YICGG 2008 - Rome

The Automobile Industry:

A Never-ending Competition Sector Never-

Giuseppe Volpato Ca Foscari University of Venice

Contents

 Why Automobile Industry Is So Important ?  What s the Shape of the Automobile Filire ?  Main Changes in the Automobile Demand  Main Changes in the Automobile Supply  How to compete effectively?
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Automobile Industry as Employment Generator in EU

Metal Raw Materials and Machine Tools 1,540,000 Textiles, Glasses and Chemical Row Materials 300,000 Tires and Rubber Parts 660.000

Automobile Component Manufacturing

1,300,000

Automobile Industry (Final Assembly)

1,854,000
Services Connected with the Vehicle Use 890,000 Vehicle Distribution and Maintenance Transportation Services 9,360,000

3,150,000

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

 Why Automobile Industry Is So Important ?  What s the Shape of the Automobile Filire ?  Main Changes in the Automotive Demand  Main Changes in the Automotive Supply  How to compete effectively?
5

Automobile Filire (whole supply chain)

3 T

Orders 2 T OES OEM Nat. Branch Dealer

Customer
Service
6

Cost Structure in Car Manufacturing and Assembly

Profit

Break-even

Loss

Total capacity

Fix cost prevalence

7

Cost Structure in Car Distribution (Dealer)

Profit Maximum profit Break-even Quantity Cash Prize given to Dealers by Manufacturers

sure customers Loss

doubtful customers

variable cost prevalence

8

Contents

 Why Automobile Industry Is So Important ?  What s the Shape of the Automobile Filire ?  Main Changes in the Automotive Demand  Main Changes in the Automotive Supply  How to compete effectively
9

The Motorization Process

Cars for 1.000 inhabitants in different countries
750

600
USA Italy Germany France Japan UK Poland S.Korea Brasil China India

450

300

150

2006 813 673 597 595 593 571 385 322 124 23 12

1960

1970

1980

1990

2000

2010
10

The Pattern of Motorization

The Italy Case

1960
Distribution of families by income

Poor Families

Affluent Families Families

with a car

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The Pattern of Motorization

1980

The Italy Case

1970

1990

1960

2000

Poor Families

In 2006, 95% of families has 1 car and 43% owns 2 or more cars

Affluent Families

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Car Park Growth in W.Europe

(Average growth ratio in the decades)
5,00%

0,00%

19,18% 18,60%

15,00%

10,00%

5,91%
5,00%

4,49% 1,77% 1,40%

00- 07
13

0,00%

50- 59

60- 69

70- 79

80- 89

90- 98

New Cars Registration in W.Europe

(Average growth ratio in the decades)

16,00% 14,00% 12,00% 10,00% 8,00% 6,00% 4,00% 2,00% 0,00%

50- 59 60- 69 70- 79 80- 89 90- 99 00- 07
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13,70% 13,77%

4,61%

0,27%

0,61% 0,29%

Evolution of the Car Range in W.Europe

No. of Models
300 250 200

No. Of Versions
3500 3000 2500 2000

150

1500
100 50 0 1990 1995 2006

1000 500 0 1990 1995 2006

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Model Car Cycle in W.Europe

PLC 1970-1980
3,6 years (33,6%)

(1970-2006)
PLC 2000-2006
3,2 years (54,8%)

100
90

100
90 80

Unit sold as % on peak

80

70
60

5,2 years (48,9%)

70
60

4,1 years (71,2%) 5,4 years (92,4%)

50
40 30 20 10

7,2 years (67,8%)

50
40 30 20 10

10,7 years (100%)

5,6 years (100%)

Years
16

New Car Registrations

28 26
Million of cars

Market Forecasting

Asia

24 22 20 18 16 14 2003 2006 2009

W.Europe N.A.

2012
17

New Car Registrations

6 5,5 5 4,5 4 3,5 3 2,5 2 1,5 1
Million of cars

Market Forecasting

E.Europe S.America

Africa and M.E.

