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The
Automotive Industry : an Optimized Scenario The
global automotive industry is in crisis : according to the many experts
and politicians, there would be too much capacity, too many manufacturers,
too much mismatch between the offer and the reasonable demand of the
future, too many challenges for deep changes, not enough money, whether in
capital or cash flow, to seriously meetthese challenges. March
12, 2009
In
1996, Patrick Bord developed the thesis that the global automotive
industry may not be optimised : contrary to aerospace and shipbuilding
industries, car manufacturers are also the designers, producers and
distributors of what powers the bodies.
He
suggested that 5 car manufacturers could merge their respective engine
divisions into 2 fully independent specialized powerplant companies. The
expected advantages from independent powerplant companies are :
1.
Marketing and recognition : Independent powerplant companies become able
to communicate on their products, the engines. The engines roughly
represent 30% of the cost of a car but few buyers fully understand the
relative and absolute benefits that they buy with an engine. With
communication on the engines, powerplant companies will better segment
their markets, develop the right qualities for their products and get a
better value from better informed buyers. Besides, the buyer often times
feels better respected when given a real choice of solutions rather than
just limited packages.
2.
Motivation : The quantitative motivation to design and produce better
powerplants will derive from the expectation that poorly designed engines
will have no market at all, whatever the qualities of the body they fit,
where as superior engines will not only sell to power the bodies of the
participating manufacturers, but their competitors as well. Therefore, the
best engineers, worldwide, will prefer to join a specialized powerplant
company than the engine division of an integrated car manufacturer.
3.
Size : In a globalized world, competition intensifies. The size of the
independent powerplant companies, roughly 2,5 times the size of the
powerplant division of participating manufacturers, not only improves the
size effect in the mass production, the capacity to fill niche markets and
the ability to sell to non participating companies. It gives the
powerplant companies a better ability to meet the technological challenges
for more efficient, low or zero emission engines that the world will need
within the next decade.
4.
Valuation : Financial markets like pure players, often stronger in their
respective fields of activity and easier to analyse. Independent
powerplant companies, with their capacity to take market share from non
participating car manufacturers, will be introduced on financial markets
with a premium in comparison to the valuation of their former parent
companies. That money will become available for these companies to better
meet their short term problems in a period of recession, but also to
concentrate in the improvement of the body, to better meet new regulations
and consumers' expectations.
We
also anticipate that a move in the suggested direction will facilitate the
consolidation of the industry in many instances : the most fragile
companies are those which underperform in either the body or the
powerplant ; creative destruction will concentrate on weaker elements,
avoiding the extinction of the stronger ones.
5.
Autonomy in crisis : At a time when all automotive producing countries are
tempted to financially help their respective manufacturers, it is a strong
signal to create a debate on the possibility, for these manufacturers, to
be funded through such a proposed deal.
Please
also read the less summarized article, in French
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