Global Car Industry Facing Recession

The Global rail track automobile constancy Facing time out and a opinion Crisis Case study Reference no 309-032-1 This case was written by come off S Potter, Birmingham Business School, University of Birmingham. It is mean to be employ as the basis for class discussion or else than to illustrate either effective or ineffective move onling of a focal point situation. The case was compiled from print consultations. 2009, Birmingham Business School, University of Birmingham. No part of this publication may be copied, stored, transmitted, reproduced or distri stilled in any striving or medium whatsoever without the permission of the copyright owner. cch the case for learning Distributed by ecch, UK and USA www. ecch. com alone rights reserved Printed in UK and USA North the States t +1 781 239 5884 f +1 781 239 5885 e emailprotected com Rest of the world t +44 (0)1234 750903 f +44 (0)1234 751125 e emailprotected com 309-032-1 ______________________________________________ _____ The Global Car Industry Facing Recession and a Credit Crisis N. S. Potter The change that has hit the world economy is of a scathing scale that comes once in a hundred yrs said Katsuaki Watanabe, announcing Toyotas root annual expiry in its 71 year history.The firm said it pass judgment a loss of 150 billion Yen (? 1. 1 billion) in yearly operating profits and confirmed that fomite gross sales in the U. S. had f anyen 37% in December 2008 and that drudgery would halt for a score of 14 days from January to March 2009 in an effort to void inventories. Mean objet dart, in America, outgoing President George W. bush threw the struggling simple machine makers a $17. 4 billion lifeline to stave off immediate unsuccessful person and Canada became the second G8 economy to bail out its gondola intentness. In the UK, Tata approached the government for up to ? billion to financinger save Jaguar and Land Rover and announced at the same time that it was sponsoring the Ferrari F1 team in 2009. The Global Car Industry in 2009 An Overview. Car manufacturing has been described as the manufacturing of all industries. healthful inter dependence therefore make ups in the midst of the economies of many countries and industry performance. Governments rely on the sector as well as related suppliers and services to a greater or littleer extent in term of employment, taxation, GDP and balance of payments. Car makers equally, take away growing economies with rising levels of disposable income and consumer combine.The events of 2008 also present the industrys reliance on freely available credit to finance the purchase of its products. Credit availability has been the full-sizegest issue in our industry this year, according to Mike Jackson, Chief Executive of gondola Nation, the largest gondola dealer in America. This case was prep bed by N. S. Potter of Birmingham Business School and is intended as a basis for classroom discussion rather than to illustra te correct or improper handling of any administrative situations N. S. Potter, 2009. 2 309-032-1The credit crisis has affected economies world- enormously and reduced activity in a wide clutch of industries, notably housing and the fall in property prises, coupled with the idolise of unemployment has reduced consumer confidence around the world. Many analysts outright think that car sales forget not recover until 2010 and may take until 2013 to return to 2007 levels of 16. 1 billion vehicles, (CSM Worldwide, Detroit). Governments must balance these economic considerations with environmental issues, as well as the aspirations of consumers in terms of mobility and materialism.Politicians need to find a compromise between these opposing forces and the ways in which they impact on the voting intentions of disparate groups in their respective electo grade. The effectuate of oil price volatility, the credit crisis and subsequent recession on the environment appear to be mixe d. virtually environmentalists argon concerned that economic issues imparting dominate the political agenda, while others point out that community atomic number 18 flying and whimsical less and that the car industry in particular, give be gouge to spend heavily on developing to a greater extent eco friendly products.Core industries base strategic decisions on the car industry as seen in the move by steel makers to site manufacturing facili get outs in developing countries where car qualification