Presentation on theme: "Chapter 11 The Automotive Industry"— Presentation transcript:
1Chapter 11 The Automotive Industry A Case StudyTyson Boylan and Geoff Stupple
2Outline Overview of the Auto Industry Development of the industry Global TrendsProduction stylesThe Role of the StateConcentration of productionMergers, acquisitions, joint venturesThe new Asia – Producers and Consumers
3The Production Chain Producer driven 3 main components Assembly industry3 main componentsBodiesComponentsEngines & Transmissions
5Global Triad of Production Asia, Europe and North America produce 80% of worlds shareJapan, Germany, U.S.A. produces 50%
6ExportsGerman/Japan leaders – significant drop in last 10 yearsCan/Mex/Spain/S.Kor. increased in last 10 yearsTrade – an indicator of geographical concentration of productionTop15 exporting countries = 92% of exports totalImportsUS growing reliance on imports – trade deficitJapan/Germany clear trade surplus
7Geography of Trade US Falls from 51% to 19% of worlds share However Production increased by 148,000Japanfrom 7th largest to worlds largestOver 50 times growthSlight decline in 2000Japanese recessionIncrease in overseas production
9Mass Production Fordist Mass Production Limited SelectionRigid methodsLow skill level for workers – repetitive workChanged very little from Henry Fords 1913 and 1970Massive amounts of time and investment required to change modelsVertical integration with parts and suppliers
10Lean Production Introduced by Japanese producers in 70’s Flexible methods using modular componentsComponent sharingIntroduction of the platformMulti skilled “team” work environmentJust-in-time delivery from suppliersVolkswagen PassatAudi A4
11Honda’s flexible manufacturing “Honda has probably gone furthest down the road to flexible global manufacturing. Not only are all its car factories capable of making several models, they are also now equipped to switch from one model to another very quickly. It takes Detroit between four and six weeks to alter models in a factory, re-jigging the robots and other tools. Honda can now do it overnight, simply by changing the software in the robots. To achieve this it has installed one single global manufacturing system.”Economist – February 23, 2002
12Just-In-Case vs. Just-In-Time Short term distant relationships btw. manufacturers and suppliersLong term close relationships btw. manufacturers and suppliers – increasing integrationLarge amounts of parts on hand, requiring massive warehousingVariable amounts of parts on hand, requiring less warehousingSee table 4.2 and 4.3
13Just-In-CaseLends itself to the Lean System of Production, as it is more flexibleAutomaker and Supplier are far more integrated and closely consult one anotherAutomaker and Supplier are also geographically closerThis system is especially being pursued at plants in Brazil where 3 major plants have been setupGM “Automotive industrial complex”VW plant at ResendeFords plant at Bahia
14GM’s “Automotive Industrial Complex” at Gravatai, Brazil Consists of 17 plants, only one of which is operated by GM, the rest are occupied by suppliersCars assembled at the plant use 85% locally made partsCompare this to other assembly plants where usually only 40% of parts are local
15VW and Fords Brazilian plants VW Resende plantComponent makers fit products directly onto chassisIncreases suppliers responsibilityFords Bahia plant19 suppliers in same building12 other suppliers located adjacentTotal of 60% local content
16Role of the State Can be involved in 2 ways: Limiting the degree of access to marketHistorically importantFinancial support to domestic firmsSubsidies, part ownership
17State as a barrierHistorically high Tariff’s were used to protect local marketsBranch plants were requiredProtect local manufacturesLimiting access to foreign firmsFavoring domestic producersEnvironmental and Safety regulationsLocal Content requirements
18State as a contributorWestern European countries very involved in automotive industryDirect Financial supportPart ownership (Renault – France)State involvement in plant locationLarge subsidies to locate in desperate areas
19North America 1965 - Auto Pact Continental production system1980’s Japanese auto manufactures enter market1990’s German auto manufacturers enter market1994 NAFTABusiness week Nov 9, 1998 pg 168 hf 5001 b89
