The second automobile revolution-

7/30/2019 The second automobile revolution-

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a3billionperannum

a levelthatithasbeenimpossibletoreducesince.

Havingplantsspecialisedbyplatformandmoreflexibilityinworkinghours

meantthatplantutilisationratesrosetomorethan100percent(usingthe

Americandefinitionoftheannualcapacityofa plantoperatingsixteenhours

a dayfor235daysa yearor3,760hoursannually).Suppliersandnotonly

PSAspartssubsidiarystartedtobuildplantsorwarehousesclosetothe

Groupsterminalplantstoenablesynchronousjust-in-timedeliveries.Acon-

vergenceplanwasimplemented,witheverysiteadoptingbestpractices,receivinghighperformancetoolsandseeinganimprovementinvehicles

assemblypossibilitiesandemployeesworkingconditions.AnElementary

ProductionUnitsbreak-downwasgeneralisedtoallsites.

Duringthisperiod,PSAcreatedthreeplantsandcloseda fourthinEurope.

In2003,a newproductionplantformechanicalparts(gearboxes)wasopened

inValenciennes.ThejointPSAToyota plantatKolinintheCzechRepublic

startedproductionin2005.In2006,a plantdedicatedtoSegmentAandB

modelsbeganoperationsatTrnva inSlovakia,justifiedbythesaturationof

othersites,theneedforanindustrialpresenceinthenewCentralEuropean

marketsandtheadvantageousproductioncoststhere.Thesameyearsaw

theannouncedclosureoftheUKsRytonplant,whichhadpreviouslypro-

ducedthesamemodels.Thisdecisionwasa forerunnertorecruitmentpolicy

changesthatwouldbecomeofficialafterthedepartureofJean-MartinFolz.

Higheremergingmarketssalesdidnotimproveoperatingmargins

immediately

SalesoutsideWesternEuroperosefrom18.8percentin2001to31.7percent

in2006.Atfirst,thisshiftinthegeographicmixledtoloweroperatingmar-

gins.Emergingmarketsaleswerenotverylucrativeatfirstandsometimes

involvedlosses.Itwasonlyin2007thattheywouldbegintocontributesig-

nificantlytoPSAsoperatingmargin(seeFigure13.1;Jetin,Chapter3,this







































a5,000modelistheepitomeofconceptualinnovation.Lacking

anymechanicalorstylisticnovelty,ithasrevealeda blindspotincarmakers

visionofthemarket(Jullien,2006):peoplewhowanttobuya newcarbut

whocannotdoitorwhocannolongerdoitduetoinsufficientincome.

Duringa visittoRussia,LouisSchweitzerfirstcameupwiththeidea ofoffer-

inga truelow-costfamilycartothenewmiddleclassestakingshapeinthe

emergingcountries,peoplewhoupuntilthatpointhadbeencondemnedto

buyingimportedusedcarsthatwerecostlytorunandsometimesexpensive

toacquire(Schweitzer,2007).Tomeetthetargetprice,designandmanufac-

turingprocesseshadtoberethoughtanda specificplatformengineered.The

vehiclestwenty-fourfunctionswereconceivedofina waythatresponded

tothedualrequirementofa particulartargetcostalongwithjust-in-timedelivery.Therewerefewercomponentsandtheonesusedweresimplified,

standardisedandproducedinlow-costcountries.Assemblywasdonewith-

outrecoursetorobotsorautomatons.Commercialisationcostsweredivided

bya factoroffive.

