us automotive survey webinar 05222012 posted to website
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Booz & Company Detroit, MichiganMay 2012
2012 U.S. Automotive SurveyAdvanced Look
Booz & Company
Our team today
2April 8, 2023
Brian is a Chicago-based partner in the firm’s global automotive team
He specializes in working with automotive Tier One suppliers on business unit strategy and transformation, with extensive experience in cost transformation, accelerating the growth agenda, portfolio management, and manufacturing strategy
Recent Tier One Supplier engagements include: NA manufacturing network restructuring, global turnaround strategy, sourcing transformation, and inorganic growth assessment
Brian CollieChicago
Scott CorwinNew York
Scott is a New York-based partner in the firm’s global automotive team Over the past twenty years, Scott has worked extensively with
automotive companies to successfully develop and implement strategy based transformations – gaining deep expertise across many areas of the automotive value chain
Client engagements have involved: corporate strategy, operational restructuring, portfolio strategy, product development, advanced R&D and innovation, supply chain management, manufacturing optimization, sales marketing and distribution, information technology, and new business models
Booz & Company
Introduction
Booz & Company recently conducted its U.S. Automotive Industry Survey and Confidence Index – an annual study examining current state of the U.S. automotive industry, key challenges facing it, attitudes of its executives, and what companies are doing in response
Over 200 automotive executives from more than 75 automotive vehicle manufacturers and suppliers participated in an online survey conducted during February and March
During today’s webinar we would like to:
– Share what industry executives had to say on the future of the automotive industry
– Discuss key implications for OEMs and suppliers, and
– Answer any questions you may have about the results
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Booz & Company
Relative to last year, industry executives are significantly more bullish on the current state of the automotive industry
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31%
63%
6%
0%0%
26%
66%
7%
1%0%
Somewhat Worse About the SameMuch Worse Somewhat Better Much Better
Supplier
OEM
Perceived State of the Industry Compared to One Year Ago
In 2011, 53% of OEMs and 37% of Suppliers described the
current state of the industry has “About the Same” or
“Somewhat Worse” relative to same time prior year
Booz & Company
The improvement in the industry’s performance was driven in large part by the industry restructuring and pent-up demand
Key Drivers of Strong 2011 Industry PerformancePercentage of respondents that ranked a driver in their top 3
62%
58%
48%46%
34%
30%
22%
Industry Restructuring
Pent-Up Demand
Production Discipline/
Tight Inventory
Improved Customer
Confidence
Better Product
Pricing Discipline
Availability of Credit
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72%
68%
58%
34%30%
22%
16%
Industry Restructuring
Pent-Up Demand
Improved Customer
Confidence
Better Product
Availability of Credit
Pricing Discipline
Production Discipline /
Tight Inventory
OEMs Suppliers
Booz & Company
OEMs credit their current product portfolio and pipeline as the reason for their positive outlook in 2012
Important Internal Factors Contributing to Positive 2012 Outlook – OEMsPercentage of respondents that ranked a factor in their top 3
“Other” includes internal process execution,
leadership, and strategic vision
6
69%
60%
29%25%25%
20%18%18%16%
10%10%
OtherEngineering/ R&D
Current Product Portfolio
Product Pipeline
Retail Network/ Footprint
MarketingSales Financial Position
Customer Experience/ Relationship
Ability to Innovate
Cost Position
April 8, 2023
Booz & Company
For Suppliers, though product is important, customer mix, and to a lesser extent cost position, play a key role in shaping outlook
April 8, 2023
Important Internal Factors Contributing to Positive 2012 Outlook – SuppliersPercentage of suppliers that ranked a factor in their top 3
“Other” includes internal process execution,
leadership, and strategic vision
7
58%55%
43%
38%
28%27%
20%19%
7%5%
MarketingOther Customer Base and
Relationships
Current Product Portfolio
Product Pipeline
Cost PositionAbility to Innovate
Engineering/ R&D
Financial Position
Sales
Booz & Company
Respondents forecast U.S. sales in 2012 to approach 14M, with growth then settling to levels more consistent with GDP
2010 2011 2012 2013 2014 2015 2016
Units (Millions)
16.0
15.5
15.0
14.5
14.0
13.5
13.0
12.5
12.0
0.0
15.4
14.6
13.7
12.8
11.6
Average U.S. Light Vehicle Sales Forecasts2012–2016
Five Year Outlook for the US. Auto Industry
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8%
86%
6%10%
86%
4%
Strong growth and prosperity
Steady growth consistent with GDP
Little to no growth
Supplier
OEM
Booz & Company
Over the next five years, executives believe Hyundai/Kia and Volkswagen/Audi are the OEMs most likely to gain market share
Expected U.S. Market Share Changes in Next 5 Years
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13% 16% 20%28% 28% 31%
38%
72%
88%66%
47%53% 46%