is starting to take place and demand for commodities was rising rapidly until mid 2008. The car industry may experience notwithstanding low growth going into the second decade of the 21st century. However, this allow be spread unevenly, both(prenominal) between countries and idiosyncratic companies. One of the key elements driving dynamics in the car industry is ever increasing globalisation.Rapid change is taking place, continually fixation industry body structure and seduct iveness as well as the key success ciphers requirement for both survival and growth. lacquerese companies were forced to manufacture overseas for much of the 1990s due to the continuous appreciation of the Yen and with its currency at a thirteen year high against the dollar in early 2009, Japan has seen trades to America fall by 33. 8% and to the E. U by 30. 8%, (BBC News). 40% of all cars change by Toyota in the U. S. re currently manufactured in Japan. china and India, with combined populations of deuce billion, all the way contribute enormous potential, but appear to be equally vulnerable to world events. Chinese car sales skin by 14. 8% in the year to November 2008, (FT) and sales in India fell by 19. 4%, (Society of Indian Automobile Manufacturers) due to credit problems and high interest rates, beginning to call into question approximately existing joint ventures as foreign partners scale back investing and concentrate on problems in their own food marts. 309-032- 1 mho America as a only is set to buzz off a portentous grocery with brazil now the 6th largest producer in the world, however annual sales fell 16. 9% in the year to December 2008, (Reuters). A new manufacturing facility planned by Honda in Argentina has now been postponed until at least 2010, (Associated Press). atomic number 63 has also seen sales plummet during 2008 but has exempt overinterpreted the USA to become the largest pile market in the world and East Asian competition has become ever more significant.Tightly defined product segmentation has taken place as traditional markets mature, while the rapid growth of emerging economies has provided opportunities to extend product life cycles on a geographical basis. The dance step of globalisation has varied considerably deep down the triad. Most europiuman car manufacturers have significant positions only in spite of appearance europium. U. S. companies tend to have study shargons domestically and in Europe, while only devil major Japanese companies can claim to be truly global.Although the industry is concentrating, no single company is smashed to dominating the market and in fact seven companies have between 10% and 15% market sh ar. The level of acquisition activity has been reasonably intense but the other major feature of the industry has been the degree of collaborative activity. A variety of alliances and joint ventures have been utilised as a fashion of growth, as isolating mechanisms and even to circumvent national political issues. In 1980, there were 30 supreme car anufacturers, by 2000 this had fallen to 13 and it is predicted that by 2015 the number provide have fallen to 10, a situation which could be exacerbated by the global economic situation. The industry regard as chain is also altering and becoming capability led, as companies cogitate downstream towards the customer interface where the most explicit value is increasingly macrocosm added. The Original Equipment Ma nufacturers (OEMs) sh ar of total value creation stood at 36% in 2002 and this will fall to 23% by 2015.Despite this, the component manufacturers face similar desegregation pressures with 8000 suppliers in 1998 expected to fall to 2800 by 2015. engineering science is changing the upstream supply chain as component suppliers split into tiers and become total solution providers, often diversifying from previously unrelated industries such as electronics, computer softwargon and aerospace. Companies such as Delphi, Bosch, Continental, Lear, Siemens, Thyssen Krupp and Visteon will become dominant. 