challenges facing the global automotive industry

The automotive industry today isin the middle of a dramatic and

largely unprecedented transformation.The heart of this transformation isnot about how the auto companydoes its work but rather how itdefines itself. The model of the carcompany that Henry Ford createdand Alfred Sloan perfected—inte-grated, scale-driven, “product-push”-oriented—prevailed for decades. Itdrove the consolidation of the U.S.industry from dozens of manufac-turers to four to three to two-and-a-half (which then, with a little pushfrom a visible hand, recovered tothree). It governed the developmentof the post-war European industry,albeit with fits and starts engenderedby that region’s distinctive social andcultural politics. And it was themodel upon which the Japanesemanufacturers relied as they shot upthe global league tables having madetimely and effective adaptations thatwere overlooked, for a while, by theonce-dominant U.S. industry.

Today the traditional model ofthe auto company is under directattack. Alternative visions and con-

cepts have emerged for every pieceof value that the traditional car company adds—designing cars,engineering them, manufacturingthem (at least the important bits),assembling them, and marketingthem. These visions and conceptsare not just being tested on paperbut through experiments that aregetting ever bolder and more daring.Some industry commentators havespeculated about the possibility ofcreating a “virtual” car companyalong the lines of a Gateway or aDell. Last summer, the trade presswas full of breathless reports that the largest independent auto retailer,

INSIGHTSChallenges Facing the Global Automotive Industry

The global automotive industrytoday is delivering unprecedentedlevels of customer value. Vehiclestoday are vastly superior to andmore reliable than those pro-duced just a decade ago interms of economy, safety,comfort, functionality, and performance. Fierce global competition for consumers isthe prime mover behind thisincrease in customer value.

But the automotive industrystructure that has endured foreighty years may be reachingthe limit of its potential.Delivering the next significantincrement of value to automo-tive consumers while remainingprofitable will require dramaticincreases in productivity acrossthe value chain. This INSIGHTScaptures Booz•Allen’s perspec-tive on the five common challenges facing the world’sautomakers and their implica-tions for the structure anddynamics of the auto industry.Future INSIGHTS will address inmore detail the functional andstrategic implications of thesechallenges.

(continued on page 2)

Overview

CONSUMER AND ENGINEERED PRODUCTS VOL. 1 ISSUE 1

AutoNation, might one day havesufficient market power to com-mand private-brand cars, orderingthem like shoes or dresses from somePacific Rim sweatshop. Whateverone thinks about the reasonablenessor practicality of these ideas, thatthey are given voice at all is repre-sentative of the scale and scope ofchange.

It is also possible, if perhaps morecontrarian, to imagine a conjunctionof technological, market, and eco-nomic forces that can overcome therelentless gravitational pull of scale.The conventional wisdom is eco-nomic pressures will force the autoindustry to collapse to perhaps sixmajor players, two in each of thethree legs of the “triad” (NorthAmerica, Western Europe, Japan).

However, there is little if any cor-relation between absolute size and

shareholder value creation. Exhibit Iillustrates the relationship betweenmarket value (expressed as a percent-age of sales) and global market sharefor leading auto companies at theend of 1998. A few companies—Toyota, Honda, BMW, and Volvobefore the sale of its car division toFord—commanded premium valuations reflecting the strength oftheir brands and business systems.But General Motors, still the largestvehicle manufacturer (VM) mea-sured by market share, was valued ata rate similar to Fiat, PSA, Renault,and Nissan.

Will advances in information andprocess technologies work togetherto reverse the long trend of con-solidation and confer competitiveadvantage on the small, the nimble,and the quick? The purpose of thisINSIGHTS is not to predict an out-

come. It is futile to try to define thefuture shape and structure of anindustry as large, as complex, and aspolitically central as the auto indus-try. Instead, this INSIGHTSattempts to drive to an understand-ing of the economic forces at workin the auto industry today and thechoices that these forces create forautomakers. Future INSIGHTS willaddress the implications of thosechoices for strategies and performance.