40%46%
59%52%
24%
10%27%
40%31% 34% 32%
26%
10% 10%
7%
Hyundai/Kia
2%
VW/Audi
4%
FordBMW/MiniToyota/ Lexus
Chrysler/ Dodge/Fiat
GMHonda/ Acura
Nissan/InfinitiMercedes
100%
Gain ShareMaintain ShareLose Share
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Executives see a bright future for Chinese OEMs -- forecasting a rate of U.S. market penetration more rapid than historical precedent
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Forecasted Chinese OEM U.S. Share in 2020Chinese OEMs with Greatest Potential to
Capture U.S. Share through 2020
U.S. Market Share of Korean OEMs
was 5% as recently as 2008
1%
2%
3%
4%
6%
9%
11%
19%
22%
24%
GAC
ChangAn
JAC
Greatwall
Dongfeng
FAW
BYD
Chery
SAIC
Geely
10%11%
32%
47%
0%
5%
10%
15%
20%
25%
30%
35%
40%
45%
50%
12%+8%-12%4-8%0%-4%
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Alternative powertrains will gain share -- however, adoption rates are seen as being extremely sensitive to government support
April 8, 2023
Expected U.S. Market Share of Alternative Powertrains by 2020
No Government Support
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Continued Government Support
18%
5%
7%
14%14%
29%
13%15%
25%
5%
% of Responses
30%
20%
10%
0%%
30
% +
25
%-3
0%
20
%-2
5%
15
%-2
0%
10
%-1
5%
5%
-10
%
0%
-5%
13%
0%1%4%
12%
20%
50%
5%
45%
15%
35%
25%
% of Responses
50%
40%
30%
20%
10%
0%%
30
% +
25
%-3
0%
20
%-2
5%
15
%-2
0%
10
%-1
5%
5%
-10
%
0%
-5%
Booz & Company
Of the various powertrain choices, respondents are most confident about the long-term prospects of full hybrid & mild hybrid
April 8, 2023
Current Confidence in Long-TermProspects of Alternative Powertrains vs. 2011
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Expected Leading Alterative Powertrain in 2020
70%
65%
45%
29%
25%
Less Confident More Confident
Fuel Cell Electric 75%
Battery Electric 71%
Plug-In Hybrid 55%
Mild Hybrid 35%
Full Hybrid 30%39%
14%
25%
12%10%
40%42%
12%
2%4%
Full HybridMild Hybrid
Plug-In Hybrid
Battery Electric
Fuel Cell Electric
Supplier
OEM
Booz & Company
Specific to their own companies, both OEMs and suppliers alike are forecasting strong revenue growth for 2012, however, capacity may be an issue
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Current Capacity Situation
55%
36%
9%
34%
51%
15%
Comfortable with current capacity
Capacity constrained
Still have more capacity than
market demands
Planned Growth in 2012 U.S. Revenue
23%
29%27%
21%
0%0%
14%
18%
40%
24%
2%2%
6%-10% Greater than 15%
11%-15%
Negative Growth
No Growth
1%-5%
OEM
Supplier
Booz & Company
In light of more advantageous supply-demand dynamics, OEMs & Suppliers describe themselves as being disciplined about pricing
April 8, 2023
Current Pricing Approach – OEMs
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Current Pricing Approach – Suppliers
Will OEMs maintain this discipline if
market dynamics and supply greatly
exceeds demand?
4%
19%
53%
24%
Significantly increasing use of incentives
Opportunistically increasing incentives
Holding the line on incentives
Significantly reducing use of incentives
58%
39%
3%
Maintaining strong pricing
discipline
Opportunistically using pricing as a lever to win
program
Aggressively using price to win business
These results suggest a dramatic departure from recent behavior
where filling the factory was the norm
for many suppliers
Booz & Company
31%
9%17% 15% 17%
23% 24%
29%
39%50%
44% 48%
42%
50%52%
32%41%
21%37%
31% 28% 26%43%
29%30%24%
17% 15% 9% 9% 9% 9% 9%
11%8%9%11%
30%
2%2%2% 100%
Engineering/ R&D
2%
MarketingSales
6%
Product Pipeline
Current Product Portfolio
Ability to Innovate
Retail Network/ Footprint
Financial Position
2%
Customer Experience/ Relationship
2%
Cost Position
4%
Compared to competitors, OEMs view cost position, customer experience, and financial position as their most significant areas of weakness
Perceived Performance Relative to Key Competitors – OEMs
Strong Performance
Good Performance
Performance Matches Competitors
Poor Performance
Very Poor Performance
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23% 27%14%11%
27% 35%
35% 33%
49%38%
55% 47%54%
44%48%
30% 28% 30%41%
31% 33%26%
21%13% 12% 10% 10% 10% 6%
8%11%11%6%
6%2% 100%
Customer Base and
Relationship
Current Product Portfolio
Engineering/ R&D
Product Pipeline
Financial Position
Ability to Innovate
Sales
2%
2%
Cost Position
2%
Marketing
4%
5%
Suppliers meanwhile cite their sales / marketing capabilities and cost position as their most significant areas of weakness
April 8, 2023
Perceived Performance Relative to Key Competitors – Suppliers
16
Strong Performance
Good Performance
Performance Matches Competitors
Weak Performance
Very Poor Performance
Booz & Company
Respondents cite In-Vehicle Connectivity & Entertainment as the technology most likely to see widespread adoption over the next five years
April 8, 2023
Technologies Most Likely to See Widespread Adoption in the Next Five YearsPercentage of respondents that ranked a technology in their top 3
17
85%
52%52%48%
42%
20%
1%
In-Vehicle Connectivity and
Entertainment
Passive Safety Systems
LED LightingComposite/Light(er)-weight
materials
Active Safety Systems
"Green" Material Usage
Other
Booz & Company
38% of OEM respondents say they intend to create theirown platform for integrating digitization and connectivity Plans for Integrating
