Glenn Mercer, an Expert Partner in the Cleveland office of consultants McKinsey and Company, offered a comprehensive view of the challenges facing the global automotive industry in his often- humorous speech at the CAR Conference in Nasrec on Wednesday.
Glenn Mercer, an Expert Partner in the Cleveland office of consultants McKinsey and Company, offered a comprehensive view of the challenges facing the global automotive industry in his often- humorous speech at the CAR Conference at Auto Africa in Nasrec on Wednesday.
The two trillion-dollar global automotive industry was beset by challenges, Mercer said, such as excess capacity, the onslaught of Japanese and now Korean brands (the Big Three now hold just under 60 per cent of US market), soaring costs (regulated content, such as catalytic converters, push up prices), and poor demand in the Triad (Japan, US and European Union), where projected growth until 2014 was between 0,7 and 1,1 per cent.
Challenges to the profitability of the motor industry were generally similar but did vary by region, Mercer said. Japan had experienced low growth and stable competition within Toyota’s market leadership, North America has seen the recession of the “Big Three,” purchase incentive wars, rising health-care cost (General Motors was the biggest buyer of Viagra in the world, he joked), hybrids were hot news in the US, and in the European Union there was flat demand (except in the East), surging sales of Asian imports, struggling incumbents (such as Fiat Auto) and changes to Block Exemption regulations.
Global motor manufacturers’ response to these challenges was to get more involved in emerging markets. During the Nineties, the so-called “new game” in the industry encompassed strategies such as downstream integration (manufacturers getting involved in the aftermarket), E-commerce (whereby you buy and specify your car on the Net), brand management, alphabet soup plans, such as build to order (a strategy adopted by Mercedes’ AMG division), customer relationship management and upstream divestiture, ie, getting rid of non-profitable plants and product programmes.
New markets were of particular interest to the OEMs, Mercer saud, but stressed that interest and exchange rates affected manufacturers, and that fluctuations tended to balance out the advantages and pitfalls.
Mercer said that a nation was considered attractive to build in if it had access to transport, materials, utilities, stable labour force, skills, economic and political stability, and local trade agreements.
On the other hand, a country would be considered attractive to sell in if had macroeconomic stability, developed road infrastructure, elasticity of demand, public access to financing instruments and stability in the nation’s tax and tariff structure.
Original article from Car