Five ChallengesMost of the challenges the automo-tive industry will face in the next 10or 20 years can be identified today.They are shaped by changes in theunderlying economics of the autobusiness, from supplier through con-sumer, and by definition they aresufficiently broad to be of interest toall the participants in the industry.

Challenges Facing the Global Automotive Industry(continued from page 1)

2


VALUATION OF GLOBAL VEHICLE MANUFACTURERS, YEAR-END 1998 (EXHIBIT 1)

Sources: Morgan Stanley Dean Witter; Booz·Allen & Hamilton analysis

1.20

Mar

ket

Cap

italiz

atio

n t

o S

ales

Rat

io

1998 Global Market Share (%)

1.00

0.80

0.60

0.40

0.20

2.00 4.00 6.00 8.00 10.00 12.00 14.00 16.00

VolvoBMW

Fiat

Nissan

Volkswagen

PSARenault

Honda

Toyota

DCXFord

GM

Note: Toyota and Nissan sales from fiscal 1998 ended March 1998; all others, calendar 1998.

We have distilled the five macrochallenges described below from ourresearch and client experience.

I. GlobalizationNorth America, Western Europe, and Japan are home to 18 of the top20 VMs in the world and accountfor nearly 90 percent of global pro-duction. All three of these regionsare mature automotive markets, withlow expected unit growth rates (neg-ative in Japan) and capacity in excessof regional demand. VMs thereforehave turned their sights towardgrowth opportunities in emergingmarkets: Latin America, North andSouth Asia, China, India, EasternEurope, and Russia. These marketsare forecasted to grow at more thandouble the average industry rate over the next ten years. The head-long rush of VMs to set up green-field assembly sites in these marketssuggests a profound faith in thevalue and durability of first-moveradvantages.

The economics of this globaliza-tion are troubling. Governments inthe developing markets know thattheir prospective growth has value,and it is perfectly rational for themto auction off that growth potentialto the highest bidders. As car com-panies vie for market share and addmanufacturing capacity in order tobuild where they hope to sell, theybid away the economic returns tothemselves and exacerbate the over-capacity problem on a larger scale.Government policy towards theworld’s largest manufacturing indus-try drives much of this behavior.Automotive national industries, localcontent laws, and financial bailoutsof uneconomic plants disrupt theworkings of the market, drive upcosts, and transfer wealth from VMsto labor and government. Sometimein the future, these factors will ulti-mately reduce the VMs’ already lowreturn on investment and forceanother round of painful industryrationalization. While every automo-

tive executive is aware of the prob-lem, each feels compelled to competeto be the market winner.

Globalization is neither cheap noreasy at any point along the valuechain. Emerging market customersincreasingly demand the same levelsof quality and technology as cus-tomers in mature markets. Local content rules and supply chain eco-nomics dictate that suppliers establishtheir own manufacturing close to (ifnot co-located with) assembly facili-ties. Thus far, the VMs have beenable to entice suppliers to accompanythem on their global adventuresusing the carrot-and-stick of globalsupply contracts. But there are signsof growing unwillingness within thesupply community to invest theircapital dollars in plants that mightnot reach full utilization for 15 years,and a number of suppliers are con-sidering throwing in the towel ratherthan gamble.

Finally, VMs are still struggling

3



SPECIFICATIONS OF TOP-SELLING 4-DOOR SEDANS (EXHIBIT 2)

Sources: Automotive News World Data Book; Booz·Allen & Hamilton analysis

120

100

80

60

40

20

Wheelbase

103 104 102 102107

102 102105

Length Width Height Weight Front Tread Rear Tread Price Displacement

112

96 94 9598

9195 95

74

92

Range of specifications for 1999 model 4-door sedans, all in base V6 trim except Legacy, which is available only with a 4-cylinder engine. Group average=100. Models include Buick Century,Chevy Lumina, Chevy Malibu, Ford Taurus, Honda Accord, Mercury Sable, Pontiac Grand Prix SE,Subaru Legacy, Toyota Camry.

