Presentation on theme: "Chapter 11 The Automotive Industry A Case Study Tyson Boylan and Geoff Stupple."— Presentation transcript:
Chapter 11 The Automotive Industry A Case Study Tyson Boylan and Geoff Stupple
Outline Overview of the Auto Industry Development of the industry –Global Trends Production styles The Role of the State Concentration of production –Mergers, acquisitions, joint ventures The new Asia – Producers and Consumers
The Production Chain Producer driven –Assembly industry 3 main components –Bodies –Components –Engines & Transmissions
Global Triad of Production Asia, Europe and North America produce 80% of worlds share Japan, Germany, U.S.A. produces 50%
Exports –German/Japan leaders – significant drop in last 10 years –Can/Mex/Spain/S.Kor. increased in last 10 years Trade – an indicator of geographical concentration of production –Top15 exporting countries = 92% of exports total Imports –US growing reliance on imports – trade deficit –Japan/Germany clear trade surplus
Japan –from 7 th largest to worlds largest –Over 50 times growth Slight decline in 2000 –Japanese recession –Increase in overseas production US –Falls from 51% to 19% of worlds share However –Production increased by 148,000 Geography of Trade
Fordist Mass Production –Limited Selection –Rigid methods –Low skill level for workers – repetitive work Changed very little from Henry Fords 1913 and 1970 Massive amounts of time and investment required to change models Vertical integration with parts and suppliers
Lean Production Introduced by Japanese producers in 70’s –Flexible methods using modular components Component sharing Introduction of the platform –Multi skilled “team” work environment –Just-in-time delivery from suppliers Audi A4 Volkswagen Passat
Honda’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
Just-In-Case vs. Just-In-Time Just-In-CaseJust-In-Time Short term distant relationships btw. manufacturers and suppliers Long term close relationships btw. manufacturers and suppliers – increasing integration Large amounts of parts on hand, requiring massive warehousing Variable amounts of parts on hand, requiring less warehousing See table 4.2 and 4.3
Just-In-Case Lends itself to the Lean System of Production, as it is more flexible Automaker and Supplier are far more integrated and closely consult one another Automaker and Supplier are also geographically closer This system is especially being pursued at plants in Brazil where 3 major plants have been setup –GM “Automotive industrial complex” –VW plant at Resende –Fords plant at Bahia
GM’s “Automotive Industrial Complex” at Gravatai, Brazil Consists of 17 plants, only one of which is operated by GM, the rest are occupied by suppliers Cars assembled at the plant use 85% locally made parts Compare this to other assembly plants where usually only 40% of parts are local
VW and Fords Brazilian plants VW Resende plant –Component makers fit products directly onto chassis Increases suppliers responsibility Fords Bahia plant –19 suppliers in same building –12 other suppliers located adjacent –Total of 60% local content
Role of the State Can be involved in 2 ways: –Limiting the degree of access to market Historically important –Financial support to domestic firms Subsidies, part ownership
State as a barrier Historically high Tariff’s were used to protect local markets –Branch plants were required –Protect local manufactures Limiting access to foreign firms Favoring domestic producers Environmental and Safety regulations Local Content requirements
State as a contributor Western European countries very involved in automotive industry –Direct Financial support –Part ownership (Renault – France) State involvement in plant location –Large subsidies to locate in desperate areas
North America 1965 - Auto Pact –Continental production system 1980’s Japanese auto manufactures enter market 1990’s German auto manufacturers enter market 1994 NAFTA
Japanese FDI in NA 1982 Honda establishes first Japanese based manufacturer in NA – Marysville Ohio 1983 Nissan plant at Smyrna, Tennessee 1984 Toyota goes 50/50 split with GM in Fremont, California 1986 Honda – Alliston, Ontario 1987 Toyota creates Georgetown, Kentucky and Cambridge Ontario
German investment 1993 Daimler-Benz Tuscaloosa, Alabama 1994 BMW Spartanburg, South Carolina 1998 Daimler-Benz acquires Chrysler
Global Mergers Japanese Companies have traditionally grown ”organically” by themselves to expand in other markets –When entering the North American market Japanese companies first imported vehicles from Japan, then later built them in North America
Global Mergers On the other hand U.S. and European companies have traditionally grown to other markets through acquisitions and mergers This system of expansion has been going on pretty much since the automobile has taken off –GM acquired The McLaughlin Carriage Company in 1918 to gain access to Canada
Global Mergers U.S. and European Companies have continued to gobble up other companies from around the globe GM owns Saab and Daewoo Ford owns Land Rover, Jaguar and Volvo Volkswagen Auto Group (VAG) owns Seat and Skoda
And The Big One… Daimler-Benz bought Chrysler in 1998 to become Daimler-Chrysler Significant as this was the first real “Mega- Merger” in the auto industry This was the first time 2 global automotive giants joined
Other 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 license Ex. Isuzu Hombre and Chevy S10 – Same truck, different manufacturer –Engage jointly in Research and Development
Collaborative Agreements However smaller firms have become increasingly dependent on these alliances with larger firms for survival GM and Fiat –GM became involved in a cross-shareholding alliance with Fiat, in response to Daimler-Chrysler –GM recently paid $2 billion to axe the deal, due to Fiat’s financial troubles
The Future Of The Industry The Rise of S. Korea Hyundai is now the 11 th largest manufacturer in the world Korean brands Hyundai and Kia (owned by Hyundai) have come out of no where in the past 15 years They are relative newcomers and have had massive expansion How Has This Happened?