2003

2006

2009

2012
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Contents

 Why Automobile Industry Is So Important ?  What s the Shape of the Automobile Filire ?  Main Changes in the Automotive Demand  Main Changes in the Automotive Supply  How to compete effectively
19

A Sector Characterized by a Very Strong Competion Process

 Competion produces a concentration of makes  Competition reduces profit margins  Competition spurs product and process innovation
and cost reduction

 New labor division between car manufacturers

and suppliers

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Car Manufacturers

Concentration Process
Acquisitions and Mergers Among Makes

1960 = 51

1970 = 38

1980 = 33

1990 = 27

2007 = 16
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Component Suppliers

Concentration Process

35.000 30000 30.000 25.000 20.000 15.000 10.000 5.000 0 1990

Total Suppliers

2.500 2.000 1.500 10000 600 1.000 4000 100 2000 2010
1 Tier Suppliers
22

2000

500 0

Structural Overcapacity
(milion units)

2005
18 80 62
22,5%
Capacity Production Capacity

2015
15

87 72
17,2%
Production

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Contents

 Why Automobile Industry Is So Important ?  What s the Shape of the Automobile Filire ?  Main Changes in the Automotive Demand  Main Changes in the Automotive Supply  How to compete effectively
24

How to Compete effectively

 Invest in Low-cost countries  Utilize Word Class Manufacturing Procedures  Smart Standardization and Differenziation:  Industrial agreements for commonalizations  Reduce Time-To-Market  Product and Process Innovation

less architectures, less components, more models

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Labor Cost per Hour

(2003-2009 values in US $)
40,00 35,00 30,00 25,00 20,00 15,00 10,00 5,00 0,00

2003

2009
26

10

20

30

40

50

60

0
'0 7

ar ch A

(Body Sealing Station)

Average Number of Defects for Work Shift

Application of WCM

pr il '0 7 M ay ' Ju 07 n '0 Ju 7 ly Se '0 7 p .' 07 O ct .' 07 N ov .' 07 D ec .' 0 Ja 7 n. '0 8 Fe b. '0 M 8 ar ch '0 8 A pr il '0 8 M ay ' Ju 08 ne '0 Ju 8 ly Se '0 8 pt .' 08

27

Average Number of Defects for Work Shift

(Body Welding Station)

160 140 120 100 80 60 40 20 0

Application of WCM

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Cost Reduction through Common Architectures

(The Fiat Case)

19 16 6 6
No of Architectures

New Architectures Architectures in 2002

11 6 6 6
2012 E
New models by each Architecture Production by each Architecture
29

13
2006
1.7

10
2008 E
2.7

5
2010 E
3.7

150 K

270 K

450 K

Cost Reduction by Component Standardization

(The Fiat Case)
18 16 14 12 10 8 6 4 2 0
2005 2006 2007 2008 2009 2010 2011 2012 2013

Different Types of HVAC Modules

(Heating, Ventilation & Air Conditioning)
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Cost Reduction by TTM Compression

(The Fiat Case)
Concept Definition Technical Concept Definition Technological Development Tooling Process Validation Pre-series Ramp-Up

Kick Off

Briefing

Start of Development

Technical Validation

Job 1

Launch

2001 Stilo 2006 Bravo 2008 Delta

- 26

- 16,5

-4

- 18

-9

- 2,5

- 15

-9

- 2,5

Use of Simultaneos Engineering

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Investments in Innovations (R&D + Capex)

I
MW Mer edes Fi t PSA ult W Toyot For GM

t i I

ovation (
2003 6.188 5.600 5.626 4.623 2.039 1.102 4.414 1.343 4.525 1.895 10.428 2.079 12.431 1.850 12.996 1.929 11.227 1.386 2004 6.681 5.527 4.977 4.057 2.744 1.445 4.302 1.275 4.924 1.977 9.347 1.818 13.563 1.831 11.014 1.620 11.094 1.346

apex)
2005 6.457 4.880 4.047 3.326 2.247 1.223 4.678 1.380 5.143 2.029 8.515 1.640 17.071 2.141 12.137 1.794 11.735 1.297 2006 6.857 4.991 3.839 3.067 2.838 1.345 4.374 1.300 5.985 2.460 8.316 1.454 15.865 1.861 11.150 1.690 11.230 1.223 2007 7.187 4.662 3.938 3.045 2.616 1.171 3.648 1.064 5.415 2.180 9.958 1.608 14.500 1.627 9.209 1.405 10.641 1.146
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R&D + Capex (million euro) R&D + Capex per car R&D + Capex (million euro) R&D + Capex per car R&D + Capex (million euro) R&D + Capex per car R&D + Capex (million euro) R&D + Capex per car R&D + Capex (million euro) R&D + Capex per car R&D + Capex (million euro) R&D + Capex per car R&D + Capex (million euro) R&D + Capex per car R&D + Capex (million euro) R&D + Capex per car R&D + Capex (million euro) R&D + Capex per car

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 fuel guzzler cars:

Substitute heavy car (SUV) with city car

The necessity to stop the global warming:

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

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