Changing lanes
Rightsizing
Expansion
Global
Business model
Europe R&D Exchange rate
Brand
Sales India
Flexibility
Demand
Shortage
Recovery
Uncertainty
Risk
Recession
Strategic
Emerging markets
Portfolio
Entry level
Organization
Value-chain
Competition
Volatility
Issues
Value-proposition
Talent
Quality Business intelligence
Japan
IT-Security
Vehicles
Re-invent
Economic
Suppliers
Platform
ThailandTechnology
Urgency
Crisis
Investments Profitability
Premium
Growth Brazil
US
Competitiveness
Tactical Mature markets
Mobility Market leader
Segment
Skilled manpower
Russia
Telematics
Currency risk
M&A
Watch the dials
Resource management
Raw-material
Supply-chain
Excess capacity Restructuring
Finance Alliance
Tune the engine
Organization efficiency and flexibility
Production
Emission norms
Taxation Slowdown
Cost-reduction
Plot the route
Connecting with customers
Euro-zone
Innovative
Steer through fog
New operating environment
China
Collaboration Opportunities
Regulations
Mind the gap
State of competition
Standardization
Mike Hanley, Global Automotive Leader,
Ernst & Young
Ernst & Young provides a wide range of business services to the global automotive
ecosystem. Our professionals work alongside many of the sector’s leaders virtually every
day, giving us a unique perspective on the strategic priorities of many of the world’s leading
automotive companies. To gain more insight into the priorities of the sector’s C-suite, we
interviewed 32 of our most senior partners about the challenges faced by their automotive
clients and identified five themes that will dominate the boardroom’s agenda for the next
18 months.
Customers
“As the automotive sector continues
to evolve, the urgency of these
strategic and tactical moves could
determine which companies gain a
sustainable competitive advantage
despite the tough market conditions.”
Data-analysis
₹
The automotive C-suite’s
agenda for 2013–14
Mind the gap
Trendicators
State of competition — winning
companies pull ahead
10%
Difference in median
EBITDA margin for
top versus bottom 10
auto suppliers in FY12
compared to 7% in FY08
Market leaders, in terms of profitability, are finding the right balance across a wide range
of value drivers and continuously adjusting their focus as market dynamics dictate; never
losing sight of short- and long-term objectives. Now companies on either side of the divide
must choose their response, whether that means trying to turn their lead into a lasting
advantage or finding new allies to keep from falling further behind.
“The company is successful, thanks to
growth in China. It is now the number
one market, but the brand is growing 2%
slower than the other carmakers and is
vulnerable to be overtaken.”
Success in emerging markets
“Overall, this
company is looking
like a two-speed
business with
rapid growth in the
emerging markets,
particularly Russia,
and slower growth
in Europe.”
Leveraging brand for right
products in right markets
Making collaborations and
alliances work
Excessive exposure to weak
markets
Difference in median
EBITDA margin for
top versus bottom 10
carmakers in FY12
compared to 3.5% in
FY08
“My client is very worried
about the Chinese market
because the high end
is occupied by certain
German and Asian
carmakers and the low end
by Chinese carmakers.”
Failed products, launches,
investments and alliances
Leaders are pulling ahead
“Complexity within the business that
companies have to manage is even
increasing and in order to drive
better financial results, management
teams will be held accountable to a
higher standard of performance.”
5%
“Selling in emerging markets is
clearly a big focus, but to fund that
expansion, you need to get the
mature markets right.”
“These guys had a much looser
operating model than their Indian
partner. When they realized that it
wasn’t a win-win, the only way they
could get out was to unwind it.”
Sources: S&P CapitalIQ, Ernst & Young analysis
Note for acronyms: 1Q11 — Jan–March 2011; 1Q12 — Jan–March 2012; 4Q12 — Oct–Dec 2012; BPS — Basis points; BRIC — Brazil, Russia,
India and China; CBOE — Chicago Board Options Exchange; EBITDA — Earnings before interest, taxes, depreciation, and amortization;
G7 — France, West Germany, Italy, Japan, United Kingdom, United States and Canada; GDP — Gross domestic product; GSA — Germany,
Switzerland, Austria; LV — Light vehicles; P&L — Profit & Loss statement; OEM — Original equipment manufacturers.
Changing lanes: The automotive C-suite’s agenda for 2013–14
“Those that can manage
the significant number of
launch events flawlessly
will gain a competitive
advantage and increased
profitability.”