LaunchedinOctober2004byDacia,theLoganwasanimmediatesuccessin

Romania andneighbouringemergingmarkets(EasternEurope,theMiddle

EastandNorthAfrica).Thebiggestsurprisewastodiscoverthattherewasalso

a demandforthistypeofvehicleinWesternEurope.Renaultanditsrivals

foundoutthatthestagnationofthisregionalmarketwaspartiallyduetothe

factthata growingsectionofthepopulationhadnotbeenabletobuynew

carsduetolowpurchasingpowerorunstableincome.Thus,saleswerewell

aboveexpectationseightmonthsafterlaunch,i.e.theLoganwasalreadyin

theblack.Itwasthendecidedtoincreasethenumberofversionsplanned,so

astorespondtothevehiclesvariouspotentialusesandtoadapttoitsvarious

markets.Forexample,2007sawthelaunchofa stationwagon/estate(the

LoganMCV),a Loganutilityvananda five-doorsedancalledtheSandero,

designedfirstandforemostfortheSouthAmericanmarketandfeaturing

a lessausterebodyaswellasa flexi-fueldrivingsystem.Inthefuture,we

canexpecttoseea newpickupin2008,a 4 4in2009andthreeorfour

othervariantsby201012.Forecastsalesareupfrom500,000to1millionby

2010.TheLoganismeanttoaccountfor90percentofRenaultssalesgrowth

in2009.





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a14,679million,correspondingtoa returnonsales(ROS)of8.3percent.

Buttheendofthe1980salsomarkedtheexitofFiatAutoCEO,Vittorio

Ghidella,duetodisagreementswithFiatGroupCEO,CesareRomiti.The

wishofthelatternottonamethenewCEOoftheAutoGroupfromamong

Ghidellascollaboratorsinducedhimtoleadthegroup adinterim,without

havingthetechnicalcompetenceorthenecessarycommitment. 3 Soa stageof

slowrenovationinmodelsandprocesstechnologiesbegan,justwhenbothnationallyandinternationallynewconditionswerematuring,conditions

thatwouldpushFiatAutomobilestoa significantredefinitionofitsown

strategiesandofitspositioningintheglobalcompetitivelandscape.

287









a549million,suggeststhemagnitudeofthecostsbornetosupportsales,basicallybysellingbelowcost. 11

Theinternationalisationstrategy

Withrespecttotheinternationalisationprocess,the1990swerea timeof

strongcommitmentforFiatAutomobiles,unfortunatelypartiallyaffectedby

a chainofunfavourableeventsandsomemistakes.Theinternationalisation

envisionedbyAvvocatoAgnellibecamea realityinthemid-1990swiththe

178Project.Itconsistedina familyofcarsstartingfromthesameplatform,

tobemanufacturedina rangeofcountries,butina highlystandardisedway,

inordertoexploitsignificantscaleandlearningeconomiesbothforplant

constructionandinmanufacturing,withthepossibilityoftransferrringparts

betweenthedifferentmanufacturinglocations.Theglobalisationofthecar

wasaimedatnew-motorisationcountriessuchasBrazil,Argentina,Poland,

Russia,Turkey,India andChina.Theobjectivewastoreacha combinedvol-

umeofabout1millioncarsin2003,tobemanufacturedinabouta dozen

countries. 12 Theidea madesenseevenifitemergedthatinsidethesemar-

ketsthereweresignificantdifferencesincustomerpreferences.Aftera first

encouragingstageinLatinAmerica theinternationalfinancialcrisisof1998

ledtoa slowdownintheproject. 13 However,eventhoughtheresultswere

partlyaffectedbythenegativecontext,seriousmistakeswereundoubtedly

madebothintheprogrammeplannedforIndia,withthedevelopmentofa



a549

millionin2001,anda lossof a1,343millionin2002.

ThecrisissituationmanifestedinDecember2001witha shockingdeclar-ationofa a4billionoveralllossforFiatGroupofwhich2.7billionwasdue

toFiatAutomobiles.In2003GianniAgnellidiedandhisbrotherUmberto

tookhisplace,thelatterdyinginMay2004.Theautomobilefirmthenfaced

a stageofcontinuouschangesingovernancethatdidnotfacilitaterecovery.