Ave

rage

= 1

00

tional and expressive, or emotional,attributes that appeals to enoughbuyers so the VM can earn a decentreturn. It is more concerned withmaximizing the depth of attractionthan minimizing the breadth ofrejection.

Globalization is neithercheap nor easy

at any point alongthe value chain

The “right-brainers” sometimeshit home runs that create entirelynew vehicle segments—such asFord’s original Mustang (pony cars),BMW’s 2002 (sports sedans),Chrysler’s minivan, Jeep’s GrandCherokee (luxury SUV), andVolkswagen’s Golf GTI (hot hatch-backs). These vehicles can generatetremendous returns for the innova-tor for as long as it can defend itsdifferentiated position, but genuineinnovations tend to occur only onceor twice per decade. Many VMs perceive radical product bets as toospeculative and risky to form thebasis of strategy, and focus insteadon incremental improvements toconcepts with proven market appeal.

The market appears to be frag-menting into ever finer and moreprecise segments. Niche and crossovervehicles have been extraordinarilypopular of late in the developedmarkets. Every VM, it seems, has orsoon will have a vehicle that com-bines some of the key attributes ofSUVs (ride height, all-wheel drive)with the passenger compartmentand amenities of a standard sedan.The two-seat roadster, once pre-sumed to have died with the core ofthe UK automotive industry, is nowmore widely available than ever. And

many VMs are resuscitating pastmarket successes with new modelsthat touch nostalgia buttons while atthe same time affirming the impor-tance of style and emotion with buyersfar too young to have had any directexperience with the original vehicle.

None of these vehicles aspires to,or has any real hope of achieving,world-car production volumes. ThusVMs require a reliable innovationprocess to quickly and preciselydeliver differentiated products thatconsumers will value and pay for.The challenge is to work both endsof the process simultaneously andeffectively: deepening the under-standing of real consumer needs andwants (both functional and expres-sive) to reduce the incidence of market “misses,” while improvingthe up-front design and engineeringprocesses in terms of the elapsedtime and cost of each bet.

III. Product DevelopmentVehicle development is expensive,time-consuming, and risky. VMs as agroup have made enormous progressreducing cycle time and cost despitegrowing product complexity, newtechnologies, and more stringentregulations. Costs to design, engi-neer, and tool a major new modelcan reach into the billions of dollars.Many VMs still rely on an expensive“cut and try” engineering paradigm,which works out key interfacedetails in the prototype and testphase. All are looking for ways toreduce development time and costto improve profitability and to bet-ter react to market changes.

The VM solution to the develop-ment problem has been platformcommonization and the creation ofderivatives. This is not new—U.S.VMs have long relied on sharedcomponents and structures for their


4


to refine the concept of the “worldcar.” The notion of one commondesign, customized at low cost tolocal tastes and requirements, is ele-gant and alluring, yet the number of successful examples in the massmarket can be counted on one hand(Corolla, Golf, Palio?). Ironically, themost successful examples of worldcars may be Mercedes, BMW, andPorsche, which help create ratherthan react to local tastes.

Globalization has inspired a“damned if I do, damned if I don’t”mentality on the part of most of theworld’s VMs. No VM, it appears,has solved the riddle of how to glob-alize in a way that is consistent withlong-term strategic and shareholdervalue interests.

II. Product DifferentiationCompetition for sophisticated con-sumers is fierce. Vehicle buyers havean abundance of choices of vehicleswith increasingly similar functionaland performance characteristics (see Exhibit 2). In order to increaseshare, maximize price realization,and use their capacity, VMs mustoffer differentiated products that winwith consumers by addressing thefickle wants and needs in a particularlocale at a point in time. Missing themarket can be financially disastrous.

