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The Impact of Globalization on Automotive Retailers

( Automotive News) The cost to bring a new product to market is enormous; some manufacturers will not be able or willing to spend enough to stay ...

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The Impact of Globalization on Automotive Retailers

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    Slide 1:The Impact of Globalization on Automotive Retailers

    Professor Timothy K. Gilbert Northwood University West Palm Beach, Florida

    Slide 2:We live in an amazingly complex global world, and the challenges will be likewise enormous. The task remains – to see opportunity before your competitor capitalizes on it. The cost of staying in the game continually rises, and some will not be able to last.

    Automotive Sector Dynamics Five Global Themes Although the global assembly outlook is positive, massive structural change is occurring just below the topline, forcing OEMs and suppliers to rethink their manufacturing investment strategies. Overall growth is definitely centered on the Asia-Pacific region (driven by emerging markets + low-cost sourcing), but much fewer opportunities to gain first mover advantage as competitive pressure intensifies. Globalization 1 Automaker growth strategies are beginning to diverge as most OEMs have finite resources, forcing them to choose where to concentrate their efforts – global sector is an environment where not everyone can win. Shifting Competitive Dynamics + Big Bets 2 New vehicle types (crossovers, MAVs, etc.) are taking share from traditional vehicle segments at an alarming rate, but OEMs risk getting lost in a sea of non-distinct product offerings – market fragmentation = high marketing costs. Segmentation Shifts 4 Capacity Investment + Rationalization Traditional players are finally addressing overcapacity issues in their home markets, redeveloping manufacturing footprints to accommodate flexible assembly – but urgency for turnaround is now, not 2-3 years away. 3 Supply Chain Restructuring Private Equity activity in the parts sector kicking into high gear as more suppliers buckle under the pressure of uncompetitive business models – OEM move to consolidate suppliers also driving M&A activity going forward. Retail changes biggest in Europe with pending US consolidation on horizon. 5

    Slide 3:Germanys manufacturing sector at its fastest rate for over 1 ˝ years in January, boosted by a big order intake and new hirings, suggesting domestic activity is picking up. More recently evidence is emerging that consumer demand is improving, export growth and investment are increasing. New plants include Kia, Slovakia, late 2006, Hyundai CZ mid 2008, PSA Slovakia late 2006Germanys manufacturing sector at its fastest rate for over 1 ˝ years in January, boosted by a big order intake and new hirings, suggesting domestic activity is picking up. More recently evidence is emerging that consumer demand is improving, export growth and investment are increasing. New plants include Kia, Slovakia, late 2006, Hyundai CZ mid 2008, PSA Slovakia late 2006

    Slide 4:Three Dynamics to Watch

    The Quality/Cost Equation The Cost of Bringing New Product to Market Versus Consolidation The Need for Dynamic Leadership

    Slide 5:Quality Has Improved for all Brands

    Slide 6:But Production Costs Vary Greatly

    Slide 7:Average Man Hours to Produce a Vehicle

    Nissan Toyota Honda General Motors Chrysler Ford Source: the Harbour Report North America 2006 28.46 hours/vehicle 29.4 hours/vehicle 32.51 hours/vehicle 33.19 hours/vehicle 33.71 hours/vehicle 35.82 hours/vehicle

    Slide 8:Plant Capacity Utilization

    Nissan Toyota Honda General Motors Chrysler Ford Source: the Harbour Report North America 2006 95% 106% 91% 90% 94% 79%

    Slide 9:Overall Profit Per Vehicle

    Nissan Toyota Honda General Motors Chrysler Ford Source: the Harbour Report North America 2006 $2,249 $1,587 $1,215 ($2,496) $223 ($590)

    Slide 10:Can Domestic Manufacturers Get Their Costs Under Control and Still Produce Comparative Quality Vehicles?

    Slide 11:Without Losing Additional Market Share?

    Slide 12:Market Share

    2004 GM: 27.61% Ford: 19.39% Chrysler: 13.08% Toyota: 12.21% Honda: 8.27% Nissan: 5.07% VW: 1.98% Other: 12.38% 2005 GM: 26.30% Ford: 18.34% Chrysler: 13.60% Toyota: 13.34% Honda: 8.63% Nissan: 6.36% VW: 1.81% Other: 11.62%

    Slide 13:Change in Market Share

    2004 GM: 27.61% Ford: 19.39% Chrysler: 13.08% Toyota: 12.21% Honda: 8.27% Nissan: 5.07% VW: 1.98% Other: 12.38% 2005 GM: (1.31%) Ford: (1.05%) Chrysler: .52% Toyota: 1.13% Honda: .36% Nissan: 1.29% VW: (.17%) Other: (.76%)

    Slide 14:Changes in Market Share Reflect Buyers Who Have Switched

    Will buyers who have switched from domestic brands to foreign brands stay with them? Can domestic manufacturers make good quality product at the same cost as foreign manufacturers?

    Slide 15:New Product Cost Versus Consolidation

    Slide 16: Manufacturers are continually pushed to introduce new product This is true for at least three reasons: 1) New technology pushes buyers 2) Consumers want fresh, new product 3) Competition gains share with new product

    Slide 17:Nissan/Renault an Example

    “The two companies’ alliance, in its eighth year, has been a rare success among the partnerships formed in a wave of consolidation in the auto industry over the past decade.” (Automotive News) Nissan-Renault announced a combined drop in sales for 2006 of 3.6% (Automotive News) “Sales suffered last year due to a dearth of new products at both brands.” (Automotive News)

    Slide 18: The cost to bring a new product to market is enormous; some manufacturers will not be able or willing to spend enough to stay ahead of their competition.

    Slide 19:Look at Ford and the F-150 Pickup Truck

    As Ford readies a new version of its flagship product, it has been faced with stiff competition from: Chevrolet and its new Silverado Truck, Honda and its new Ridgeline Pickup, Nissan and its Titan Pickup, and Toyota and its Tacoma Pickup Truck, Dodge and its Ram Pickup. Several of these products did not even exist ten years ago.

    Slide 20:All of This Will Filter Down to the Dealers

    Some manufacturers will consolidate Some manufacturers will eliminate certain segments Some manufacturers will go out of the market

    Slide 21:The Winners Will Be

    Brands that can make better quality products and are cost effective Brands that can continually introduce new, innovative products Brands that can create strong customer loyalty

    Slide 22:Leadership is the Key

    Slide 23:Working Harder is Not Enough

    Knowing where to go and how to get there Thinking just over the horizon not from the rearview mirror Creating loyal customers by building a brand image Applying sound business principles to the market Northwood is aptly positioning its students to meet these challenges

    Slide 24: Failure to Lead at the Manufacturer and Dealer Level

    Loss of Market Share and Consumer Confidence Increasing government involvement in our industry

    Slide 25:Dealers Have Historically Been Aggressive and Innovative Dealers Have Always Been in Touch With Their Local Communities Dealers Have Been Able to Withstand Economic Downturns Dealers Have Been the Key Link to the Market

    Slide 26:In the Future Successful Dealers Will Link Strong, Dynamic Leadership to Brands that Offer Fresh, Cost-Effective Product

    Slide 27:Thank You

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