35%
Sales volume came from
emerging markets for
top five carmakers by
profitability
300+
Car models (including
all new, redesign and
refresh) to be launched
in North America over
2013–14
Steer through fog
Trendicators
New operating environment — navigating
volatility and low visibility
33
Countries (out of 58)
reported a decline in
consumer confidence in
4Q12; while in 1Q12,
38 countries (out of 56)
reported an increase in
consumer confidence
With significant economic uncertainty and high volatility ahead, automotive executives must
cope not only with high variability and inability to predict demand, but also intensifying
competition in flat or contracting markets. Sector participants must continuously improve
their ability to operate in this environment with tools that enable enterprise-wide scenario
planning and accelerated decision making.
“The challenge with emerging
markets is that regulation can be
quite unstable. You’ve only got to
look at Brazil’s sudden change in
import tax.”
“2012 was fraught with
a lot of concern and
skepticism. It prevented
companies from taking
action. 2013 may be
even more complex.”
Uncertain
regulatory
scenario
9%
“Carmakers in Italy and Spain are in
the middle of a hurricane, facing an
economic crisis, a financial crisis, an
employment crisis. The question is
when the situation will be unblocked.”
Lack of
visibility
around
European
recovery
“They’ve got a lot
tied up in Europe
that they’re very
concerned about.”
Volatile
operating
environment
“The key risk is the increasing volatility of individual markets. Whether it is in
China, India or Europe, they have to be much more flexible in operating their
organizations, [and they] need to be globally connected to offset any volatilities in
certain markets.”
Sources: United Nations, World Economic Situation and Prospects, 2013; Nielsen Global Consumer Confidence Report, 1Q12 and 4Q12;
LMC Automotive, Global Car and Truck forecast, 4Q12; CBOE VIX Index, Jan–Dec 2012; Ernst & Young analysis.
*Rapid-growth markets is an Ernst & Young classification and includes Brazil, Argentina, Mexico, South Africa, Nigeria, Egypt, Saudi Arabia,
UAE, Poland, Czech Republic, Turkey, Russia, China, India, Korea, Indonesia, Thailand, Vietnam and Malaysia.
Changing lanes: The automotive C-suite’s agenda for 2013–14
“Such conditions
will draw a variety
of responses from
competitors ranging
from incentives
to shift inventory,
to production
fluctuations and plant
shutdown impacting
supply chain
sustainability.”
Standard deviation
in quarterly vehicle
sales growth rates
(1Q11–4Q12) in rapidgrowth markets*; 5% for
G7 and 4% for BRIC
+47%
Rise in US CBOE
volatility index (VIX)
over 1Q12 to 4Q12
60+
BPS
Cut in global GDP
growth forecast for
2013 from 1Q12 to
4Q12; remaining US
fiscal cliff could take out
another 100 BPS
Plot the route
Trendicators
Connecting with customers — re-inventing
the value proposition
11.3b
Daily urban trips by 2025
(from 8 billion in 2010)
Carmakers need to satisfy a world where consumer preferences in terms of vehicle
function, price and features vary widely across markets — most of the customers in their
youngest markets can’t afford their product, and many of the youngest customers in their
oldest markets don’t necessarily want to own it.
“Everybody is getting
out of the bankruptcy,
refocusing efforts on
improving quality and
building vehicles that
people want versus
building vehicles that
we want to sell.”
“They all think they can
win with their global
platforms, but the
Indian consumer is not
willing to pay for that.
… They keep trying to
shave off pennies on
parts here and there,
but what they need is
to take a fundamentally
new approach.”
“One key challenge the company faces is in its range of models. It has sold mostly
mid-market and luxury vehicles but has not been able to sell economy cars in
recent years, and within markets such as India, this is a significant gap.”
Restructuring product
Creating
new value
propositions
Create
new value
portfolio to align with growth
for connectivity
and mobility
propositions
for connectivity
segments
needs
and mobility solutions
Deepening customers’
association with
brands
Leveraging captive
Meeting the needs of
finance business to create
emerging markets — BRICs
differentiated value for
and beyond
customers
“A key risk is how urban mobility will develop, and carmakers will have to evolve
from just providing cars to offering a broader range of premium mobility
services. Carmakers will need to gain competencies outside their core areas,
so the need of the hour is more cooperation within the auto sector and with
companies outside.”
Sources: International Association of Public Transport, 2012; LMC Automotive, Global Car and Truck forecast, 4Q12; U.S. PIRG Education
Fund and Frontier Group, April 2012; UN World Urbanization Prospects, April 2012; Ernst & Young analysis. 2025 Every Car Connected:
Forecasting the Growth and Opportunity study, SBD and GSMA, 2012; 2025 Every Car Connected: Forecasting the Growth and Opportunity
study, by SBD and GSMA, 2012.