4 309-032-1 Summary of main conclusions occupy will fall in Europe and America in 2009 and will be flat in china, although the second half of the year may see a partial recovery. Supply will dwell to exceed demand as production capacity currently stands at 90 million units. Europe and China have become the primary battlegrounds for car manufacturers, with Germany currently the biggest si ngle market. east Europe and South America offer limited growth as well as high risk but will become significant markets by 2015 Apart from China and India, the ASEAN countries represent the greatest opportunity and dispute to Japanese, U.S and European manufacturers, as long as structural and governance reforms cross. Significant demand fluctuations will exist between agricultural markets. Toyota, Honda and Nissan ar truly global competitors and this trend will continue, with around seven companies or collaborative groupings eventually dominating the world market, each making between 5-7 million vehicles annually. The industry is compulsive by toll and engineering science with political and ecological issues as a significant underlying factor and this holds for product and process development. Manufacturers will integrate forward vertically into their distribution channels, diversify and out source traditional activities. Collaboration between manufacturers, supplier s governments will become increasingly prevalent. Marketing strategies will focus on creating lifetime customer relationships, but in the short term, availability of finance will be a critical issue. 5 and even national 309-032-1 Time to market for new models will continue to reduce from 3. 4 years in 1995 to 2. 2 years currently and this may become a critical issue as companies respond to rapid changes in consumer preferences.Global Car Industry Major Forces and Impacts It is clearly embarrassing to generalise due to the enormous variation between countries in the various stages of their development. It is however reasonable to conclude, that the car industry within any presumptuousness country is subject to opposing political forces. As a primary industry, it is a major contributor to GNP, balance of payments and employment. Component suppliers and service providers represent important substitute(prenominal) industries. Total global industry employment was predicted to reac h 11. million by 2015, prior to the 2008 crash, with 78% of those jobs generated by suppliers. This will heavily influence government policy during 2009/10 with governments across the world expected to support the car industry. Taxation of purchase and use represents significant government revenue. It is estimated that global industry revenue will have reached 903 billion Euros by 2015. Transport is a major part of any countries infrastructure and is necessary to the process of wealth creation. Congestion and safety are becoming increasingly important issues. Pollution and removeable energy policies could dominate the industry in future. Targets to reduce CO2 emissions and force out consumption are making alternative fuels, such as natural gas and electricity more attractive. The issues surrounding inward and outwards direct investment affect strategies adopted by companies as they seek to invest and grow in new markets. Cost of labour as a factor of mobility is increasingly debated but governments examine to attract investment with a range of grant aid as well as subsidising domestic companies for a variety of reasons, including national prestige. 6 309-032-1Demand for cars is very closely linked to a given countrys economic performance and this can be viewed in two separate contexts 1 The wider process of the economic development of a country which results first in selective ownership, leading gradually to mass market brashnesss. 2 Short term life cycle fluctuations within mass flock markets leading to hold up purchases or customers changing segments. Consumer confidence is a key factor in the purchase decision as the product price is significant in relation to most lots income. For every 1% attach in average earnings, car ownership rises by 2%. 7 309-032-1Table 1 World Economic expected value 2009 IMF 2006 2007 2008 2009 Original World output 5. 1 5. 0 3. 7 2. 2 Advanced economies 3. 0 2. 6 1. 4 United States 2. 8 2. 0 Euro area 2. 8 Germa ny 2008 2009 2007 2008 2009 Revised Current forecast -0. 2 -0. 8 4. 8 2. 5 2. 4 -0. 3 -0. 1 -0. 8 2. 6 0. 3 0. 3 1. 4 -0. 7 -0. 1 -0. 8 2. 3 0. 4 -0. 5 2. 6 1. 2 -0. 5 -0. 1 -0. 7 2. 1 0. 1 3. 0 2. 5 1. 7 -0. 8 -0. 2 -0. 8 1. 7 0. 3 -0. 3 France 2. 2 2. 2 0. 8 -0. 5 -0. 1 -0. 6 2. 2 -0. 4 0. 2 Italy 1. 8 1. 5 -0. 2 -0. 6 -0. 1 -0. 4 0. 1 -0. 4 -0. 1 Spain 3. 9 3. 7 1. 4 -0. 7 -0. 5 3. 2 0. 2 -0. 6 Japan 2. 4 2. 1 0. 5 -0. 2 -0. 2 -0. 7 1. 4 -0. 3 0. 4United Kingdom 2. 8 3. 0 0. 8 -1. 3 -0. 2 -1. 2 2. 9 -0. 9 -0. 5 Canada 3. 1 2. 7 0. 6 0. 3 -0. 