20Japanese FDI in NA1982 Honda establishes first Japanese based manufacturer in NA – Marysville Ohio1983 Nissan plant at Smyrna, Tennessee1984 Toyota goes 50/50 split with GM in Fremont, California1986 Honda – Alliston, Ontario1987 Toyota creates Georgetown, Kentucky and Cambridge Ontario“transplant corridor” – plants locate along major interstate highways and parts suppliers follow them
21German investment 1993 Daimler-Benz Tuscaloosa, Alabama 1994 BMW Spartanburg, South Carolina1998 Daimler-Benz acquires Chrysler
22Global MergersJapanese Companies have traditionally grown ”organically” by themselves to expand in other marketsWhen entering the North American market Japanese companies first imported vehicles from Japan, then later built them in North America
23Global MergersOn the other hand U.S. and European companies have traditionally grown to other markets through acquisitions and mergersThis system of expansion has been going on pretty much since the automobile has taken offGM acquired The McLaughlin Carriage Company in 1918 to gain access to Canada
24Global MergersU.S. and European Companies have continued to gobble up other companies from around the globeGM owns Saab and DaewooFord owns Land Rover, Jaguar and VolvoVolkswagen Auto Group (VAG) owns Seat and Skoda
25Daimler-Benz bought Chrysler in 1998 to become Daimler-Chrysler And The Big One…Daimler-Benz bought Chrysler in 1998 to become Daimler-ChryslerSignificant as this was the first real “Mega-Merger” in the auto industryThis was the first time 2 global automotive giants joined
26Other Inter-Firm Relationships Collaborative Agreements and Ventures are another way of having relations between firms.Collaborative Agreements…Supply parts to each other (World Car)Produce the same car jointly under licenseEx. Isuzu Hombre and Chevy S10 – Same truck, different manufacturerEngage jointly in Research and Development
27Collaborative Agreements However smaller firms have become increasingly dependent on these alliances with larger firms for survivalGM and FiatGM became involved in a cross-shareholding alliance with Fiat, in response to Daimler-ChryslerGM recently paid $2 billion to axe the deal, due to Fiat’s financial troubles
28The Future Of The Industry The Rise of S. KoreaHyundai is now the 11th largest manufacturer in the worldKorean brands Hyundai and Kia (owned by Hyundai) have come out of no where in the past 15 yearsThey are relative newcomers and have had massive expansionHow Has This Happened?
29The Rise of S. KoreaAs we all know South Korea is one of the 4 little tigers – It is industrializing at a rapid paceThe Korean Government has been very heavily involved with planning its auto industry and setting export targetsImportantly The Korean Government has also heavily subsidized this industry
30Most Importantly: Industrial Location The Rise of S. KoreaMost Importantly: Industrial LocationKorean cars can compete effectively, due to the fact that wages in S. Korea are lower than post-industrialized countries, thus they can be sold at a lower price96% of Hyundai’s production is still in S. Korea
31The Rise of S. KoreaKorean makers gained control of the market in South Korea and other newly industrialized countries in the region – due to cheap priceThis relatively cheap price also translates well to the North American Market, where most of Korean cars are now exported.While Hyundai is really the only true Korean auto-maker left, its success has given a great boost to this potentially economic dynamo
32ChinaAs you know China’s economy is booming, this does not exclude cars.Not unlike post-war North America, China’s growing middle class is fueling this boom in Car sales
33Look At The Increase Here – That’s Massive! Source: National Post Business Magazine, January 2005
34ChinaForeign car makers are scrambling to establish themselves in China to meet this high demandAuto plants are constantly being built in joint-ventures btw. The Chinese Gov. and the particular auto-makerIt makes sense to build plants in China instaed of importing as…Labour is inexpensiveThe potential market is so large
35ChinaVolkswagen got the early lead but is quickly losing ground to increasing competitionIn 2000 they controlled 45% of China’s market, this has slipped to 32%Even GM has a Buick plant in China – There’s demand for larger cars as well!
