1、CIM IT Services Market Outlook:Global Automotive Industry,Business Intelligence GroupAugust 2003,Contents,Executive SummaryAutomotive Industry Business ChallengesGlobalRegional: US, Europe, Asia-Pacific, Rest of WorldAutomotive IT Spending TrendsGlobal & Regional IT Spend ForecastsAutomotive Industr
2、y IT TrendsAutomotive IT Services Industry: Competitive ProfilesAutomotive IT Services Market: BearingPoint AlliancesSources and Contact,Executive Summary,Automakers are currently faced with slower sales, over capacity and declines in profitability. Big 3 are losing market share to Japanese automake
3、rs.Toyota, Honda and Nissan increased their U.S. sales and market share in the first half of 2003, while the Big Three manufacturers (GM, Ford, DaimlerChrysler) saw their sales decline despite spending heavily on incentives.Currently the global automotive industry has too much capacity (roughly 30%)
4、 and as sales fall, the problem continues.Car prices have been falling making already thin margins even more pressured. The global automotive industry is faced with more competition, greater price transparency, rising customer expectations and quality improvements, making the pressure even greater o
5、n price and profitability.China presents the best opportunity for automakers due to increased government incentives and cooperation, cheaper labor, and proximity to a large population of potential consumers.China continues to make progress towards a market economy which has led to global businesses,
6、 like automotive companies, trying to ramp up in order to tap into the countrys large marketplace of 1.3B consumers. A year after entry into the WTO, in 2003, Chinas automotive industry produced 3.25M motor vehicle units (38% growth compared to the year before).IT Issues: Industry in survival mode,
7、pressuring spending; Opportunities for CRMMost manufacturing verticals, including Automotive, have been operating in “survival mode”, spending very little on capital and operational expenses; IT spending has suffered as a result.The North American manufacturing market constitutes approximately 45% o
8、f the total world manufacturing IT spend.,Executive Summary,Currently in the automotive industry there is less significance placed on the role of IT in supporting business strategies, especially in comparison to industries like Financial Services or Healthcare payer industries. This is a large deter
9、minant of IT budget.In order to understand their near-term sales volume, option mix and price sensitivity, automakers have to start understanding their customers better through the many signals they see from their consumers interactions. Much of this can be accomplished through CRM initiatives.While
10、 dealer incentives have been used by most of the major automakers, especially in the US, companies leveraging their existing CRM might be able to get more for less. The data gathered from incentive programs flowing back to manufacturers and dealers can allow follow-up campaigns that bridge the gap b
11、etween sales and marketing.ERP vendors are turning their focus to delivering extended applications in areas of SCM, CRM and PLM to compensate for the loss of revenue from large-scale projects.Competitors and AlliancesDeloitte Consulting has a joint initiative with SAP to support the automotive indus
12、try in the deployment of the mySAP Automotive solution on a worldwide basis. As part of this initiative, DC and SAP are developing methods for customer-specific analysis on feasibility, cost-benefit, and ROI.IBM encourages their engineers to rotate in and out of the field, spending time solving real
13、-life problems while not abandoning their inside research. IBM has created an innovation services group within its research unit dedicated to working on automotive customer problems, making them capable of taking their research and apply it to business issues.In the European automotive industry, SAP
14、 is currently focusing on cross functional processes, packaging their SCM, PLM and CRM all in one, using different modules, approaching it from the perspective of the business processes that cross these areas.,Global Automotive Industry: Business Challenges,Global Automotive Industry is on a Gradual
15、 Slide,The worlds automotive industry has been on a gradual downward slide over the past year, accelerated to some degree by the likelihood of a major bankruptcy and further restructuring of the industry.Inhibitors include weak (regional) consumer confidence, high unemployment and uncertain global e
16、quity markets, all of which have led to lower sales.In Europe, the first five months of 2003 saw sales drop by 4% while new registrations for May fell the lowest in five years. The US market is forecast to shrink 4% this year.Currently the global automotive industry has too much capacity (roughly 30
17、%) and as sales fall, the problem continues. Much of the over-capacity is due to each individual company expecting to grow faster than its rivals. And while the 90s showed strong returns, many automakers invested in additional capacity, created risky models, built more factories and entered into eme