VMs approach the problem of differentiation from two differentperspectives.The“left-brain” approachassumes that buyer wants and needscan be determined deductivelythrough surveys, clinics, and the like.It is primarily defensive in that itseeks to eliminate negatives, to maxi-mize the pool of potential buyers byreducing the number of consumerswho might reject the product out-right. The “right-brain” approach ismore intuitive, striving to find aunique combination of both func-

5



families of brands. However, theGM and Ford experience of the1970s and 1980s suggests that thepursuit of commonization, as a goalin and of itself, can lead to consumerconfusion and backlash. Venerablebrands like Oldsmobile, Mercury,and Plymouth lost their identitiesand came perilously close to beingwritten off by their parents.

Challenges exist along two dimen-sions. The first is to learn how to distinguish the parts of the car whereconsumers are indifferent from thosethat are visible and important to cre-ating and preserving brand identity.The second is to reduce the cost ofdevelopment so as to be able to makeproduct differentiation more afford-able. VMs may look outside theirindustry for examples of fast-cycle,systems engineering developmentprocesses to facilitate a more symbi-otic relationship between themselvesand their suppliers for joint innova-tion and cost sharing. Or they maylook for experience in parametricdesign, which can support productvariation without adding undue com-plexity and cost.

Without systems engineering, thefull benefits of the outsourcing revo-lution will never be realized. ForVMs, outsourcing holds tremendouspromise for shedding developmentcost and manufacturing assets.However, significant vestiges of thehistorical adversarial relationshipwith suppliers and the duplication of development effort by VM engineering departments raise costsand prevent suppliers from deliver-ing system solutions that meet VM requirements for quality, cost,and value.

IV. Supply Chain RestructuringFor the past several decades, VMshave been preoccupied with two

major supply initiatives. One ofthese is to reduce their overall levelsof vertical integration, both toensure that purchased parts areworld-class and to reduce their fixedcosts of assets and labor. (Labor con-tracts make labor cost behave as afixed cost at many VMs.) The otheris to reduce the number of compa-nies that supply directly to the VM,shoving the supply base into a sortof pyramid and delegating some ofthe routine tasks of purchasing, pro-duction scheduling, and inventorymanagement to their “Tier One”suppliers. For the VMs, this reducesboth assets (mostly inventory, butalso holding space and, in somecases, assembly line space and tool-ing) and operating costs.

Supplier consolidation is a double-edged

sword for VMs

A more recent but equally powerfulinitiative is for VMs to begin to relymore fully on suppliers for “systems”and “modules.” Systems usually aredefined in terms of functions—thesteering system, the braking system,the “driver information” system—consisting of a number of compo-nents that are not necessarily locatedwith each other. A supplier might beasked to engineer all or part of a sys-tem, under constraints of widelyvarying precision and scope, inexchange for winning the contractto supply one or more of the sys-tem’s components. A module is anumber of components that maynot be at all related functionally butcan be assembled and supplied as aunit to final assembly. A front “cor-ner,” encompassing components ofthe brake, suspension, and drivelinesystems, is an increasingly popular

module. Seats are one of a fewexamples of systems that are alsomodules. A module supplier usuallysets up a dedicated facility close tothe customer’s assembly plant andships the sub-assemblies on a just-in-time basis.

Systems and modules are a bit ofa Hobson’s choice for suppliers. Onone side, few can tolerate giving upthe access to and “control” of thecustomer represented by a Tier Oneposition. On the other, it is notimmediately obvious whether andhow suppliers will be paid for theirexpanded services.

In response, many suppliers have found it advantageous to getbigger. One way to do that is to pickup the pieces of the supply chainthat the VMs no longer want. LearCorporation, a manufacturer of seatsand interior components, has grownat a 39 percent rate over the past fiveyears, primarily by buying up seatfactories from GM, Saab, Ford, andFiat and, more recently, other interiorcomponent suppliers. Another wayis to acquire other component man-ufacturers. The pace of this activityseems to have accelerated of late asbig industrial conglomerates (such asUnited Technologies, AlliedSignal,Tenneco, and Cooper Industries)assess their automotive holdingsagainst the increasingly tough mar-ket demands for shareholder valuecreation, and find them wanting.