Changing lanes: The automotive C-suite’s agenda for 2013–14
32%
“Convergence of
technology and the
automobile … the cell
phone went from device
to software. Is there
a potential that the
vehicle goes that same
direction?”
of daily urban trips will
be by public transport
in 2025 (up from 16%
in 2005)
104m
New cars expected
to have some form of
connectivity by 2025
8%
“Financing is going to
change throughout
all these markets
… for instance, how
consumers in these
emerging markets are
going to buy cars in the
future versus the way
they’ve been paying for
them now.”
Growth forecast for
vehicle density in BRIC
markets, compared
to only 0.4% in G7 for
2012–22
10
OEMs
Active in car sharing
either through own
services or by equipping
vehicles with enabling
technologies; fivefold:
increase in global car
sharing members in
past five years
Tune the engine
Trendicators
Organization efficiency and flexibility —
remodeling the business and cost structure
68%
The threat of a deepening recession is now leading automotive companies to not only drive
more efficiencies and flexibility, but also recognize the need to leverage data for making better
informed decisions across their business.
“IT security is another worry, particularly in emerging markets. I think companies
are going to get very focused on it, and not just for protecting the product, but
for protecting the brand as well.”
“As a global company,
the client could make
money by utilizing
the excess capacity
in Europe. However,
neither the Asian nor
the North American
business unit heads
want the costs on
their P&L.”
“The client is shifting
to new centers in
Europe including
Poland, Romania,
Turkey and Hungary. In
addition, the focus is on
balancing production
and sales within the
countries, especially
in India, Brazil and
Japan.”
Focusing on
strategic
business
intelligence and
leveraging data
Securing data
across the
organization
Standardizing
business
structure and
integrating more
platforms
Redistributing
manufacturing
footprint
Pulling down
silos — reducing
time to market
Adding
flexibility and
transparency —
turning more
fixed costs into
variable costs
“With the variety of models in their portfolio, they have 100 different air
conditioning systems and want to bring it down to 20–30 modules — a $1,000–
$1,500 advantage per car. However, if you have quality problems with one of your
products — 1 million cars — it would devastate your brand.”
“They’ve broken down
the bureaucracy. We’re
going to build cars
together now and make
money — together.”
“Due to their flexible
production system
and their connection
between the different
plants, they are able
to respond to the
volatility of markets
easier than in the
past. So there is
currently no intention
to reduce capacity.”
Automotive respondents
expect the downturn to
persist for more than
one year
74%
Automotive respondents
indicated having
no formal security
architecture framework;
only 16% indicated
having a security
function that fully meets
their needs
27
Platforms to account
for 50% of global LV
production by 2016
(versus 31 in 2012)
16.2m
Vehicle recalls in the
US in 2012; top three
issues were fire, air bag
and roll-away vehicles
65%
Capacity utilization by
carmakers in Europe
in 2012 (down from
over 80% in 2007–08);
over 10 million excess
capacity in Europe
Sources: Capital Confidence Barometer, Automotive sector, Ernst & Young, October 2012; Global Information Security Survey,
Ernst & Young, 2012; LMC Automotive, European Automotive Sector Outlook, 2012; National Highway Traffic Safety Administration,
United States, Jan 2013; Ernst & Young analysis.
Changing lanes: The automotive C-suite’s agenda for 2013–14
Watch the dials
Trendicators
Resource management — securing
resources across the value chain
65%
Respondents globally
are having problems
sourcing critical-skill
talent, particularly in
emerging markets —
China and India (84%),
Brazil (81%)
Heading into yet another period of uncertainty, executives sense an urgency to have
visibility across the value chain and secure access to key resources. Managing these key
inputs — from ensuring talent and credit availability to procuring supplies and scarce raw
materials — can make the difference between a red or black bottom-line.
“Once this tranche of
leaders goes, who
will be the ones to
take over? There
doesn’t appear to be
a people development
culture outside of the
engineering function.”
“To avoid the kind of
single-source failures
seen in this past year
around nylon and mica
paint, commercial
vehicle manufacturers
are going to start
reacquiring assets
strictly for continuity
of supply.”
300k
“Pension liability will continue to be an issue going forward. If a US-based carmaker
has operations in Europe or if a Japanese carmaker has operations in the US, it
will need to take into account ages of workers, traditions (such as in China), and
government health care systems.”
Accessing and
managing
human capital
Securing
access to
financial
resources
Securing
the supply
chain
Improving
value chain
visibility and
compliance
“Two years ago, they faced a big compliance issue. This took a lot of work and
people, and therefore they have installed a chief compliance officer.”
