Automotive inSIGHTS 1/2007 - Roland Berger

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Editorial Contents "INSIGHTS": Automotive Insights, model year 2007 Dear Reader, New model year, new features. What is good for the automotive industry is good for Automotive Insights as well: We have relaunched our magazine to make room for more true insights into the latest trends and developments in our industry. From now on we will start every issue with a look around the world: Roland Berger Consultants will report on the newest topics in their markets. This time we take a look at Russia, the US and Japan. News and interesting publications, a story on a famous car and two factpacked reports on new studies follow. In this issue we offer insights into the development of the markets for low cost cars and research why suppliers on average work more profi tably than the OEMs. We hope you will enjoy reading our new Automotive Insights. Sincerely, Ralf Kalmbach 2 News 2 „Insights“: A look around the world 2 USA North American suppliers: the good, the bad and the ugly 3 Russia Dilemma for western suppliers 3 Japan Never walk alone: Entering the Japanese market 4 Teaming up to exploit potential OEMs and dealers can achieve more working together 4 Famous cars The Aston Martin DB 5 4 Books & Studies 5 Studies 5 Low cost cars A Roland Berger study shows: Production will grow by 4 million units by 2012 8 Automotive suppliers drive away with the profit A survey of Roland Berger Strategy Consultants and investment bank Rothschild Published by: Roland Berger Strategy Consultants GmbH, Mies-van-der-Rohe-Straße 6, 80307 München Responsible: Ralf Kalmbach and Ralf Landmann Editors: Susanne Tebartz, Dr. Heidi Sylvester Photographs: Renault, VW, GM, Chery, Picture Alliance, Magna Steyr AG, Roland Berger, Rothschild GmbH Layout: Jens Kaiser Printed by: Girodruck, Hamburg Circulation: 3,500. Published three times a year, no reprints without prior permission of the publisher USA Growing pains in Russia, new rules in the US, chances for European suppliers in Japan – a look around the world North American Suppliers: the good, the bad and the ugly The performance of the North American automotive supplier industry is becoming increas ingly polarized. True, the industry as a whole has suffered, as median Return on Assets (ROA) among 33 large, public suppliers has fallen from 5 percent in 2000 to 1 percent in 2005. However, many suppliers are performing well. In 2005, more than half of these suppliers enjoyed Return on Equity (ROE) above 10 percent, while the bottom quartile showed negative ROE. The top quartile had ROA of 8 and EBITDA margins of 18 percent, compared to the bottom quartile‘s -14 percent ROA and EBITDA margins of -2 percent. The volume reductions at GM, Ford, and Chrysler, increasing price pressure, and rising raw material prices create a perfect storm in the industry. Bankruptcies became common among US suppliers. In this challenging environment, there is strong interest from private equity fi rms and hedge funds to invest in suppliers. They will bring in capital and turn around skills, and will drive industry consolidation. Mega-suppliers are on the horizon, as weaker players either consolidate or drop out of the business. Indeed, some mega-suppliers may move further up the value chain and begin assembling their own complete vehicles.
News | Automotive Insights | 3 What's going on around the globe RUSSIA Dilemma for western suppliers The Russian car market grew by 20 percent in 2006. Profi teering from the growth are mostly foreign carmakers. To secure their share in the booming market many foreign car companies are investing in production sites in Russia. But since they regard it as a high risk investment, most OEMs are building only relatively small factories with a capacity of 50,000 to 70,000 vehicles per year. Suppliers have to follow the OEMs Since local Russian suppliers are still trying to catch up with technological developments, OEMs have asked their sup pliers from home to follow them into Russia and build up capacities as well. But these suppliers face a di lemma by entering Russia: The capacity of the OEMs Russian factories is so low that they can't keep the suppliers production plant busy, and they don't reach the critical mass. Joint ventures with local suppliers Since OEMs expect them to follow into Model of new Volkswagen plant in Kaluga: Siemens is coming, too Russia, many western suppliers are exploring the opportunities for joint ventures with local companies. Westerners would deliver the technology and manage the joint project, the local supplier the capacity and manpower. There is a downside Siemens has set up such a joint venture with local Auto electronica in Kaluga, where Volkswagen is building its Russian factory. Many other western suppliers are expected to follow the example of Siemens. The joint ventures have, however, a downside: With the injection of state-of-the-art technology and modern management techniques the western suppliers are teaching their Russian counterparts. It may not take too long until joint venture partners will become competitors. JAPAN Never walk alone: Entering the Japanese market Local production by Japanese OEMs has nearly doubled since 1999. But European suppliers trying to participate in the booming market meet diffi culties. There are several ways to Japan: First of all, they have to meet the expectations of Japanese OEMs. Functionality of product, high quality standards, local contact for customers, price competitiveness and a manufacturing location in Japan are required. To meet these demands most foreign suppliers form a business alliance with a local supplier as a fi rst step. Edscha from Germany for example teamed up with Oi Seisakujo, a major Japanese supplier in door hinges for Nissan, in 2001. Edscha established a joint venture with Oi Seisakujo in 2003, transferring its Japanese business to the new company. Mahle, world market leader in fi lter systems, took a different path into the market. In 2001, it acquired Tenex, Nissan‘s major supplier in fi lters. By now Mahle supplies fi lters to several Japanese OEMs. Bosch's journey into the Japanese market has been long. It entered in the 1970s by supplying licenses to local companies. In the following years, Bosch founded joint ventures and acquired shares in local companies. Step by step it obtained control of production, development and sales in Japan. Since 2002, Bosch has integrated three acquired companies to expand the brand image, and to increase awareness among Japanese OEMs. The reasons why successful suppliers don't enter the Japanese market alone: Insider status – the ties between OEMs and their preferred suppliers are very tight. Difficulty understanding specifications – OEMs will only give specifi cations with low detail level. Without assistance, western suppliers will fi nd it tricky. Geographical barriers – time difference and logistics hinder effective business.
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Automotive inSIGHTS 1/2007 - Roland Berger

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