1. 1. GREEN CAR FUTURE 2020l tePashi le Sa of kor wSCENARIO IMPLICATIONS FOR THE alEUROPEAN AUTOMOTIVE INDUSTRY in rig OSailesh Patel MBA Research ProjectCass Business School , LondonCover Image: Copyright BMW AG, Munich, Germany
2. 2. GREEN CAR FUTURE 2020: lteSCENARIO IMPLICATIONS FOR THE EUROPEAN AUTOMOTIVE INDUSTRY Pa shPresented by:i le Sailesh PatelReg. no. 100019537 SaIn partial fulfilment of the: of Master of Business Administration (MBA) degree kor Submitted for:Business Mastery Project walPresented to: in Dr Mohan Sodhi rig Cass Business SchoolO Date: 30th September 2011Word count: 14,435 2
3. 3. PrefaceThis business research project on Green Car Future 2020: Scenario implications forthe European Automotive Industry has been conducted in partial fulfilment of thefull-time MBA programme at Cass Business School, City University, London.The intent of this project is to provide advanced strategic foresight for the Europeanautomotive industry, by exploring critical mid to long-term forces likely to affectindustry competitiveness, and developing plausible 2020 scenario world-views which ltechallenge existing policy and business strategies to facilitate enhanced strategic Paoptions within a range of potential green car futures.It is envisaged that the real test of this researchs value will be its ability to proveshrelevant to business leaders not only in 2011, but in each year to 2020, by movingilebeyond historically-based trends and forecasting to provide robust scenario-basedinsights that enable valuable strategic planning, thinking, and action for a globally- Sacompetitive Europe.ofk orwalin rigO GREEN CAR FUTURE 2020: SCENARIO IMPLICATIONS FOR THE EUROPEAN AUTOMOTIVE INDUSTRY 3
4. 4. ContentsPreface ................................................................................................................................ 3Definitions ............................................................................................................................ 6Executive summary............................................................................................................. 71 Introduction................................................................................................................ 12 l te2 Research methodology ............................................................................................ 14Pa2.1Target stakeholders ............................................................................................ 14sh2.2Research objective ............................................................................................ 152.3le Research outline ................................................................................................. 16 iSa 2.3.1Research question ....................................................................................... 16of 2.3.2Research method selection ....................................................................... 18 k 2.3.3Research method approach ..................................................................... 22 orw 2.3.4Data collection and analysis ...................................................................... 27 al 2.3.5Research limitations ..................................................................................... 31in3 Driving forces analysis ............................................................................................... 33rig3.1Scope .................................................................................................................. 33O3.2Method ................................................................................................................ 423.3Trends and uncertainties .................................................................................... 584 Scenario development ............................................................................................. 634.1Mapping uncertainty ......................................................................................... 63GREEN CAR FUTURE 2020: SCENARIO IMPLICATIONS FOR THE EUROPEAN AUTOMOTIVE INDUSTRY4
5. 5. 4.2Scenarios ............................................................................................................. 655 Scenario implications (2020) ..................................................................................... 695.1Opportunities ...................................................................................................... 695.2Risks ...................................................................................................................... 715.3Opportunity horizon ............................................................................................ 74 l te6 Recommendations (2011) ........................................................................................ 75Pa6.1CAPIRE stakeholder groups ............................................................................... 756.2European automotive industry .......................................................................... 78 shleAppendix ........................................................................................................................... 80i SaBibliography ...................................................................................................................... 82Acknowledgements ......................................................................................................... 86ofAbout the author .............................................................................................................. 87 k orw al inrigOGREEN CAR FUTURE 2020: SCENARIO IMPLICATIONS FOR THE EUROPEAN AUTOMOTIVE INDUSTRY5