Supplier consolidation is a double-edged sword for VMs. Onone side, they want and need suppli-ers with the intellectual and financialwherewithal to fulfill their new mis-sions. On the other, they fear thatconsolidation might tip the balanceof power toward suppliers who tothis point have been reliably compli-ant and responsive.

The brakes market is a good

based buying and referral services.In Europe, protected national

distribution systems are threatenedby EMU convergence, which willarbitrage away remaining price differentials, and the relaxation ofso-called “block exemption” rules,which confer upon new car dealersthe exclusive right to sell profitablereplacement parts.

In addition, the increasing popu-larity of leasing programs makesVMs active participants in the usedcar market, which is larger andgrowing faster than the market fornew cars. In the United States, leas-ing accounts for almost 40 percentof new car sales. VMs now havestrong economic interests in main-taining the value of used cars, bothto reduce their out-of-pocket costswhen leased cars are returned and to lower the cost of ownership at thefirst sale. This puts them at oddswith their franchised dealers, whoalready make more money on usedcars than new cars and are happy to“buy low, sell high” at the expense of captive finance subsidiaries.

To keep more of the deliveredconsumer value and to continue to enhance that value, VMs mustbecome more capable marketers and take control of the purchaseexperience. Today, marketing at carcompanies consists of variations on Alfred Sloan’s product strategy(brands and models for every tasteand purse) and coming up withclever ways to cut prices withoutappearing to do so (through financ-ing subsidies, extended warranties,direct price incentives, and the like).VMs have not made nearly as muchprogress enhancing the buying andowning experience as they have onimproving the quality and reliabilityof their products. The challenge nowis to find new ways of understand-

solutions also entails going beyondthe VM customer to the ultimateconsumer in order to understandtheir wants and needs for an auto-motive system, such as suspension,braking, or seating, and their per-ceptions of value.

V. Marketing and DistributionCompetition for customers and theexpense of differentiating productshave forced VMs to look down-stream for new ways to create andcapture value. Two main approacheshave emerged. The first, “follow thecar,” is to participate more extensivelyin the stream of post-assembly trans-actions relating to a vehicle, beginningwith the initial retail sale and endingat the scrap yard (or recycling center).The second, “follow the customer,” is to build and exploit more durablerelationships with customers overtheir vehicle-buying lifetimes. Bothof these require radical changes inthe ways that VMs define and servetheir markets.

VMs in North America andEurope are saddled with expensive,outmoded networks of franchiseddealers that have lost their economicadvantages and generally do a poorjob of serving customers. These networks transfer VM returns tochannel intermediaries while diffusing control and reducing theeffectiveness of marketing programs.Consolidation has already whittleddown the number of U.S. franchises.Now, in the United States, aggres-sive, well-capitalized retailers areseeking to build dealer networkswith their own brands, threateningto further cut off the VMs from theircustomers. At the same time, theinefficiencies of the dealer systemhave spawned a host of new inter-mediaries promising better service,including brokers and Internet-

example of supplier consolidation.Thirty years ago, the world wasawash with brake components mak-ers. A brake system consisted ofmechanical parts with simple inter-faces between them, and componentdesigns were more or less inter-changeable. VMs therefore couldtake a “Chinese menu” approach tosystem design, pairing one company’sbooster with another’s master cylin-der and another’s foundation brake.

Anti-lock braking systems (ABS)changed all that. The ABS unit itselfis a complex, “mechatronic” compo-nent half of whose value is in elec-tronics. ABS systems have improvedremarkably in the 15 years sincethey were introduced; costs aredown by 80 percent or more, per-formance and reliability are up.However, competition has reducedthe supply base such that there arenow only four suppliers capable ofdesigning and delivering a completeABS system—versus 20 VMs whoneed to buy them. Now VMs arenot so sure that four is enough; onereportedly sought out and nominateda Japanese company to join the TierOne club.