Sources: Tracking global trends: Demographic shifts transform the global workforce, Ernst & Young, 2012; Employment Outlook 2012
India, Kelly Services; Talent Shortage Survey, Manpower, 2010; Technology Metals Research, 2011; Ernst & Young analysis; Capital
Confidence Barometer, Automotive sector, Ernst & Young, October 2012.
Changing lanes: The automotive C-suite’s agenda for 2013–14
“Carmakers and suppliers
are acquiring/partnering
for technology-based
specific needs,
especially in electronics,
transmission and
powertrain segments.
Also, the need to
expand production and
engineering capabilities
in emerging markets is
driving M&A activity in
the auto sector.”
“The company is
worried about finding
talent — they need
to hire around 5,000
engineers a year.”
Shortage of skilled
automotive R&D
and manufacturing
personnel in India
by 2020
31%
Respondents globally
find it difficult to fill
positions because of
talent shortages in their
markets
95%
Concentration of
world’s rare-earth metal
resources in China
versus only 67% of
demand
68%
Automotive
respondents cite
no improvement in
credit availability in
2012; only 16% of
automotive companies
expect to increase
leverage (Debt-tocapital ratio) over the
next 12 months
Key considerations for stakeholders
Key themes
Operating and performance considerations
Investment and capital considerations
Mind the gap
State of competition
• Need-based and strategic technology alliances and acquisitions
• Investment risks sharing with partners — R&D and platforms
• Expand to new growth markets via JVs or contract
manufacturing
• Selective acquisition of market share,
technologies, geography
• Due diligence to mitigate risks and drive synergies
• Investments in growth markets; opportunistic
expansion
Steer through fog
New operating
environment
• Driver-based insight, data analytics and scenario modeling
• Assess sustainability risk of product design, supply chain,
operations
• Consistent process for evaluating market opportunities
• Stress-test of investment business cases
• Business modeling and cash forecasting systems
• Integrate government incentives, direct loans and
guarantees in capital-raising strategies
Plot the route
Connecting with
customers
• New business models, products and services (e.g., car sharing,
telematics and connectivity)
• Develop products facilitating usage-based billing
• Finance captives to act as mobility integrator
• Explore the delivery of new services through captive finance
divisions, for instance insurance
• Assess potential investment opportunities and
risks associated with new segments and business
models
• Mobility readiness assessment
• Integration methodology and revenue synergy
analysis
Tune the engine
Organization efficiency
and flexibility
•
•
•
•
•
•
Production planning, supply chain visibility and optimization
Common enterprise-wide performance management system
Pull down silos and develop cross-functional resources
Harmonize and standardize of data
Use predictive analytics to enhance marketing effectiveness
Leverage digital presence including social media to anticipate
product demand
• Commonize global management processes for such as, finance,
administration and procurement
• Refinance debt, equity and other obligations
• Divest carefully — implement risk management
process around divesture cycle to maximize
cash benefits
• Balance cost reduction with sustainable
process change
• Sustainable working capital improvements
Watch the dials
Resource management
• Identify and improve visibility of key elements of the supply
chain
• Cluster solutions — local market optimization, cross-country
centralization
• Talent management program (for instance management
rotation program) to balance global, regional and local talent
and addressing cost, speed and flexibility
• Monitor supply chain and other counterparty risks
• Quality of information flows to support
enhanced visibility of liquidity and cash risks and
opportunities
• Cash culture with clear performance metrics and
accountabilities
Changing lanes: The automotive C-suite’s agenda for 2013–14
This document
is an executive
summary of a
detailed analysis
conducted by
Ernst & Young’s
Global Automotive
Center. Please
contact our
automotive
professionals on
the following page
for more in-depth
information.
Ernst & Young
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Global Automotive contacts
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Global Automotive Leader
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Americas Automotive Leader
T: +1 313 628 8260
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Global Automotive Markets Leader
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Automotive GSA
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Global Automotive Lead Analyst
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T: +44 20 7951 6879
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Asia-Pacific Automotive
Advisory Leader
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How Ernst & Young’s Global Automotive Center
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If you lead an automotive business, you need to
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© 2013 EYGM Limited.
All Rights Reserved.
EYG no. ED0067
Acknowledgements
Special thanks to Gaurav Batra, Abhishek Gupta and Christian Hainz for the
analysis and compilation of this study
This publication contains information in summary form and is
therefore intended for general guidance only. It is not intended to
be a substitute for detailed research or the exercise of professional
judgment. Neither EYGM Limited nor any other member of the
global Ernst & Young organization can accept any responsibility for
loss occasioned to any person acting or refraining from action as
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