6. 6. DefinitionsACEA European Automobile Manufacturers AssociationBRIC Brazil, Russia, India, and China: ostensibly referred to as the Emerging Market economiesCAPIRE Coordination Action PPP Implementation for Road-transport ElectrificationCARS21 Competitive Automotive Regulatory System for the 21st century lCORDIS Community Research and Development Information ServiceteEC European Commission PaEPoSSThe European technology Platform on Smart Systems integrationERTRAC European Road Transport Research Advisory CouncilshEU European UnionEU27le The 27 member states of the European Union, comprising Austria,i Belgium, Bulgaria, Cyprus, Czech Republic, Denmark, Estonia, Sa Finland, France, Germany, Greece, Hungary, Ireland, Italy, Latvia, Lithuania, Luxemburg, Malta, the Netherlands, Poland, Portugal,of Romania, Slovakia, Slovenia, Spain, Sweden and the United Kingdom.kEurope 2020The EUs growth strategy for the coming decade, aimed at or making the EU a smart, sustainable and inclusive economy. wICEInternal Combustion Engine alIntelligent Car Initiative EU programme aimed at accelerating the deployment ofin intelligent vehicle systems on European and international markets.rigLCVLight Commercial VehicleONAFTANorth American Free Trade Agreement: trilateral trade bloc comprising North America, Canada, and MexicoOEMOriginal Equipment ManufacturerPPPPublic-Private PartnershipRTD(Programme for) Research and Technical DevelopmentGREEN CAR FUTURE 2020: SCENARIO IMPLICATIONS FOR THE EUROPEAN AUTOMOTIVE INDUSTRY6
7. 7. Executive summaryEnergyaccess and mass-adoption of the automobile have shapedourenvironments and the way we live for much of the 20th century, creating unforeseenopportunities for a global automotive industry to prosper and fail in often unforeseenways.In 2011, the European automotive industry stands on the brink of uncertain andpotentially unprecedented change the purpose of this report is to explore theseltecomplex global and industry unknowns and explain possible outcomes in the form of Paplausible, bounded industry scenarios, which will challenge incumbent and newbusinesses to test the resilience of planned strategies, and to develop readiness andrecognise opportunities in alternative futures. shi leThis report is presented for the interest of the 14 consortium members of CAPIRE, apublic-private research initiative within the framework of the European Green Cars SaInitiative, one of the three Public-Private Partnerships (PPP) of the EC EuropeanEconomic Recovery Plan announced in 2008. ofDue to time-constraints and limitations on publicly-available information, this report kpredominantly addresses passenger car scenarios; however it is envisaged that the oranalysis and implications will be of value to all members, irrespective of marketwinterest.alEuropes automotive industry faces paradigm challenges over the next decade,induring which four certain global macro forces prevail: imbalanced populationriggrowth, resource demands, rebalancing of economic power, and universal accessto information. However, uncertain and dynamic forces political, social,Otechnological, and many more can have a profound impact on decision-making,hence strong differences of opinion about the future prevail and uncertainty is high,relative to business ability to predict or adjust. These differences arise because trendand forecasting methods are limited by their bias towards statistical mapping ofknown relationships, with limited incorporation of new and unexpected dynamicforces.GREEN CAR FUTURE 2020: SCENARIO IMPLICATIONS FOR THE EUROPEAN AUTOMOTIVE INDUSTRY 7
8. 8. There are therefore clear strategic benefits to moving beyond short to mid-termmethods, namely by mapping the development of known trends and the influenceof critical unknowns and uncertainties, such that the most likely disruptive industryscenarios are explored, and their resultant implications used to test and developfuture policy and business strategy.Proven methods of scenario planning were employed, adapting economic modelsof national competitiveness and evidence-based research to identify and relatecritical industry driving forces and their outcomes. The following four Green Carl teFuture 2020 scenarios were thus identified as most likely to influence thePainternational competitiveness of the European automotive industry: Renaissance 2.0: The European personal transport market becomessh the most sophisticated and demanding in the world, fuelled by effective wealth generation strategies and innovation through products and services; by comparison, the rest of the world areile suffering under the might of shared financial liabilities, whilst their citizens face high unemployment and provide only undifferentiated, Sa