Automotive Trends

Automotive trends and consolidation amongst manufacturers

One of the recent automotive trends is that competition is driving the top manufacturers towards consolidation and alliances.  Other automotive trends include platform de-proliferation, brand management and the Big Three car manufacturers losing market share. Manufacturers hope to derive a host of benefits from consolidation and alliances such as attaining critical mass, extending reach to regional markets and reducing unit costs. Other key benefits include R&D cost optimization and suppliers-customers network optimization.  An analysis of recent consolidation moves and alliances indicates that the automotive industry is polarizing into six groups:

• GM and its subsidiaries (see General Motors profile)
• Ford  and its subsidiaries (see Ford profile)
• Volkswagen and its subsidiaries
• DaimlerChrysler (see DaimlerChrysler profile)
• Toyota and other Japanese players (see Toyota profile)
• Renault–Nissan Alliance (see automotive mergers and acquisitions)

Automotive trends and platform de-proliferation

For the greater part of the last century, each vehicle was built on a unique platform. Now, this no longer holds true. It is true that the automotive market requires product offerings that satisfy consumer preferences and differentiated market conditions, particularly as they relate to mature versus the emerging markets, but the number of products in the line-up of the top-tier manufacturers is growing, putting pressure on already over-stretched design and engineering centers and adding on more R&D costs.

The fundamental idea behind platform de-proliferation is to provide commonality of components and basic structure while producing product variants with minimal incremental design and production cost. The increase in volume for both components and platform structure, combined with lower R&D costs, leads to greater economies of scale.

The initial investment required to bring a global platform to market is two or three times more expensive than the traditional, regionally-based platforms, but the investment will pay off in the long run as assembly plants continue to meet more consumers needs with less asset investments. Industry estimates suggest that the number of platforms exceeding one million units will be 16 by 2007, see table 1. Purchase full report here.

Automotive trends and brand management

Competition in the automotive industry has intensified to such an extent that there is little difference between price, quality, and technology across brands. To counter this uniformity, automobile companies have resorted to brand management that focuses on improving the manufacture-customer relationship.

General Motors poached brand managers from consumer giant Procter & Gamble to focus and target its products at all the different demographic and psychographic segments of the market. As part of the strategy, GM dropped some low selling brands and zeroed in on twelve brands. Volkswagen and DaimlerChrysler have also carried out similar exercises in brand management.

Automotive trends and the Big Three losing market share

The Big Three of the global automotive market, General Motors, Ford and DaimlerChrysler, have been losing market share consistently to their overseas counterparts. The perceived quality gap between the Big Three and the overseas players is the major reason behind the former losing market share.

Overseas players, primarily Japanese automobile makers have led the quality revolution in the US auto industry. Even though the US automobile makers are improving their quality, the quality gap is still prominent because the Japanese players are improving their quality even more and continually.

In addition to the quality gap, the cost structure of the Big Three is high compared to their competitors. The higher wages negotiated by United American Workers, (UAW), in the past and the multitude of work rules that protect the workers lie behind the higher costs.

The pre-owned or second-hand market is dominated by the Big Three and these vehicles are five to seven years old. In the US, a first-time buyer often goes for a second-hand car. The defects in these vehicles are higher and thereby create a negative perception in the minds of the buyer, who would definitely graduate to a new car at some point in time. In addition, the Big Three have embarked on an incentive programme that provides heavy discounts to customers. But these discounts are having a negative impact on the brand.

Growth in the global passenger vehicle industry is expected to remain positive with demand soaring in the emerging markets. However, in the developed nations, model-mix will continue to shift away from cars towards crossovers, sports utility vehicles and pickups. Trucks sales, which have a high degree of correlation with economic performance, will continue to grow with a tilt towards light commercial vehicles.

Consolidation amongst manufactures and suppliers will continue throughout the decade. Consumer brand loyalty might decline with a plethora of models storming the marketplace.  The global automotive industry is moving towards an oligopoly with a few large players dominating the marketplace.

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