The Rise of S. Korea As we all know South Korea is one of the 4 little tigers – It is industrializing at a rapid pace The Korean Government has been very heavily involved with planning its auto industry and setting export targets Importantly The Korean Government has also heavily subsidized this industry
The Rise of S. Korea Most Importantly: Industrial Location –Korean 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 price –96% of Hyundai’s production is still in S. Korea
The Rise of S. Korea Korean makers gained control of the market in South Korea and other newly industrialized countries in the region – due to cheap price This 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
China As 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
Look At The Increase Here – That’s Massive! Source: National Post Business Magazine, January 2005
China Foreign car makers are scrambling to establish themselves in China to meet this high demand Auto plants are constantly being built in joint- ventures btw. The Chinese Gov. and the particular auto-maker It makes sense to build plants in China instaed of importing as… –Labour is inexpensive –The potential market is so large
China Volkswagen got the early lead but is quickly losing ground to increasing competition –In 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!
The End Of U.S. Domination? In 2003, Toyota overtook Ford to be the world’s #2 car manufacturer GM has been #1 for around 100 years, some predict by 2006 Toyota will end GM’s domination This Is Huge!
The End of U.S. Domination? “The Big 3” Are Struggling There 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 oil This oil is constantly reaching new price highs The Japanese tend to be more innovative –Ex. Hybrid Technology
That Concludes Our Presentation K.I.T.T. Says… Any Questions ?
Role Playing Activity Explore 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.
North 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).expansionacquisition
The Ford Approach Expansion took place by Ford in 1911 Global expansion by opening new plants using the Ford name Opened plant in Tafford Park, Manchester 1913 Bordeaux plant was built
The GM approach Expansion by acquiring existing firms and retaining their brand identity –Acquisition of Vauxhall motors in England in 1925 –1929 purchase of Adam Opal company
North 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)
World Car In the mid 90’s Ford attempted a global re- organization called “Ford 2000” –US: Large RWD cars, Large FWD trucks, light trucks, heavy duty trucks –Europe: responsible for developing small/medium sized FWD cars Reduces duplication of platforms, engine and transmission development
Fords 1999 restructure 1999 – Ford announces a different re- organization Aim to become “a relationship business” instead of a “nuts and bolts business” Separated business units: –North America –Europe –Asia-Pacific –South America Chapter 7 - Local-Global tension
European Producer As 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?
Volkswagen Auto Group (VAG) –Volkswagen –Audi –Seat –Skoda Allowed for common use of platforms and component sharing Eventually out-grew home markets –Caused direct competition between companies
VAG restructure - 2001 Split competing divisions Separated into: –Audi – Seat – Concentrate on “sportier” cars –VW – Skoda – More traditional – also will produce commercial vehicles
European Producer It 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?
Luxury Car Market Daimler-Benz creates Mercedes plant –1993 Daimler-Benz Tuscaloosa, Alabama BMW creates plant –1994 BMW Spartanburg, South Carolina This was the second wave of FDI in North America. The first being Japanese lean production, and the second German luxury cars.
Asian Producer You 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)
Hyundai Vast Majority of production is located in S. Korea This takes advantage of Korea’s cheaper labour costs The end result is cars that are comparable to Japan in craftsmanship, but are cheaper in price
Asian Producer You 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)
Japan US producers haven’t changed their methods since 1913!! Introduction of Lean Production –This means your company can adjust to the market faster and reduce overhead costs –Remember: Flexible methods using modular components –Component sharing –Introduction of the platform Multi skilled “team” work environment Just-in-time delivery from suppliers