VMs must become more capable marketers

and take control of the purchase experience

Suppliers must develop significantnew capabilities if they are to trans-form themselves from assemblers or integrators into system solutionproviders. Delivering “black box”systems to an incomplete or vagueperformance specification requires a quantum leap in system levelunderstanding, product engineering,testing, and design. Providing true

6



dent suppliers and sharpened theircapabilities. Distribution and mar-keting activities, on the other hand,still deliver very low value for costand are ripe for transformation. Theissue is not the potential but whetherthe VMs will be quick enough to getthere first—and adept enough tostay there if they do.

Distribution and marketing activities

deliver low value for costand are ripe

for transformation

Thus VMs will invest to partici-pate much more actively in thedownstream value chain. We haveestimated that only ten percent ofthe profit potential relating to agiven automobile is realized throughits initial sale; 90 percent is generateddownstream through financing, ser-vices, and secondary transactions.VMs today participate in somethingless than half of the total profitpotential (primarily through theircaptive finance subsidiaries andspare parts operations). This greaterparticipation in downstream auto-related businesses will allow VMs totake control of the interface withtheir customers. Done right, this canlead to deeper and more durablerelationships and improve customerloyalty, which many studies havepointed out is influenced more bycustomers’ sales and service experi-ence than by the products them-selves. Direct participation also

The current wisdom is that theVMs too will consolidate, and therecent press would seem to bear thatwisdom out. Volkswagen started therecent wave, gobbling up some of the genteel remnants of the once-fragmented European industry(Bentley, Rolls-Royce, Lamborghini,Bugatti, Cosworth). The Daimler-Chrysler blockbuster then grabbedcenter stage. (Often described asunprecedented, it is in fact the sec-ond attempt at a “merger of equals”in the auto business. The first wasthe Volvo-Renault deal of the early1990s, which despite all the bestintentions and hopeful promises ofsynergies collapsed because the cul-tures of the two companies were asincompatible as oil and water. Wecan credit the boards and sharehold-ers of Daimler and Chrysler with thesame good intentions, but only timewill tell how well their particularGerman-American vinaigrette willlast.) And now Ford has wooed theperennial bridesmaid Volvo into itsextended family.

The second broad change is awidespread and consistent move-ment of the VMs into the distribu-tion and marketing end of the valuechain. From the perspective ofvalue-creation potential, this shiftaway from manufacturing1 towarddistribution and marketing seems to make sense. It is difficult andexpensive for any VM to maintainworld-class scale and quality in all of the components that make up acar, and the brutal competition ofthe last two decades has squeezedmost of the fat out of the indepen-

ing, attracting, serving, and retainingcustomers, almost certainly bybreaking through the wall of inter-mediaries and establishing directcontact with them.

Implications for VMsThe most sweeping and generalimplication of the five forces seemsto us to be a gradual but irreversiblediminution in the traditional powerof VMs. From the inception of theindustry, the VMs have occupied thecentral and most important seat in aCopernican universe, with large net-works of suppliers and retailersstretched out around them. Becausethe VMs contributed the scarcestand most critical segments of thevalue-added chain—the ability toengineer and assemble a car and tomake its most essential element, theengine—they held and exercisedpower over virtually every facet oftheir operations, either by ownership(as in the case of captive parts opera-tions) or by contract.

The Copernican universe ischanging in two specific ways. Thefirst is that the relative size of the VMsis shrinking. Today, the largest inde-pendent supplier, Bosch, has anautomotive business of some 30 bil-lion DM. The automotive revenuesof the largest VM, General Motors,are about 11 times larger than Bosch’s,down from 25 times larger fifteenyears ago. Bosch itself is the same sizeas the smallest VMs. Suppliers arelikely to grow faster than VMs as theycontinue to consolidate, so the relativegap should continue to decrease.Consolidation on the distributionand marketing side is just beginningto gather momentum and has notyet proven itself economically. Butin only three years AutoNation hasamassed dealer networks with com-bined new-car sales of $13 billion.

7



1To a large extent this is an outcome of a history of the VMs with their unions, who have madetenured autoworkers in industrial societies among the highest paid blue-collar workers, raising thecosts of internal parts production to unsustainable levels. For some time now it has been common-place in the industry to equate high levels of vertical integration with low levels of competitiveness,and analysts and investors have cheered as the most deeply integrated companies have closed, sold, or spun off their captive parts operations.

ciency, however, will drive out thebelts-and-suspenders engineeringduplication that still exists today in many VMs.