price-sensitive markets. Global Wealth: In this scenario, the emerging economies transition toof a near-developed state, and connectedness between the East and West facilitates effective wealth generation and redistribution. There is k much homogeneity between markets, and the concept of nationalor automotive manufacturers becomes outdated as products and service offerings merge to be provided by large multinationals. w Advanced Austerity: Financial shocks hit hard and persist across the al worlds economies, slowing growth and refocusing governments on their own liabilities and debts. The international automotive industryin becomes an uncompetitive environment, except for smallrig entrepreneurs realising benefits from price-sensitive consumers. Yin Yang: Wealth from the West is redistributed to the East, as BRICO nations collaborate to realise liberal and sustainable business environments, fuelling indigenous wealth generation in products and services. In contrast, the US and Europe are burdened by financial shocks, poor access to energy, and a loss of knowledge workers to opportunities in the East.These scenarios are not predictions of the most likely automotive future, howeverthey provide a robust indication of how far the 2020 competitive landscape may due to critical driving forces - sustainably differ from that of 2011.GREEN CAR FUTURE 2020: SCENARIO IMPLICATIONS FOR THE EUROPEAN AUTOMOTIVE INDUSTRY 8
9. 9. Implications for the competitiveness of the European automotive industry werederived both from the scenario-building process, which is a strategic learningprocess in itself, and from the final scenarios. Three key factors were identified asmost influential to the relative competitiveness of the industry: 1. Demand of theEuropean market; 2. Related and supporting industries (e.g. products and services);3. Factor conditions, such as infrastructure and advanced conditions such as R&D.Demand was predominantly influenced by the sophistication and size of market,and identified to be the single largest determinant of competitiveness; one whoselterelative development across international borders is significantly impacted by global Pauncertainties. The future competitiveness of the European automotive industry istherefore considered largely unknown. Faced with increasing competition fromemerging nations supported by government programmes, consideration must also shbe given to the mutual reinforcement of international and national competitiveness.i leFurthermore, as the automotive industry aims to transition into delivering productsand services, it must recognise that competitiveness in services may require different Safactors to manufacturing competitiveness.ofAccordingly, the top three scenario opportunities for each of the CAPIREstakeholder groups were identified as:korw Product and service innovationAutomotive Manufacturers Development of supporting industries and Suppliers al Manufacturing and delivery innovationin Realisation of integrated transport model rig City Transport Authorities Sustainable energy efficiency gains Enhanced quality of lifeO Retail model innovationElectricity Suppliers Supply chain innovation Lifestyle market penetration GREEN CAR FUTURE 2020: SCENARIO IMPLICATIONS FOR THE EUROPEAN AUTOMOTIVE INDUSTRY 9
10. 10. Conversely, the top three scenario risks for each of the CAPIRE stakeholder groupswere identified as: Differentiation and affordability Automotive Manufacturers Investment costsand Suppliers Capacity and service quality Transport capacityCity Transport Authorities Market cannibalisationl Living costs te Pa Capacity utilisation Electricity Suppliers Supply chain disruption Retail model resiliencesh leHence, recommendations for immediate action, with the intent of maximising value iSacapture opportunities and minimising risk consequences, both now and in the future,were identified for CAPIRE stakeholders as below: ofAutomotive Manufacturers and Suppliers k or I.Develop affordable, integrated personal transport solutions II. Deliver differentiated products and servicesw III.Share innovation risk in non-core aspects; design and develop for flexible breakeven volumesalCity Transport Authoritiesinrig I.Develop indispensable transport infrastructure and services II. Improve accessibility and affordability whilst monetising service- delivery capabilitiesO III.Maximise efficiency through integration, and learn from the bestElectricity Suppliers I.Develop a sustainable relationship with consumers lifestyle energy needs II. Provide a differentiated, integrated energy service through suitable channels III.Develop capacity and flexibilityGREEN CAR FUTURE 2020: SCENARIO IMPLICATIONS FOR THE EUROPEAN AUTOMOTIVE INDUSTRY10
11. 11. This report concludes by advising all European automotive industry stakeholders toconsider the following factors in order to enable 2020 competitiveness: Future planning Strategy Operations Competencies Tracking events Overcoming resistancelteThrough deeper understanding of these scenario implications, and implementation Paof suggested recommendations, Europes automotive industry will be betterprepared to innovate and develop agility to compete in the green car future of sh2020 and beyond. i leSaof kor walin rigO GREEN CAR FUTURE 2020: SCENARIO IMPLICATIONS FOR THE EUROPEAN AUTOMOTIVE INDUSTRY11