Theturnaroundtookplaceonlyin2004withLuca CorderodiMontezemolo

becomingchairmanofthewholeFiatGroup,andSergioMarchionnebecom-

ingCEO,thelatteralsobecomingCEOofFiatAutomobilesinFebruary2005

tomanagetherecoveryofthissectormoredirectly.

ThereorganisationoperatedbySergioMarchionne

ShakingupFiatAutomobilesmanagement

ThestepstakenbySergioMarchionnetoleadFiatGroup(andinparticu-

larFiatAutomobiles)outofthetunnelaremany.Someareinitiativeswith





a1.55milliontobepaidbyGM.Immediatelyafterthis

hemovedontofinalisea setofagreements: 18

withtheIndiangroupTata forwide-rangingcooperation,includingshared

manufacturingofsomemodelsinIndia andinArgentina,butalsojoint

developmentofmodels,componentdesignandmanufacturing,joint

marketinganddistributioninIndia,throughTata networks;

withFordtousethenewcity-carplatformdesignedforthenewFiat500

alsofortheFordKa model,tobemanufacturedintheThichyplantin

Poland;

withSeverstalAutotoassembleinRussia thePalioandAlbea models

manufacturedinkitsattheTurkishTofasplant,ownedbythejoint-

venturebetweenFiatandtheKocgroup;

andwithCherytostrengthenvehiclemanufacturinginChina.

Thenewdynamismoninternationalisationhasbeensupportedbythe

comebackinthemajormarketswhereFiatAutomobileswasinvolved.LatinAmerica hasbeenfirst,whereFiatoperateswiththenewmega Betimplantin

theBrazilianstateofMinasGerais.Withtherecoveryinautomobiledemand

thattookplaceinthearea theBetimplantismanufacturingatfullcapacity

andhasmovedtoa thirdshiftinfinalassemblybyemployingnewperson-

nel,witha dailyproductionof2,500vehicles.FiatAutodoBrasil(FIASA)

hascontributedsignificantlytotheeconomiccomebackofthegroup.Other

growthareasareTurkeyandPoland,wherethemanufacturingofthe178

projectmodels(Palio,Siena,PalioWeekend,etc.),adequatelyrenovated,

wasaugmentedbynewmodels.TheLineamodelstandsoutamongoth-ers,a three-volumecardevelopedontheGrandePuntoplatforminthe

TurkishTofasplantandlaunchedinmid-2007withaninitialproduction

of60,000units,butwiththeobjectiveofreaching280,000unitsthrough

manufacturingalsoinBrazil,Russia,India andChina.

Rangerenovationandsparklingcommunication

ClearlythecentralinitiativeinMarchionnesturnaroundhasbeenthe

refreshingoftherangeofmodelsandofthebrandsoffered.ThenewCEO

couldinpartbenefitfromtheworkofsomeofhispredecessorswhohad

correctlystartedtherenewalofsomeimportantmodels.Themostobvious

caseisthatofthenewPanda launchedin2004.Thissmallcar,manufactured

inPoland,gainedtheEuropeanCaroftheYearaward.Thiscity-carhas























a .

S o u r c e s : F i a t A n n u a l R e p o r t s .



















a970million.TheMitsubishicrisis

hadboundthemainmanagementandfinancialresourcesforAsia andleft

thealliancewithHyundaiwithouta future.Thecooperationprojectsinthe

passengercarsectorwithMercedes,Chrysler,MitsubishiandHyundaiwere

soonabandonedwhereasthepromisingtruckallianceswithMercedesand

Hyundai(commondieselenginedevelopmentsandproductions,shareof

distributionnetworks)failedafteryearsofnegotiationbecauseofdifferent

strategicpriorities.In2004,DCdecidedtosellthe10.5percentHyundai

stakeandtostopallallianceprojects.