36The End Of U.S. Domination? In 2003, Toyota overtook Ford to be the world’s #2 car manufacturerGM has been #1 for around 100 years, some predict by 2006 Toyota will end GM’s dominationThis Is Huge!
37The End of U.S. Domination? “The Big 3” Are StrugglingThere are many reasons why this is, but a few stand out…They tend to build big cars for a society that has relied on cheap oilThis oil is constantly reaching new price highsThe Japanese tend to be more innovativeEx. Hybrid Technology
39Role Playing ActivityExplore the Strategies of international automobile firms, and changing international markets.As car producers, we would like to know your decision making processes!Each group will examine and respond to two different scenarios.
40North American Producer You are a Major US automotive producer in the early 1920’s. High Canadian tariff's means you have created 2 assembly plants in Canada that produce a limited variety of cars for that market. You have also used the Canadian produced cars to ship to the UK (because the UK has high tariffs against the USA, however not for Canada). You would like to enter the European market in a major way, and the cost of shipping cars (even CKD) adds too much to be competitive. What would be your approach, and why?(Consider expansion, or acquisition).
41The Ford Approach Expansion took place by Ford in 1911 Global expansion by opening new plants using the Ford nameOpened plant in Tafford Park, Manchester1913 Bordeaux plant was built
42The GM approachExpansion by acquiring existing firms and retaining their brand identityAcquisition of Vauxhall motors in England in 19251929 purchase of Adam Opal company
43North American Producer Now that you have major production facilities setup around the world (Germany, Spain, UK, Belgium, Brazil, Mexico) you find a lot of repetition in production systems. How might you streamline your production?(Consider figure 7.6)
45World CarIn the mid 90’s Ford attempted a global re-organization called “Ford 2000”US: Large RWD cars, Large FWD trucks, light trucks, heavy duty trucksEurope: responsible for developing small/medium sized FWD carsReduces duplication of platforms, engine and transmission development
46Fords 1999 restructure1999 – Ford announces a different re-organizationAim to become “a relationship business” instead of a “nuts and bolts business”Separated business units:North AmericaEuropeAsia-PacificSouth AmericaChapter 7 - Local-Global tension
47European ProducerAs a European producer, you find that Europeans have a high affinity towards domestic vehicles. Therefore, you decide to acquire manufacturers in other regions, and preserve their name and reputation. You find producers that create similar styles of vehicles, as to make any transition easier. What advantages and disadvantages does this have?
48Volkswagen Auto Group (VAG) AudiSeatSkodaAllowed for common use of platforms and component sharingEventually out-grew home marketsCaused direct competition between companies
49VAG restructure - 2001 Split competing divisions Separated into: Audi – Seat – Concentrate on “sportier” carsVW – Skoda – More traditional – also will produce commercial vehicles
50European ProducerIt is the early 1990’s, you are producing cars under various names in Europe. You have just witnessed the Japanese move into the US market successfully. What type of vehicle can you offer that is different, and in high demand?
51Luxury Car Market Daimler-Benz creates Mercedes plant 1993 Daimler-Benz Tuscaloosa, AlabamaBMW creates plant1994 BMW Spartanburg, South CarolinaThis was the second wave of FDI in North America. The first being Japanese lean production, and the second German luxury cars.
52Asian ProducerYou are an Auto Maker from S. Korea and the sales of your cars own a significant chunk of S. Korea’s market. Building on this you are planning to expand into the North American market. What could you offer to this mature market that makes you unique and competitive?(consider international labour costs)
53Hyundai Vast Majority of production is located in S. Korea This takes advantage of Korea’s cheaper labour costsThe end result is cars that are comparable to Japan in craftsmanship, but are cheaper in price
54Asian ProducerYou are a Japanese producer in the 1980’s looking to the US for expansion. How could you enter this saturated market competitively?(Consider production methods)
55Japan US producers haven’t changed their methods since 1913!! Introduction of Lean ProductionThis means your company can adjust to the market faster and reduce overhead costsRemember:Flexible methods using modular componentsComponent sharingIntroduction of the platformMulti skilled “team” work environmentJust-in-time delivery from suppliers