The automotive industry is facing increased vehicle complexity, manufacturing diversity, emerging markets and environmental considerations. Add reduced development time, increased consumer awareness and increased focus on the environment and you have the situation for the automotive industry of today.
The automotive industry has gone through significant changes in recent years. Today's industry is characterised by a series of factors:
An expanding global market
An increased need for designs to correspond with local cultures
Total manufacturing costs are now offering double digit profitability
Reduced emissions and a demand for vehicles which are user friendly
Quality and reliability expectations
Combined with increased globalisation, the emergence of developing nations as manufacturing centres as well as market places and the complexity of the industry’s new risk reality becomes evident.
Dynamic and intriguing factors
The environment in which the automotive industry operates is determined by both external and internal factors.
The external factors are many and diverse. They extend from the obvious customer expectations – including improvement of product quality (reduced tolerance of defects, reduced costs of maintenance, etc.) to the less obvious, but equally demanding issues relating to reductions in vehicle environmental footprints during both manufacture and use.
These factors combined with increased costs of oil and raw materials, the changing regulatory landscape in both established markets and the developing markets of Eastern Europe, China and India make the industry dynamic, intriguing and challenging.
In addition to the external factors the industry itself has its own agenda of internal factors to consider. These include a reduction of both vehicle and component cost levels by the use of different materials, increased production efficiencies, movement of production to low cost countries or a combination of these. However this is complicated by issues such as increased component complexity and consolidation within the supply chain, as suppliers attempt to protect their position and increase profit margins.
The internal factors are not limited to issues surrounding the actual vehicle. Emerging low cost markets have led to both OEM’s (original equipment manufacturer) and suppliers moving design, production and purchasing facilities to these countries. This has brought about new challenges, consequences and opportunities.
Vehicles that attract consumers
The primary challenge of the automotive industry remains to be the continued development of vehicles that are attractive to the consumers. Prices which are affordable and offer sufficient profit margin for all concerned are equally important. Similarly, the preferred vehicle types may differ from country to country or continent to continent depending on issues such as terrain, culture and price levels. Therefore, each of the ”industry needs” should be considered as somewhat of a ”global generalisation” with the overall diversity around the world kept in mind.
The OEM’s continue to look for ways to keep the cost of vehicles as low as possible and at the same time offering attractive packages. With increased costs of raw material, energy, labour and development this is becoming more and more difficult. The solutions being considered include moving production to low cost countries, computer simulated vehicle testing and consolidating supply into a smaller number of large suppliers. Each of these solutions requires significant management time and robust management systems.
Complex supply chain
Warranty costs and recall rates have increased dramatically in recent years which have a considerable effect on OEM’s profitability. One of OEM’s prime objectives is to significantly reduce these costs. To bring this under control, there is a need for improved management of new technologies, particularly the use of software and electronics, the integration of partners and the introduction of new suppliers in the emerging markets.
To succeed, OEM’s and suppliers at all levels – need to focus on improving component design, approval and manufacturing processes as well as the management of the entire, complex and geographically diverse supply chain.
The OEM’s are actively supporting both the current drive to move development, design and production to lower cost countries and the wave of mergers and acquisitions, they remain aware of the need to ensure the long-term viability of these adjustments.
In this process, the OEM’s and larger suppliers have been able to reduce employment levels at their traditional locations as synergies and economies of scale are realised.
In doing so they have also recognised the need to develop, within their traditional management centres, the skills and resources, often outsourced, to train, mentor and manage the new and complex supply chain.
Technology meets environmental challenges
Due to their extensive preparation period, regulatory changes are relatively easy to predict and compensate. Regulations are becoming more complex and the consequences more difficult to manage.
In addition, laws are being established around the world to limit both vehicle emissions and environmental pollution from car manufacturing. The automotive industry will need to address these issues both individually and simultaneously or may even lobby for some form of ”total emission statement”.
OEM’s worldwide must reduce vehicle CO2 emissions or accept that they will eventually be penalised with some form of environmental tax.
The short term solutions are reduced engine power and lighter vehicles, alternative fuels and hybrid propulsion systems. Medium term solutions include stop-start technology and the longer term zero emission possibilities of hydrogen fuel cell technology.
Technology will undoubtedly advance to meet all of these challenges, but the OEM management will need ways of stimulating and financing research into these areas – whether it be in-house or at a supplier facility.
The automotive industry has been hit by a number of corruption scandals which have had a profound effect on the involved companies. Consumers will continue to buy vehicles they like at affordable prices and their decision making will become increasingly influenced by the governance modus and reputation of the OEM’s and their principal suppliers. The industry at large must accept the challenge and manage the ethics of all concerned.