1 -0. 9 2. 8 1. 0 former(a) advanced economies 4. 5 4. 7 2. 9 1. 5 -0. 2 -1. 0 5. 0 1. 8 3. 0 5. 6 5. 6 3. 9 2. 1 -0. 1 -1. 1 6. 1 2. 2 4. 4 -0. 1 -0. 8 9. 0 8. 3 Newly industrialized Asian economies China 11. 6 11. 9 9. 7 8. 5 11. 3 7. 9 8. 0 6. 6 5. 1 -0. 3 -1. 0 8. 5 5. 9 5. 7 Africa 6. 1 6. 1 5. 2 4. 7 -0. 7 -1. 3 Brazil 3. 8 5. 4 5. 2 3. 0 -0. 5 6. 2 3. 9 3. 2 Central and eastern Europe 6. 7 5. 7 4. 2 2. 5 -0. 3 -0. 9 Commonwea lth of Independent States 8. 2 8. 6 6. 9 3. 2 -0. 3 -2. 5 7. 4 8. 1 6. 8 3. 5 0. 2 -2. 0 9. 5 5. 9 5. 8 9. 8 9. 3 7. 8 6. 3 8. 9 6. 6 6. 0 appear and developing economies2 Russia India 8 0. 1 0. 6 309-032-1 The important variable is private consumption. Growth and wage levels are expected to be pokey in real terms in the immediate future. Fiscal policies may eventfully result in high taxation, particularly to service government borrowing, some of which will be indirect and therefore industry specific. participation and exchange rates are also important as they affect disposable income. Interest rates have been slashed by the majority of central banks in developed countries and at the beginning of 2009 ranged from 0. % in Japan to 2. 5% across the Euro zone. Currency markets will probably continue to be volatile during 2009 as analysts assess which governments are following policies aimed at coming out of recession earlier than other nations without driving borrowing to unsust ainable levels. It is likely that persistently high levels of unemployment and reduced job security will keep consumer confidence low and lead to an increase in the savings ratio. This could impact in several ways on the replacement patterns of high value consumer durables. Replacement may be delayed, satisfied in the second hand market or by trading down when buying new.Global growth is expected to continue to decrease from the peak in 2004 but the speed of the decline in output will vary from section to region as seen in table 1. World trade will slow down, from growth of 10. 1% in 2004, to 5. 0% in 2007 and a forecast of 2. 4% in 2009. Labour productivity and trade good prices are also key issues. Global demand for oil has exceeded supply for much of 2008 with prices peaking at $147 per bbl before plummeting to $5 in early 2009 and in the long-term term, China has gone from being a net exporter of oil in 1995 to a position where it is predicted that 55% of its demand will be merchandise by 2030.There are clear linkages with economic factors as wealth generally leads to raised expectations. In less developed markets, the consumers initial aspiration is simply for a convenient means of transport over longer distances and in this respect, the Nano from Tata may provide particular advantage. Increasing levels of wealth and confidence bring demands for more train equipment, greater choice of versions, niche products, passenger safety and consideration of the environment. 9 309-032-1 The degree of nationalism within country markets can also be significant and clear example of this is the German market where buyers demo a clear preference for German cars. It is forecast that subsequent generations of buyers will think less along national lines as education, travel and integration all increase. This process will also be deepen by local production, as demonstrated by Toyota, Nissan and Honda in the UK and VW in China. The need for transport is nigh infinit ely flexible in relation to its ease and cost. Governments have the task of balancing this need against the economic and ecological considerations as well as the prospect of increased leisure time for many people.There are currently 500 million cars on the road throughout the world and by 2030 this figure is expected to rise to 1 billion with a further 500 million lorries and motorcycles. thoroughfare transport accounts for 20% of the global CO2 output and this figure could rise as traffic increases in developing countries. Technology represents another significant industry specific driver and can be considered under process cost, ecological pressure and increased consumer demands for new products increasing choice, comfort, performance and safety.Smart cards im siced in engine management systems will be capable of measuring the quantity of polluting emissions with the results used to prepare individual tax bills. Road side sensors or global positioning satellites will charge heavi ly for road use during close up periods with reduced or