Consumer Digitization / Connectivity
38%
24%
17%14%
7%
Outsure to consumer electronics players
Create own platformAllow suppliers to develop platform
Allow consumers/ external system to plug into car
Establish a flexible platform in a consortium
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This may be a potentiallyrisky strategy, given that personal technology devices have far shorter product cycles than
automobiles -- witness the ubiquity ofGPS systems on mobile phones -- and that a single family may have multiple drivers who
share multiple cars
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2011 will sadly be remembered for the devastating earthquake & tsunami in Japan, an event which impacted ~55% of OEMs
April 8, 2023
Production Impact of the Japanese Earthquake and Tsunami
“Other” includes higher margins as a result of
shortages and needing to retrofit vehicles after sale
19
4%
21%
34%
26%
2%
13%
3%
7%
35%
21%
8%
26%
OtherSignificant ImpactSome impactNo Impact- avoided interruptions through
redundancies
No impact- had safety stock
No impact- supply chain not affected
Supplier
OEM
Booz & Company
Contingency planning is viewed as the most important action for preparing for such “Black Swan” events, but to date, action has lagged
April 8, 202320
68%
59%
52%
45%
32%
26%
15%
3%
51%
42%
29%31%
19%19%
12%
4%
Worked with suppliers on contingency
planning
Identified risks and developed
contingency plants
Moved to localize
supply base
Moved to increase the use of dual
sourcing
Built redundancy into sourcing
Created new org. structure
for risk management
No action taken
Other
Action Taken
In Top 3 Important Measures
Important Preparatory Steps for “Black Swan” Events and Steps Actually Taken by Respondents
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In summary, these results suggest a few forces coming together to help shape the industry in the coming years …
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Shifting Demand Centers
Re-Emergence of Fundamentals
US remains the most profitable automotive market in the world, but growth is occurring more rapidly in emerging markets
Requires automakers to preserve their competitive position in developed markets while also funding the investments necessary for longer term growth
Increases the importance of gaining a much greater understanding of the unique requirements, dynamics, and needs of emerging markets and positioning your company to be able to compete with fundamentally different economics and possibly against different competitors
The US auto recovery demonstrates that with stronger balance sheets, legacy liabilities shed, debt reduction, product/capital investment, this industry can return to consistent levels of profitability at lower annual sales volumes
The industry clearly has expressed a very sober, collective understanding that it needs to grow smartly -- namely not let capacity grow faster than natural market demand
This has been a product led renaissance and there is strong confidence in the portfolio Similarly suppliers are unwilling to cede leverage in their relationship with OEMs and are
working to stretch existing production capacity further, postponing new capacity A new normal is emerging with an emphasis on building brand equity with consumers,
improving the experience, continuing to improve the cost position, and competing globally
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Powertrain and Technology Uncertainty
… forces continued
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The unfortunate events of the Japanese tsunami and floods in Thailand brought home the limitations of a lean global supply chain to Black Swan events
Actions taken in response seem highly appropriate given what happened – assess the damage, weigh future events and probabilities, work with suppliers to be better prepared, build new organizational capabilities, etc.
We wonder though if the industry is really prepared for the next Black Swan event or were these actions “once and done” and will this be less prominent of an issue as time goes by?
There is also a strong view that improvements in internal combustion engines are still possible and can generate meaningful increases in fuel efficiency
The adoption rate of alternative powertrains is highly dependent upon government support, fuel prices and availability, and OEM/supplier willingness to make investments– Led by full and mild hybrids
– Still skeptical about the potential of full electric and fuel cell vehicles The industry is on the cusp of very significant technological changes, especially in vehicle
connectivity that could result in creating real innovation in personal mobility These will require significant incremental investments and making “bets”
Inter-Connected Supply Chain
Booz & Company 23April 8, 2023
Q&A
Booz & Company 24April 8, 2023
SCOTT L. CORWINVice President
Booz & Company (N.A.) Inc.101 Park AvenueNew York, NY 10178Tel +1 212 551 6578Fax +1 212 551 6732Mobile +1 917 853 [email protected]
BRIAN E. COLLIEVice President
Booz & Company (N.A.) Inc.225 West Wacker DriveSuite 2270Chicago, IL 60606-1228Tel +1 312 578 4637Fax +1 312 578 4668Mobile +1 312 498 [email protected]