Detroit OEMs Approaching a Competitive Business Model
Turbulent. That’s the best word to describe the last several years for the Detroit 3 automotive industry and its suppliers. Some of the more severe conditions have included (1) banks’ increasing unwillingness to fund anything automotive, (2) continuing bankruptcy announcements, (3) shift in buyer vehicle preference from big and fast to smaller and more economical, (4) substantial loss in “wealth effect” caused by declining real estate prices, (5) unprecedented home foreclosure rates due to subprime excess, and (6) slowing growth rates in nearly all automotive markets including Europe, Japan, China and other low-cost regions.
This turbulence is confounding Detroit 3 initiatives to reduce their internal capacity, align model capacity with market demand, develop coherent brands, introduce “wow” products, consolidate dealers, and reduce structural costs. The race is on by each of the Detroit 3 to shrink in North America, align capacity with market demand, and restructure their businesses to a sustainable, coherent business model — before their cash is depleted.
How long will the Detroit 3’s cash last? That’s anyone’s guess. It’s reported that Ford has the greatest cash and availability, followed by GM and then Chrysler. What’s certain, however, is that despite the substantial pain incurred by countless communities losing more than 225,000 well-paying auto manufacturing jobs over the past five years, there’s still more pain to come. The proverbial silver lining is this: once restructuring efforts are complete and relative calm has returned, the Detroit 1, 2, or 3 automotive manufacturers and their supply chains will be much different. Let’s hope this can be accomplished without Big 3 bankruptcy, but absent government intervention, there are no certainties.
What changes will we see? Important change issues include:
Success, as always, is measured by bottom-line sustainability of strong and predictable cash flow and the ability to adeptly anticipate and react to changing customer desires, economic conditions, and regulations. While the Detroit 3 will not reestablish themselves as the dominant North American leader that they once were, they will have revitalized their enterprises and restored solid profitability, strong positive cash flows, and they’ll be very strong competitors in both North America and the various overseas markets in which they participate. Given the extreme turbulence — which has only been exacerbated by the recent economy — that’s a pretty compelling future.
This turbulence is confounding Detroit 3 initiatives to reduce their internal capacity, align model capacity with market demand, develop coherent brands, introduce “wow” products, consolidate dealers, and reduce structural costs. The race is on by each of the Detroit 3 to shrink in North America, align capacity with market demand, and restructure their businesses to a sustainable, coherent business model — before their cash is depleted.
How long will the Detroit 3’s cash last? That’s anyone’s guess. It’s reported that Ford has the greatest cash and availability, followed by GM and then Chrysler. What’s certain, however, is that despite the substantial pain incurred by countless communities losing more than 225,000 well-paying auto manufacturing jobs over the past five years, there’s still more pain to come. The proverbial silver lining is this: once restructuring efforts are complete and relative calm has returned, the Detroit 1, 2, or 3 automotive manufacturers and their supply chains will be much different. Let’s hope this can be accomplished without Big 3 bankruptcy, but absent government intervention, there are no certainties.
What changes will we see? Important change issues include:
- Powerful brands, and the right cars within a brand.
- Sales and production footprint, or the right capacity in the right geography.
- Product flexibility, or the ability to change mix in assembly plants quickly.
- Global engineering networks — low cost and 24 hour/day engineering capability.
- Leveraging scale economies, including components, platforms, engineering, and capital investment.
- Innovative powertrains with reasonable pricing premiums.
- Enhanced supplier relations with powerful supply chains.
- Speed to market with the lowest total investment cost.
Success, as always, is measured by bottom-line sustainability of strong and predictable cash flow and the ability to adeptly anticipate and react to changing customer desires, economic conditions, and regulations. While the Detroit 3 will not reestablish themselves as the dominant North American leader that they once were, they will have revitalized their enterprises and restored solid profitability, strong positive cash flows, and they’ll be very strong competitors in both North America and the various overseas markets in which they participate. Given the extreme turbulence — which has only been exacerbated by the recent economy — that’s a pretty compelling future.