waived charges at other times of the day. The use of zombis for assembly is increasing and it is estimated that 40% of the worlds 610,000 robot population are used in the car industry. This is already affecting the propensity of companies to relocate in areas of low labour cost, as the cost advantage is being eroded.Product development issues will include fuel source, the balance between design and aerodynamics, automation of driver systems, satellite positioning and matching vehicles or versions to individual lifestyles. Process development will be concerned with flexibility, quality and cost issues. Supplier relationships and internal value chains will change in two significant respects due to these factors 1 Car manufacturers increasingly lack capabilities in relation to new technologies and are out sourcing total solution render to first tier suppliers, who are in 10 309-032-1 urn responsible for relationships with seco nd and third tier companies. 2 Process technology is becoming so specialised that manufacturers are having to develop in house capabilities in order to supply their exact requirements. It is also forecast that differentiation and the analyzableity of technology will tie customers to authorised service dealers throughout the life of the vehicle. This will alter the relationship between margins made on the sale of a car and those subsequently derived from serving and the sale of replacement parts. Outlook for the Global IndustryThe production and supply of cars has been concentrated in the three zones of the triad until recently, however there will be a degree of fragmentation over the next ten years as Eastern Europe, South America, China and India develop both in terms of consumption and production. The Chinese government welcomes foreign direct investment and has relaxed rules for setting up businesses and realises that foreign capital and 21st century technology can help the co untry to industrialise more quickly. There are five major indigenous car manufacturers in China as well as many smaller companies.Their main problem is a lack of both brands and designs. Shanghai Auto is number one in the domestic market and ranked at 373 in the 2008 Fortune Global 500, but still only produces 800,000 cars a year through joint ventures with GM and VW and this provided the rationale for the purchase of MG Rover assets and the 2007 merger with the Nanjing Automobile Company . Table 2 2009 vehicle sales forecasts 2007 versus 2009 (millions of cars) estate New 2009 forecast Original 2007 forecast % Decrease USA 14. 3 18. 6 23. 0% Western Europe 14. 0 16. 9 17. 0% China 8. 0 7. 9 same(predicate) Japan 4. 8 6. 0 20. 0%Eastern Europe 5. 8 3. 6 India 1. 8 2. 1 14. 0% South Korea 1. 6 2. 1 24% (61% increase) Sources Ernst and Young, Fortune, SMMT, Business Mirror, FT & Reuters 11 309-032-1 It can clearly be seen that the short term growth opportunities are in Eastern Eur ope and possibly China. The big European and North American producers face massive structural problems, pension deficits, overcapacity, mature markets and falling prices. Emerging markets offer some relief but competition will be at least as fierce and may require a move to smaller, lighter cars and this will favour some manufacturers more than others.Dongfeng Nissan and Geely Automobile in China are both forecasting sales increases during 2009, found on their range of small, inexpensive models. The motor car will increasingly be a target for environmentally make taxation and legislation. Industry rationalisation is long overdue, but government and unions in some countries will decline any attempt by manufacturers to cut large numbers of jobs and this tension will be a feature of 2009/10 as governments attempt to counter rising unemployment and balance public finances.Much of the cost pressure being felt by OEMs is being passed onto suppliers or eased by relocating manufacturing and sourcing to Eastern Europe and China. Currently, 33% of all suppliers have manufacturing facilities in Eastern Europe and 17% in China and this trend will continue with Western Europe and the U. S. adding value through marketing, engineering and design, though this raises the issue of technology larceny and intellectual property rights. Russia, Poland, Hungary and the Czech Republic are the most important sales markets in Eastern Europe and also represent important manufacturing locations along with Slovakia and Slovenia.China is now VWs second largest sales market after Germany and General labours generated 44% of global earnings from the same country, both companies plan a series of new vehicle launches during 2009. Russia is also a potentially large market with 144 million people and car ownership only one third of the level in Germany. Sales have duple to over 3. 