18、rging markets that had more long term promise than short term.For many years the largest truck and car makers have continually sustained losses out of their primary businesses of car sales, often making profits through money made from selling spare parts at inflated prices, through financing busines
19、ses or through exchange rates. This structure is increasingly exposed in a downturn, especially when incentives like 0% financing have hampered the financing business.Car prices have been falling making already thin margins even more pressured. The global automotive industry is faced with more compe
20、tition, greater price transparency, rising customer expectations and quality improvements, making the pressure even greater on price.In the US, incentives like 0% financing or money back have kept volume up but have also pressured prices. While incentives are expensive, whenever automakers push pric
21、es back up their volumes collapse.,Global Automotive Industry is on a Gradual Slide,Aside from product issues, The Big 3 have under-funded pension liabilities and health-care benefits for retirees. Ford is losing cash and their bonds have been downgraded to junk status.If the US market continues to
22、slide a large-scale competitive restructuring could occur. European carmakers, like Fiat, which is laden with debt and production issues, could be purchased by other companies like GM (that owns 20%), or eventually be bought out by the state.The industry upsides for the Big 3:General Motors will con
23、tinue to pursue its growth strategies in order to remain competitive.Daimler Chryslers is in the midst of its improved cost structure, allowing it to better compete with GM.Ford is spending a lot of money on capital expenditures. If the company does not execute, it may be in crisis.The Big 3 product
24、s have higher quality than ever, although the perception of quality is not as high as it should be.,Pension and healthcare source: MSDW, Based on Mmgt. Discussions,Total US Pension Fund and Healthcare Liability (in MM),US Automotive Market: Slowing, but Still the Largest,The US auto industry is the
25、most important one to the global industry since there were 16.7M registrations in the United States in 2002 (down by more than 3% from the all time high in 2000). The US market for light trucks and SUVs (8.6M registrations in 2002) surpassed the car market in 2002 (8.1M registrations).The low level
26、of US fuel taxes boosted SUV sales far more than in any other country, although rising oil prices and environmental legislation could reduce sales.In 2002, roughly one-fifth of the cars, light trucks and SUVs registered in the United States were foreign. California has the highest rate of passenger
27、car purchases, accounting for roughly 13% of the total.The US industry, regardless of its high numbers, is currently saturated. The stock of passenger cars per head was the ninth largest in the world in 2002. With nearly 500 cars per 1000 of the population, the US has more cars per head than the Uni
28、ted Kingdom, but slightly fewer than Italy and Germany.Car usage is extremely high in the United States over other countries in the world. The average person in the United States travels about 9,000 km per year, compared to 6,000 km in Western Europe and 4,000 km in Japan.,Big 3 Continue to Lose Mar
29、ket Share to Japan,As the automotive industry gets more competitive, American consumers are buying more Japanese automobiles due to their reputation for quality and value. Toyota, Honda and Nissan increased their U.S. sales and market share in the first half of 2003, while the Big Three manufacturer
30、s (GM, Ford, DaimlerChrysler) saw their sales decline despite spending heavily on incentives. This trend started in 1998, when domestic manufacturers started to lose nearly 10 points of share, and the Japanese gained nearly 5.Industry-wide, car and light-truck sales were down 2.5% through June, to 8
31、.2M. However, the three biggest Japanese manufacturers sold 100,000 more vehicles, and the domestic Big Three sold 200,000 fewer.Market share for all Japanese brands is at an all-time high of 28.5%, and domestic brands have shrunk to a historic low of 60.5%.,The economic downturn has favored automak
32、ers like Toyota since consumers have become more stingy and discriminating with their purchases, thus favoring quality and value, which are the major selling points for most Japanese automakers (versus, for example, luxury autos).The Japanese continue to grab bigger chunks of the market despite reco
33、rd spending on incentives by their domestic rivals. At the beginning of June, incentives for Chrysler, Ford and GM averaged $3,389 per vehicle, versus $1,062 for Japanese brands. Korean makes averaged $1,371 and European brands averaged $1,945.,US Car/Truck Share 1996 vs. 2003,Source: The Economist,
