

8

July

'08

Sept. '08

Average Number of Defects for Work Shift

(Body Sealing Station)

Application of WCM

28

Average Number of Defects for Work Shift

(Body Welding Station)

0

20

40

60

80

100

120

140

160

Application of WCM

29

13 105 6

No. ofArchitectures

6

19

6

16

6

11

6

Architectures in 2002

New Architectures

2006 2008 E 2010 E 2012 E

New models by each Architecture

Production by each Architecture

1.7 2.7 3.7

150 K 450 K270 K

Cost Reduction through Common Architectures (The Fiat Case)

30

0

2

4

6

8

10

12

14

16

18

2005 2006 2007 2008 2009 2010 2011 2012 2013

Different Types of HVAC Modules(Heating, Ventilation & Air Conditioning)

Cost Reduction by Component Standardization(The Fiat Case)

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ConceptDefinition

TechnicalConceptDefinition

TechnologicalDevelopment Tooling

ProcessValidation Pre-series Ramp-Up

KickOff

Briefing Start ofDevelopment

TechnicalValidation

Job 1 Launch

- 26 - 16,5 - 42001Stilo

2006Bravo

- 18 - 9 - 2,5

2008Delta

- 15 - 9 - 2,5

Cost Reduction by TTM Compression(The Fiat Case)

Use of Simultaneos Engineering

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Investments in Innovations (R&D + Capex)

2003 2004 2005 2006 2007R&D + Capex (million euro) 6.188 6.681 6.457 6.857 7.187 R&D + Capex per car 5.600 5.527 4.880 4.991 4.662 R&D + Capex (million euro) 5.626 4.977 4.047 3.839 3.938 R&D + Capex per car 4.623 4.057 3.326 3.067 3.045 R&D + Capex (million euro) 2.039 2.744 2.247 2.838 2.616 R&D + Capex per car 1.102 1.445 1.223 1.345 1.171 R&D + Capex (million euro) 4.414 4.302 4.678 4.374 3.648 R&D + Capex per car 1.343 1.275 1.380 1.300 1.064 R&D + Capex (million euro) 4.525 4.924 5.143 5.985 5.415 R&D + Capex per car 1.895 1.977 2.029 2.460 2.180 R&D + Capex (million euro) 10.428 9.347 8.515 8.316 9.958 R&D + Capex per car 2.079 1.818 1.640 1.454 1.608 R&D + Capex (million euro) 12.431 13.563 17.071 15.865 14.500 R&D + Capex per car 1.850 1.831 2.141 1.861 1.627 R&D + Capex (million euro) 12.996 11.014 12.137 11.150 9.209 R&D + Capex per car 1.929 1.620 1.794 1.690 1.405 R&D + Capex (million euro) 11.227 11.094 11.735 11.230 10.641 R&D + Capex per car 1.386 1.346 1.297 1.223 1.146

GM

Toyota

Renault

VW

Fiat

Ford

Investments in Innovation (R&D + Capex)

BMW

Mercedes

PSA

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What Next?What Next?

The return of the Great Empires:

China, India, Russia are using the domestic market as levier for gaining new competitive position

The necessity to stop the global warming:

New Technologies (electric car, ethanole of 2° generation, hydrogen, etc.)

The necessity to stop fuel guzzler cars:

Substitute heavy car (SUV) with city car

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