5 million units a year, (P. W. C. ) but the forecast for 2009 is a 15% reduction as the effect of lower oil p rices affects the economy.German and Japanese cars are in high demand, though the government has appointive that 80% of officials should drive Volgas with the remaining 20% being supplied with BMWs built in Kalingrad and Fords made near St Petersburg. The Russian OEMs such as Moskvitch, Gaz and Ural tend to focus on the largest part of the market which is for cars costing less than $4000. Other manufacturers with plants already there, include Renault, GM and VW, with Nissan, Hyundai, Peugeot and Mitsubishi currently constructing new facilities, (Business Week). Renault has become partners with Avtvaz, paying $1 billion for a 12 309-032-1 5% stake in early 2008 and the next phase, according to PWC will be the payoff of a powerful components industry to supply as foreign brand cars manufactured in Russia are forecast to rise to 2 million by 2012. Ford, VW and Renault have all announced extended plant shutdowns during the early part of 2009, (New York Times), however PWC still foreca sts that despite these short term strongies, sales will continue to rise to six million units by 2014 and analysts at Russian agency Avtostat, predict that Russia will be the third largest car market in the world by 2012, behind only the US and China.Eastern Europe is improving in terms of productivity and competitiveness, is close to major EU markets and combines low wages with a skilled work on force. Political pressure will focus on the production of cars suitable for export markets in order to earn currency, but government attitudes to foreign direct investment may alter if Russia joins the WTO. Collaboration between Eastern and Western European companies is growing rapidly, based on the mutual benefits of technology/skills transfer and market entry.Ironically, economic measures aimed at strengthening local currencies in order to reduce inflation, are making it more difficult for exporters to remain competitive. GM and Ford have invested in low volume production but many of t he other OEMs have adopted a more cautious approach, although Toyota, Daewoo, Mitsubishi and Renault are successfully importing cars. The level of global sales and therefore production in 2009 is very difficult to forecast as it depends largely on how quickly financial institutions make credit available at somewhere close to previous levels. 0. 2 million cars were manufactured in 2007, falling to 67. 9 million in 2008, (J. D. Powers). Honda forecasts that European production will fall by over 12. 0%, but increase by 5% in China during 2009. VW expects the whole year to be difficult, particularly the first two quarters. PWC is forecasting a 17% fall in sales in the US, 12% across Europe and 5% in Asia Pacific. The firm remains upbeat about 2010, predicting a recovery in global sales of up to 15%. 13 309-032-1 Table 3 Preferred Manufacturing Locations Country Very attractive Attractive Total Czech Republic 0% 44% 94% China 71% 18% 89% Hungary 40% 45% 85% Poland 36% 46% 82% USA 36% 33 % 69% Slovakia 40% 28% 68% South Korea 16% 48% 64% Mexico 21% 39% 60% Western Europe 18% 23% 41% India 15% 23% 38% Brazil 14% 21% 35% Ukraine 15% 18% 33% Romania 10% 23% 33% Slovenia 16% 14% 30% Bulgaria 5% 19% 24% 11% 10% 21% Argentina 5% 11% 16% Thailand 5% 8% 13% Vietnam 0% 10% 10% Russia 4% 4% 8% Australia 1% 3% 4% Croatia 1% 1% 2% Yugoslavia 1% 0% 1% Japan Source Ernst and Young Competitive Analysis The global market leader during 2007 in terms of volume was GM which produced 9. 5 million vehicles compared with Toyota at 8. 5 million, however adding Daihatsu, (a wholly owned subsidiary) brings Toyotas total production level with GM and as can be seen in the table overleaf, Toyota now produces more cars than GM when commercial vehicle sales are discounted. It is also worth noting that if the production figures for Renault with Nissan are combined, they climb to fifth place ahead of Honda. 14 309-032-1 Table 4 World absoluteing of Manufacturers 2007 Rank Group Total (Millions) Cars Total Vehicle Production 72. 18 56. 