TheDCstrategyforAsia crashedandtherewasnosignofa substitute

strategytotacklethisweakness.ThebreakwithMitsubishialsomeantthe

failureofthemostadvancedsynergyeffortsasMitsubishisharedcomponents

andplatformswithSmartandChrysler.OneconsequenceisthatChrysler

stilllacksa fuel-efficientsmallcar.TheattemptstocommonaliseMercedes

andChryslermodelswereunsuccessfulduetothedifferentimageandmodel

range.MercedescomponentsaretooexpensiveforChryslercarsandthe

modelsaremainlyrear-wheeldrivewhereasallChryslercarshavefront-wheel

powertrains.Theonlyprojectthatwasundertaken,theChryslerCrossfire,

a modelbuiltonprevious-generationMercedesSLKtechnologybyGermancontractcoachbuilderKarmann,didnotliveuptoexpectations.

TheMitsubishiandHyundaidealscrashedfordifferentreasons,theformer

becauseoftheinabilityofthegroupmanagementtoreinventthestruggling

Japanesepartner,thelatterbecauseofthemaintenanceofopposingstrategic

orientations;togethertheyprovedtheinoperabilityoftheworldcompany

project.

Thelossesandtroublemaker:Chrysler

TheChryslerbrandexperienceda steadycrisisimmediatelyafterthemerger.

Itsufferedhugelosses,duetoshrinkingmarketsharesanddiscountbat-

tlesintheUSmarket, 4 ranoutofsteaminthehigh-marginminivanboom,

responsiblefortheChryslersuccessstoryinthe1990s,andfailedtoopen

upnewmarketswhichcalledfora reinventionofthebrand.After2001the

rumoursabouta possibleChryslerspin-offneverceased.AstheAmerican

managersresigned,Chryslersturnaroundbecamethemasterstrokeoflater

CEODieterZetsche.Athirdoftheworkforce(40,000of122,000)wascut

andsixplantswerecloseddown.In2007anotherthree-yearrestructuring

planwasannounced,reducingtheannualoutputby400,000units,clos-

inganassemblyplantandcuttingshiftsatotherplants,withtheultimate

lossof11,000hourly-paidjobs.Chryslerwillalsoreduceandoptimise

itsdealernetworkandoutsourcenon-coreactivities,axinga further2,000

salariedposts.ThetoughturnaroundplansbroughtChryslerbacktoprofit











a4billionlossesupto2006. 5 Inspiteofsteady

shareholderprotests,themanagementpersistedwiththeprojectwitha new

turnaroundplanfocusingonthenewSmartFortwowhichwillbeavailable

alsointheUSA,distributedbythebigretailerUnitedAutoGroup.In2005

theSmartroadsterproductionwasstopped,theoffroadprojectcancelledand

thewholemanagementandsalesstructurewasintegratedintoMercedes,

eliminating700jobsintheprocess.In2006,theSmartForfour(fourseats)

wasalsostoppedaftertwoyearsofdisappointingsales.TheForfouraxewas

extremelyexpensiveasthecompanyhadtoraisehugecompensationpayouts

fortheDutchMitsubishi/Nedcarjointventureplantwherethemodelwas

assembled.

TheotherfailureissituatedintheBrazilianstateofMinasGeraiswhere

Mercedesbuilta newplant,designedfor70,000A-classvehiclesperyear

andwhichshouldserveasentrancetotheemergentSouthAmericanpas-

sengercarmarket.TheJuizdeFora plant,openedin1999andannounced

asthemostadvancedautomobileplantinSouthAmerica (Eckardtetal.,2000),hadtostoptheA-classproductionandsurvivesassemblingother

modelswithoutseeinga clearfuture.Themiddle-classmodelA-classcould

notfinda demandintheSouthAmericanmarket, centredinsmaller

andcheapermassmodelsandin2001MercedesstartedtheC-classCKD

assemblyfortheNorthAmericanexportmarketinordertomakea bet-

teruseoftheinstalledovercapacity,anoperationrequiringanadditional

$40millioninvestment.Finally,in2005theA-classassemblyinBrazilwas

stoppedandin2007theC-classSportsCoupØstartedleavingtheassem-

blylines.JuizdeFora willbetheonlyplantofthegroupproducingthis

modelmainlydestinedforEuropeanandUSmarkets.Atthesametime

theChryslerDodgeDakota plantinCampoLargo,Brazil,hada similar

fate,inauguratedin1998for12,000vehiclesperyearbutproducingonly

5,000.