12. 12. 1IntroductionIn an increasingly unpredictable, complex world, this report aims to answer thestrategic dilemma that is foremost for the European automotive industry: How tocompete in the green car future, 2020?Presented with long-term uncertainty, industries and businesses tend to adopt one ofthree strategic postures (Knowledge@Wharton 2009):l te 1.Do nothing (the zero-future option): caution rules, no attempts are made to analyse, anticipate, or predict beyond the short-Pa term, and major decisions are deferred until the fog of uncertainty clears. sh 2.Take a calculated bet on one particular future: a clear message is presented, and bold action is taken that could play out as le brilliant, or fail through wishful thinking.i Sa 3.Separate knowns and unknowns, in order to explore possible futures: scenarios, not predictions, are developed, focussing on the development of agility and options.ofThough postures (1) and (2) may prove successful, the risks for businesses committedkto such approaches are high, especially if the competitive business environmentorundergoes irreversible and rapid change.wHence, whilst acknowledging that No one can definitively map the future, but wealcan explore the possibilities in ways that are specifically intended to supportindecision-making (Shell International BV 2008) businesses that adopt posture (3) arerigmore likely to be competitively enabled to reduce risks, and expedite effective,informed strategic decisions in order to maximise potential benefits.OTo provide maximum business value to the European automotive industry, thisresearch will be split into four principal sections: Developing an optimal research method to identify key driving forces andproduce relevant, applicable scenarios. Understanding the key trends and driving forces of change in theautomotive industry, and identifying the impacts and uncertainties.GREEN CAR FUTURE 2020: SCENARIO IMPLICATIONS FOR THE EUROPEAN AUTOMOTIVE INDUSTRY 12
13. 13. Constructing scenarios by mapping uncertainties, identifying themes, anddescribing significant scenarios. Determining scenario implicationsand developingstrategicrecommendations for the European automotive industry.In doing so, it is hoped to provide a learning process; one which helps broaden anddeepen the understanding of stakeholders, and permits improved knowledge of thetrends and uncertainties which could impact the competitiveness of the Europeanautomotive industry of 2020. lte Pash i leSaof korwalin rigO GREEN CAR FUTURE 2020: SCENARIO IMPLICATIONS FOR THE EUROPEAN AUTOMOTIVE INDUSTRY13
14. 14. 2Research methodology2.1Target stakeholdersThis research is provided for business decision-makers in the European automotiveindustry, with specific regard for the 14 consortium members of CAPIRE(Coordination Action PPP Implementation for Road-transport Electrification), apublic-private research project within the framework of the European Green CarsInitiative (EGCI), one of the three Public-Private Partnerships (PPP) of the ECl(European Commission) European Economic Recovery Plan announced in 2008.tePaCAPIRE aims to produce a dedicated roadmap based on an elaborated and deepanalysis of R&D needs, respective milestones and supporting measures. The project shfocuses on the definition of potential flagship projects which could foster thecompetitiveness of the European Automotive Industry in the domain of TransportleElectrification as well as in the development of technologies and services to reduce iSathe European CO2 footprint. (CAPIRE webmaster n.d.)The 14 CAPIRE consortium members, home countries, and their main business ofactivities are summarised in Table 1.k orHomeCAPIRE member country Business activities wCar, light commercial vehicle, and truckRENAULT Francemanufacturer alThe worlds largest private independentpowertrain and instrumentation systemsinAVL LISTAustria developerrigCentro Richerche Fiat - Fiat AutomobileCRF Italy Groups research centreOVolvo Groups main technology researchVolvo Technology CorporationSwedencentreProviders of IT innovation and technologyVDI/VDE-ITGermany services across automotive and other sectorsSuppliers of technology and services inindustrial, automotive, construction, andRobert Bosch GmbH Germany consumer goodsOEM module and systems supplier to theVALEO Franceautomotive industryNumber 1 Spanish energy company, andIBERDROLA Spain number 1 global wind power providerGREEN CAR FUTURE 2020: SCENARIO IMPLICATIONS FOR THE EUROPEAN AUTOMOTIVE INDUSTRY 14