30 1GM 9. 34 6. 26 2 Toyota 8. 53 7. 21 3 VW 6. 27 5. 96 4 Ford 6. 25 3. 56 5 Honda 3. 91 3. 87 6 prostate specific antigen 3. 46 3. 02 7 Nissan 3. 43 2. 65 8 order 2. 68 1. 99 9 Renault 2. 67 2. 28 10 Hyundai 2. 62 2. 29 11 Suzuki 2. 60 2. 28 12 Chrysler 2. 54 0. 75 13 Daimler 2. 10 1. 33 14 BMW 1. 54 1. 54 15 Mitsubishi 1. 41 1. 10 16 Kia 1. 37 1. 29 17 Mazda 1. 28 1. 16 18 Daihatsu 0. 86 0. 71 19 Avtovaz 0. 73 0. 73 20 FAW 0. 69 0. 69 21 Tata 0. 59 0. 24 22 Fuji 0. 58 0. 51 23 Chana Automobile 0. 54 0. 54 24 Beijing Automotive 0. 45 0. 45 25 Dongfeng Motor 0. 44 0. 44Source International Organisation of Motor Vehicle Manufacturers (OICA) It is notable that four firms in the top 50 produce fewer than 100,000 cars a year and fifteen make fewer than 250,000 cars and the top ten Chinese companies only produce around 3 million cars between them, while Tata has a long way to go before it becomes a volume player. 15 309-032-1 Table 5 World Vehi cle Production by Country in 2007 Country Total Vehicle Production (Millions) Japan 11. 60 USA 10. 80 PR China 8. 90 Germany 6. 20 South Korea 4. 10 France 3. 00 Brazil 2. 95 Spain 2. 90 Canada 2. 60 India 2. 30 Mexico . 10 UK 1. 75 Russia 1. 65 Italy 1. 30 Thailand 1. 25 Turkey 1. 10 Iran 1. 00 Czech Republic 0. 95 Belgium 0. 85 Poland 0. 80 Source International Organisation of Motor Vehicle Manufacturers (OICA) Corporate Strategies Diversification is still common within the automotive industry, however the most prevalent strategy is forward integration. Most of the added value is now derived from finance, servicing and the sale of spare parts. Growth by acquisition has been used by G. M. , Fiat, Tata and VW to overcome mobility barriers and gain front line in the upper luxury segments, although G.M. in particular is more focused on the U. S. market in this respect. Toyota and Honda conversely, chose organic growth by establishing the Lexus and Acura brands organically. BMW now ha s its own range in the important four motorcycle drive market 16 309-032-1 and its acquisition of Rolls-Royce leaves them with a more sustainable portfolio, including Mini, which it retained when it sold MG Rover. Mercedes on the other hand, is relying on brand extension and the rebirth of the Maybach brand to increase volume since the end of its ill fated merger with Chrysler.The successful merger between Renault and Nissan raises question about the two remaining European independents, PSA and Fiat. Collaboration As markets mature, manufacturers are being forced to cut be and increase scale. The manufacturing process has had most of the possible cost squeezed out in the last ten years. Companies already buy components from each other or share development costs, for example the alliance between PSA and Renault to supply gearboxes. Collaboration is based on mutual need and can either be used to spread costs or as a market entry strategy.There appears to be a conjure of emphasis fr om the interchange of resources towards combining, as well as a more open attitude by Western companies to close co-operation. It is becoming multi dimensional as manufacturers analyse their value chains, not only with a view to outsourcing, but on a geographical basis. Relocation, rationalisation and new bases for supplier relationships will dramatically alter the profile of the entire industry by 2010 There are a number of analogue developments occurring The component supply industry has tiered, with Tier 1 suppliers becoming solution providers.They develop and supply whole vehicle systems such as brakes, engine management, steering and suspension. These suppliers have becoming knowledge partners and have taken on the role of managing relationships with tiers 2 and 3, who have found themselves isolated from the car manufacturers. Technology is increasingly complex and from outside the traditional automotive industry. Electronics, currently constitute around 23% of the value of a car, this will rise to 40% by 2010. As technology becomes more intelligent, components can be tailored to a wider range of applications.Software can now be used to alter the power and 17 309-032-1 torque profiles of diesel engines using inbuilt codes, offering the opportunity to use one engine across a wide range of model sizes. It could also be combined with GPS to automatically limit speed to the legal maximum. For this reason, medical specialist suppliers are achieving greater economies of scale than even the largest