34、 June 2003,Big 3 Continue to Lose Market Share to Japan,The Big 3s incentives (14% of sale prices) are likely unsustainable. Their dependence on increasingly large incentives to offset the lower resale value of US cars reflects perceived problems with their long-term quality and durability. For exam
35、ple, Toyota and GM cars can be virtually identical (sometimes made on the same assembly line as part of a GM-Toyota joint venture), but because GM sells in the used-car market for 15-20% less than Toyota,2GM routinely offers purchase incentives of $1,000 a car, four times more than Toyotas givebacks
36、.3 The Big 3 continue to concentrate their testing efforts on the defect rates of product components. However, this focus doesnt increase the likelihood of producing a more appealing car. For the Big 3, tests rate the cars components but with less emphasis on the performance of the entire car as mea
37、sured by the desired attributes (such as quietness). Conversely, Japanese automakers are particularly effective at testing for the attributes that excite their target customers. The Honda Civic, for example, is tested extensively for three key attributes: fuel efficiency, initial product quality, an
38、d durability. The resulting vehicle is more than a collection of defect-free subsystems; it is a car that performs well in the areas that customers have come to expect from Honda.The upside for domestic automakers is that it is doubtful the Japanese can continue increasing their share at the same pa
39、ce. Fewer segments are left for the Japanese to invade. The Toyota division, for example, offers a full line of vehicles comparable to Ford or Chevrolet, and it has a range of models in the Lexus luxury division that includes sedans, SUVs, and sports cars.Profitability is also pressured at the Big 3
40、 compared to Asian manufacturers. For example, Honda averages $1,581 in profit per vehicle (sold in the US) and Toyota gets $1,214. General Motors, however, earns only $701 while Chrysler Group makes only $226. Ford loses an average of $114 on each vehicle sold last year.,Global Automotive Industry:
41、 Market Share by Revenue,The global automotive industry is highly concentrated while market share is shifting. DaimlerChrysler, Ford Motor, and General Motors make up 44% of total global sales. However, this is one percent less than last year, indicating the Big 3s loss of market share to smaller co
42、mpetitors. While Toyota has greatly increased its market share in the US, the company has also lost a percentage of market share since last year.Imports to North America are the highest theyve been since the late 80s. Of particular concern to American manufacturers, light truck sales, once the major
43、 profit generator, are losing share to foreign competitors like Toyota and Nissan.,Source: Standard And Poors, 2003,Industry Profitability Severely Pressured,The large automakers have been fighting the downturn and trying to sustain sales with large rebates and easy credit in the US and increasingly
44、 in Europe. However, these strategies have seriously pressured profits.DaimlerChrysler reported in July 2003 that net income fell worse than it has since the industrys last poor earnings period in late 2001. Mitsubishi promoted easy credit, including loans that deferred payments for a year to consum
45、ers with weak credit but have recently rescinded this promotion due to profit erosion.PSAs profit was hit mostly due to the rise of the Euro, especially against the British Pound and Brazilian Real, Brazil being where it has one plant.Some automakers are attributing this span of poor earnings to the
46、 bottom of the current cycle of slowdown, however many are still seeking structural improvements and better pricing power to buffer this cycle.,Source: Wall Street Journal, Earnings Reports,Automakers Still Poor at Aligning Supply and Demand,Profits in the global auto industry are suffering since OE
47、Ms cannot align their supply with consumer demand. While consumer demand data is readily available, carmakers follow lagging indicators and the result is ineffective advertising and rebates and inventory overstocks. The current methods that automakers use to satisfy demand are out of alignment.In re
48、cord sales years (such as 2001), profits in the automobile industry averaged a mere 1.2% and only three companiesBMW, Honda and Magna International- had 5% profit.Forecasts often miss actual demand. For example, demand for Daimlers PT Cruiser far exceeded supply when it came on the market. Then DCX
49、ramped up capacity to 230K units, making it ordinary and buyers moved on. Right now the factory is discounting the model, further eroding the models image.Suppliers are hurt by variation. When an OEM plans incorrectly on a particular platform volume, of about 10-15%, the factory has to raise or lowe
50、r volume suddenly.In 2002 sales were the lowest in four years, leaving vehicle inventory at 70 days. Seventy days of inventory can mean $40B in capital sitting on lots. Meanwhile dealers and OEMs spend $3B and $11B, respectively, every year on advertisements.The loop from production planning to manu
