Given the stiffening US CAFE (Corporate Average Fuel Economy) standards and the European Union (EU) focus on a substantially lower carbon footprint, a race to implement technologies required to slip under tomorrow’s standards is formidable and paramount. Technology will be tomorrow’s success driver. Purviews of different lengths (short, medium and long-term) as well as the capability to shift midstream are required.
Driven by the consumer, regulations or cost technology development, integration and protection strategies have to be at the forefront of every OEM’s game plan. Both GM and Toyota understand this to be a prime success factor. The well-publicized race toward the real-market use of lithium batteries and alternative propulsion strategies underscores this.
Other technologies will be required. The ability to efficiently lower mass, material and process improvements, increasingly efficient transmissions with enhanced engine communication and integration of fuel saving technologies such as gas direct ignition (GDI), homogeneous charge compression ignition (HCCI), and cylinder deactivation only scratch the surface. The areas of infotainment/communication, such as satellite radio and OnStar, active safety, stability control, flexible electrical platforms and by wire technologies are all examples of where the future lies.
The recent extreme shifts in currencies underscore the need for an OEM to be able to quickly react to cost shifts which cannot be forecast – for example, currency movements. Over the past three years, the Euro and yen have grown in value to the U.S. dollar by 23 percent and 14 percent, respectively. These shifts have substantially slowed the European OEMs from making gains in other markets and are providing challenges for Japanese OEMs as they return profits from markets of lower currency values. Within North America, the Detroit 3 are reeling from a Canadian dollar which has appreciated by 28 percent during the past 48 months. Currency shifts are the great economic equalizer. Companies able to quickly adapt sourcing patterns in cooperation with their supply base can minimize negative effects and reduce risk.
The industry is well past volume for volume’s sake. This volume mentality drove the Detroit 3 OEMs up until in 2007 the labor contract with the UAW union dictated that there be a two-tier wage system, a shift of pension healthcare responsibility to the union and other improvements be made to lower the fixed cost of labor per vehicle. In the end, going for a natural volume based more on customer demand and not supply-driven influences will enable greater profitability and better resource allocation.
General Motors is expanding volume in lower cost growth locations such as China, India, Mexico, Poland, Russia and Thailand. In a similar mode, Toyota is expanding beyond Japan to Brazil, China, India, South Africa, Thailand, Turkey and developed markets such as Canada, France and the United States. Both makers are expanding into emerging markets. Toyota will reach 34 percent of total output in lower cost markets by 2014, which is an improvement of six points of share from today, while GM will reach 43 percent by 2014, an improvement of four points of share over the same period.
CSM which operates in eleven countries including India is in the business of automotive market forecasting services and also provides strategic advisory solutions to the automotive world.
In the end, the industry will increasingly be gauged and measured by the direction of Toyota and General Motors. This is not to exclude other OEMs from success – far from it. What is important is the breadth and scope of these two global makers, each approaching the industry from different philosophies and geographies. Each will have success, with less of it determined by the total number of vehicles made. Success will be determined by bottom-line sustainability and the ability to react to changing customers, regulations and economic conditions. Tomorrow, those who invest in the right technologies and diversify demand/supply, while being flexible to opportunities, will flourish.