OEMs can hope to achieve in house. Car makers are reducing the number of varying components even at platform level, but increasing consumer choice by offering more variants in terms of trim and accessories. They are recognising the concept of needlessly unique components, where the cost of developing many alternatives does not raise customer perceptions of value. Components which the customer perceives to be invisible will be standardised. These will include c hassis, steering, driveline and braking systems. Others will be made common where possible, including instruments, controls and airbags. Only variants required to be different by the customer will be specific to models and examples of these include paintwork, exterior trim, fascia and deoxyephedrine. Component suppliers are being forced to grow, in order to stay within cost targets set by their customers. Suzuki insists that all main suppliers with fewer than 100 employees must merge with other suppliers. Global car makers logically require global component suppliers. Car companies will increasingly become assemblers as they turn their main strategic attention towards, design, marketing and their distribution channels. Technology and Re depend and Development It is becoming more difficult to sustain competitive advantage through product differentiation.OEMs however, are continuing to invest heavily in seek and development in an attempt to attract customers and no detail is seen a s insignificant. Audi claims that its new V10 R8 is the first car in the world with all LED headlamps and rear-view mirrors have become high tech, with power folding, photo chromic glass and vision cameras aimed at pedestrian or occupant detection. It is likely 18 309-032-1 however that the technology focus will increasingly be on new fuel sources and lower pollution levels as firms attempt to anticipate future customer demands.Pollution and Resource Consumption Pollution has evolved from a series of localised problems into a global issue. The range of pollutants is also increasing and now includes CO2, CO, NOx, SO2, CFC, Methane and Nitrates. Automobiles currently have 80% of the global individual(prenominal) transport market and 55% of goods transportation. Their effect on the natural environment is therefore significant and ranges from 5% of total SO2 emissions up to 70% of all CO2 emissions. Noise and waste products also contribute to environmental deterioration.More than 500 k g of every car produced ends up in land fill sites, accounting for 4% of total rubbish weight. Companies are beginning to take these issues seriously as it is probable that eventually they will bear responsibility for disassembly and total recycling. Renault for example spends 30% of total R & D work out and employs 1000 people on environment related issues. This is shared between compliance with future pattern and attempting to gain advantage over competing companies.The Euro 96 norms mean much tighter controls over emission levels and these are reverberate by U. S. legislation. No detail is too small to escape attention in this constant search for technological advantage. In Europe for example, 180,000 tonnes of fuel evaporates every year during the refuelling process and fuel tanks are being redesigned to eliminate the problem. Reduction in fuel consumption is a major research area and engines are being developed with reduced friction, more efficient combustion and better igni tion.Diesel cars remain an alternative and work also continues on small electric cars. Engines capable of using renewable fuels such as soybean oil have been in existence since the 1970s, but unless governments deliberately favour these alternatives via changes in taxation policy, they will only slowly gain acceptance. There are encouraging signs however, in Sweden 66% of orders for the new Saab 95 are for the version that runs on 85% bio ethanol derived from sugar cane and British Sugar is considering mental synthesis a bio ethanol plant in the U.K. Hybrid vehicles running on oil 19 309-032-1 based fuel and electricity are gaining in popularity and fuel cell cars will be on the road by 2020 Table 6 World commodity Prices 2000 to 2010 Commodity prices, 2000-2010 Percent change Forecast Commodity 2000-2005 -26. 4 1. 8 33. 9 1. 0 57. 2 -10. 8 -4. 2 3. 1 33. 9 97. 8 -23. 1 -10. 0 29. 1 17. 0 22. 4 -19. 1 -4. 3 12. 7 20. 0 28. 4 -21. 5 -1. 3 10. 0 25. 6 35. 2 -23. 3 -0. 3 18. 4 26. 1 50. 9 -28. 9 2. 6 22. 7