These two trends amount tonothing less than a re-invention ofthe business of making and sellingcars. As VMs turn their attention toserving customers in new ways andreorganizing their supply chains anddevelopment processes, fundamentalquestions arise as to their reason forbeing. What makes a car a car? Whatmakes a car company a car company?Hallowed old answers will be chal-lenged, and VMs will have to facethe difficult and risky task of defin-ing and developing new capabilitiesto build competitive advantage.Examples include consumer market-ing, direct sales, channel management,supplier/alliance management, andshared technology development.Important boundary questions need


8

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Chicago312-346-1900

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Munich49-89-545-250

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Isao Endo, Sr. Vice President

to be resolved: Who owns theintellectual property generated in a mutual technology developmentproject? How can VMs leverage theentrepreneurial zeal of their dealerswhile achieving a new standard ofcustomer service?

VMs will have to overcome pow-erful forces of inertia to compete inthis new business, and this is wherethe diseconomies of scale begin toshow themselves, for the biggestplayers generally have the strongestconstraints. Perhaps they will be ableto harness their strengths and takedecisive action. Or perhaps they willfind themselves falling behind assmaller, more nimble competitorswith less to lose streak past them inthe race to define the VM of thefuture.

Booz·Allen & Hamilton is a leading international management and technology consulting firm committed to helping senior management solve complex problems. In morethan 90 offices, in hundreds of the world’s leading industrial, service, and governmental organi-zations, our team of more than 9,000 professionals has one goal—to help our clients achieveand sustain success.

Booz·Allen & HamiltonPaul Branstad is a Senior Vice President of Booz•Allen & Hamilton based in Chicago. Heworks primarily with automotive vehicle manufacturers and components suppliers to improvetheir market, competitive, and financial performance. Mr. Branstad’s functional expertiseincludes corporate strategy and corporate development, building the alliances forming a business’ extended enterprise, market access strategy, pricing strategy, and supply chain man-agement. He holds an M.B.A. from Stanford University and a B.S.in systems from theMassachusetts Institute of Technology. Mr. Branstad can be reached at 312-578-4506 or [email protected].

Tom Williams is a Vice President of Booz•Allen & Hamilton based in Chicago. As a memberof the firm’s automotive practice, Mr. Williams helps vehicle manufacturers and suppliersaddress the challenges of global competition, rapid consolidation, and technology manage-ment. Mr. Williams received his B.A. in economics from Lawrence University of Wisconsinand his M.P.P.M. from the Yale School of Management. Mr. Williams can be reached at 312-578-4779 or at [email protected].

Ted Rodewig is a Principal with Booz•Allen & Hamilton based in Cleveland. Mr. Rodewig is a member of the firm’s automotive practice and has completed numerous assignments instrategy and performance improvement for automotive clients. He received his M.B.A. fromthe University of Chicago and also holds a B.A. from Kalamazoo College. Mr. Rodewig canbe reached at 216-696-1997 or at [email protected].

©September 1999 INFO 047 3M

means that VMs can capture morereliably the wants, needs, and valueperceptions of their customers andfeed them back into product develop-ment processes. Much of this valuablefeedback is today filtered or distortedthrough the dealer interface.

A corollary of the VMs’ move intodownstream marketing activities is thede facto transfer of assets, responsibili-ties, and processes to the supply base.A shrinking but increasingly capablebase of Tier One suppliers will take ongreater responsibility for developingvehicle systems and manufacturingmodules. The VMs, of course, willstill make fundamental decisionsabout vehicle styling, architecture,and packaging and be responsible forintegration, managing, and supervis-ing the evaluation and resolution ofthe countless conflicts and tradeoffsthat exist in engineering a modernvehicle. Pressures for speed and effi-

challenges facing the global automotive industry

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