Ontheonehand, thetraditionalupper-classMercedessegmentben-

efitsfromincreasingdemandsina worldwhereproductsforrichand

poorareboomingandtheclassicmiddle-classsegmentsarestruggling.

On the other hand, this segment faces increased competition from

moreandmorebrandsandproducers. TheJapaneseandKoreanmod-

elsgainmarketsharesandtraditionalmassproducerslikeVW,Fordand

GMaretryingtoenterthissegmentwithnewacquiredbrands. The

salesofthehigh-endluxuryMaybach,forinstance,arefarbehindthe

expectations.





a500

millionlabourcostsavingsperyear)togettheguaranteethatnoGerman

employeewouldbedismissedinvoluntarilyuntiltheendof2011.Alljob

reductionprogrammeshavetobeorganisedbyvoluntaryleaveandearly

retirementmeasures.

TheSafeguardingtheFuture2012agreementisrelatedtothenewuni-

formcollectiveframeworkagreementforhourlyandsalariedemployeesinGermany(ERA)introducedin2007.Theworkactivitiesofapproximately

125,000employeeshavebeenre-evaluatedincooperationwithhuman

resourcesunits,managersandworkscouncils.InSafeguardingtheFuture

2012itwasagreedthataftertheintroductionofERAatDaimlerChrysler,

thewageincreasestipulatedinthecollectivebargainingagreementwould

notbeimplementedinfull.Itwasalsoagreedthattheexistingworkforceat

thegroupsGermanlocationswouldreceivewageandsalaryguaranteesand

companycompensationcomponentsifnecessary.Anotherconsequenceof

theagreementisthatthewagesofDaimlerChrysleremployeescoveredby

thecollectivewagebargainingagreementwerereducedby2.79percentin

2006.ForseniormanagersinGermany,variablecompensationfor2006was

reducedby10percentinadditiontothereductionoftheirregularmonthly

salaries.

Ina similarfashiontothegroupsmanagementsystem,thetransnational

labourrelationsaredominatedbythestrongGermanworkscounciland

thelabourrepresentativesinthesupervisoryboard.Asa reactiontothe

merger,a transatlanticworkinggroupcomposedofGerman(IGMetall)and

NorthAmerican(UnitedAutoWorkersandCanadianAutoWorkers(CAW))

representativeswassetupwhichsignificantlyimprovedthetraditionally

hostilerelationsbetweentheseunions.In2002theWorldEmployeeCom-

mittee(WEC)wasfoundedwithEuropean(sixGerman,oneSpanish),North

American(threeAmerican,oneCanadian),SouthAfrican(one)andBrazilian





a5.5billion($7.4billion)totheprivateequitygroupCerberusCapitalwasannouncedasthefinalstageofitsaccumulatedproblemsandfailedintegra-

tionattempts.Otherinterestedequityfunds(Blackstone,Centerbridge,Kirk

KerkoriansTracinda)andautomotivegroups(themainsupplierofChrysler

Magna,GM)remainedoutofthedeal.Daimlerkeepsa minoritystakein

ordertodevelopseveralcommonprojectsstartedinthepast.Thebulkof

thesalespriceflewintoChryslerinordertofacetheneedforcapitalandto

securethehugeemployeepensionandhealthcareobligationsthatChrysler

hadtotakeoverwhichamountedto$17.5billionattheendof2006.The

remainingGermangroupadoptedthenameDaimlerAGwhereasChrysler

formeda newgroupnamedChryslerHoldingLLC.

Thefinancialconditionsofthedealconfirmthemergerasa hugestrategic

failureandcapitalbleedingoperationforDaimler.TheremainingGerman

groupgot$0.65billionfora companyacquiredfor$36billionnineyears

beforeandtheoperatingprofitdroppeddownnearly a3billionin2007.The

operationhadtobeadditionallysupportedbya $1.5billioncreditlineforthe

operativebusinessofChrysleranda $1billionguaranteefortheChrysler

pensionfund.WinnersofthedealareagainmanagerslikeLa Sorda and

Ridenour,responsiblefortheChryslerlosses,butawardedhugeextra bonus

paymentsfortheChryslersale.DuringthesenineyearsChryslerconsumed

a lotoftechnical,financialandhumanresourcessupportfromtheMercedes

division.ButDaimlerhasatleasta solidindustrialbasisintheMercedescar

andtruckgroupswhilethefutureofChryslerlooksmorethanuncertain.The











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a million)

2005 2006 2007

EBIT 2,873 4,992 8,710

Netprofit 4,215 3,783 3,985

Employees(31Dec) 293,839 274,024 272,382

Unitsales 2,041,704 2,072,885 2,088,973

Mercedescars 1,216,838 1,251,797 1,293,184

Daimlertrucks 509,299 516,087 467,667

Vans,buses,other 315,567 305,001 328,122

Source :AnnualReportsofDaimlerAGGroup.

Notes

1. ForanoverviewofthetrajectoryandinternationalisationstrategiesofDaimler-Benz

andChryslerandthedetailedmergerprocess,seeKhler(2003).

2. EveryyearafterpublishingthebadChryslerresults, thesamestrategywas

announcedandneverrealised:closercollaborationbetweenChryslerandMercedes

inordertoproducesynergiesandreducecosts.

3. ItisanironyofhistorythatSchremppwantedtoinvestinNissanin1999butwas

overruledbyhismanagementboard,whicharguedagainsttwobigacquisitionsatonce.ProbablytheNissandealwouldhavetakenDaimler-Benzmuchfurther

towardsa globalcompanythantheChryslerandMitsubishidisasters.

4. In2007themediumdiscountfora ChryslercarintheUSmarketwas$3,962,$3,187

forFordand$2,830forGM.Honda andToyota modelshadtobesoldwith$1,397

and$1,308discountrespectively(Reuters,11July2007).

5. Recentreportsspeakofevenhigherfigures:DaimlerChryslerdoesnotpublish

separateresultsforitsSmartdivision,butaccordingtoa report,ithascostDaim-

lerChrysler a3.9bninlossesbetween2003and2006,muchmorethananalystshad

estimated(just-auto.com,12June2007).

6. IntheUSAandGermanyDCranitsownsecond-handcarretailerbrandscalled

StarmarkandMotormeilerespectively.

7. Thelabourcommitteewasa compensationfortheshareholdercommitteeestab-

lishedafterthemergeronthedemandoftheChryslermanagementwhichwanted

anexclusivemanagementbodypreparingthemeetingswiththeco-determined

supervisoryboard.TheGermanmanagementhadtonegotiatethiswiththeworks

councilwhichacceptedagainsttheconcessionofa parallelemployeebody.

8. TheendoftheDeutschlandAGreferstoa trendwhichunderminesthemain

pillarsoftheGermanmodelofcoordinatedcapitalismbasedonstablelong-term

stakesofthebigbanksinthemainindustrialenterprisesanda consensusstrategy

withthemainstakeholders(management,publicauthorities,financialentitiesand

tradeunions).

9. In2003,theshareholderrepresentativeEkkehardWengercriticisedSchremppasthe

biggestcapitaldestroyerinthecompanyshistoryandshowedthatthesameinvest-

ment(a511)incompetitorBMWssharesincreasedthevalueto a2,129whereasin

thecaseofDCitdecreaseditsvalueto a409(DPA,9April2003).



















































































































































































































































































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