15. 15. Home CAPIRE member country Business activities Transport authority and operator for Londons Transport for LondonEngland public transport network Auto supplier, covering Chassis & Safety, Continental Teves AGGermany Powertrain and Interior Climate and automotive components HIDRIA d.d. Sloveniasupplier Household and personal products Procter & Gamble EurocorBelgium manufacturer TV Rheinland ConsultingProduct development, certification, and GmbHGermany approval servicesl te Family-owned bus and tram manufacturer, SOLARIS Bus & Coach Polandincluding hybrids (60% export activity) PaSource: Author analysis of member websitesTable 1: CAPIRE consortium members and business activitiessh2.2Research objective leThis business-focussed project, supplementing existing technology R&D programmes, iSaaims to inform and enable European automotive industry decision-makersresponsible for implementing the CAPIRE roadmap. ofThe importance of the European automotive industry to Europes future cannot be kunderestimated. Following the 2008 financial crisis, the ECs Responding to the crisisorin the European automotive industry publication recognised:w With an annual turnover of 780 billion and a value added of over al 140 billion, it [the European automotive industry] makes a major contribution to the EUs GDP. It exports far more than it imports, with ain surplus of over 60 billion on overall exports of 125 billion. In addition,rig the sector plays a central part in tackling many of the key economic, social and environmental challenges faced by Europe today, such as sustainable mobility and safety. (European Commission 2009b, p.3)OTherefore, the research objective of this project is to develop and evaluate thebusiness implications of plausible mid to long-term global scenarios likely to be ofhighest sustained impact to the European automotive industry.GREEN CAR FUTURE 2020: SCENARIO IMPLICATIONS FOR THE EUROPEAN AUTOMOTIVE INDUSTRY15
16. 16. 2.3Research outlineIn order to distinguish relevant, sustainable outcomes which challenge andconstructively inform the future strategies of the European automotive industry, theresearch process must be designed to efficiently and effectively explore criticaluncertainties.The primary resources available for this project include but are not limited to:l Approximately 300 hours of MBA student time (40 hrs per week)te Academic supervision to direct research and review drafts Pa City University library resources Publicly accessible information sourcesshIn this section, a suitable research outline is determined by evaluating the five coreresearch elements illustrated in Figure 1.i le Sa ResearchResearch DataResearch Researchmethodmethod collection andquestionlimitations selection approach analysis of Source: Author analysiskFigure 1: Research outline processor w2.3.1Research question alThe research question for this project has been formulated in consideration of the ingoals of the CAPIRE programme, the challenges facing the European automotiverigindustry, and the value of existing prevailing research.OA comprehensive literature review was performed, assessing the scope of existingindustry, academic, and public policy insights, trends, and foresights (seeBibliography). Although a wealth of near-term insights and opinions can be readilydiscerned, uncertainty about the future is commonly discernible as mid to long-termforesights providing limited strategic direction and comparability, as illustrated bythe ECs sectoral overview of the European automotive industry:GREEN CAR FUTURE 2020: SCENARIO IMPLICATIONS FOR THE EUROPEAN AUTOMOTIVE INDUSTRY 16
17. 17. In the medium-term, the technological competition in this industry is set to intensify, with different fuel and energy concepts plus intelligent transport playing a particularly important role. [] In the long-term, the global market for motor vehicles is set to grow substantially (European Commission 2009a, pp.910)From a business perspective, notable anchoring biases were observed, withresearch tending to assume that a product-based retail model will prevail in future,while incorporating thesubstitutionof emergent green technologicaldevelopments and associated infrastructure to varying degrees. E.g. J.D. Power and lAssociates 2010, Phil Gott 2008, Housely Carr 2011.J.D. Power and Associates 2010te PaLimited consideration is evidenced from published research for the substitution anddisruptive effect of alternative product, service, and transport models, or the shcomposite impact of political, economic, and social factors, for example.Furthermore, consolidated research specifically evaluating the extent to which thelecompetitive position of the European automotive industry might be challenged isi Sanotable by its absence.Nonetheless, literature consensus is achieved on the core challenge facing the ofglobal, and the European automotive industry that of competing effectively in afuturein whichsustainability and green(environmentallyresponsible)k orconsiderations are no longer consumer preferences, but substantially business andpolicy requirements. walTherefore, to inform and enable the European automotive industry, a timescale of 5-10 years is identified as the strategic domain of critical uncertainty, urgently requiring inimproved foresight to inform imminent mid to long-term competitiveness planningrigand action (see Figure 2), hence the research question for this project is formulatedOas: Green Car Future 2020: Scenario implications for the European AutomotiveIndustry.GREEN CAR FUTURE 2020: SCENARIO IMPLICATIONS FOR THE EUROPEAN AUTOMOTIVE INDUSTRY17
18. 18. l tePaSource: Jones 2010Figure 2: Domains of strategic uncertaintysh2.3.2 Research method selectionleTo determine an appropriate research method, the common nature of thei Sachallenge facing leaders in the automotive industry must be understood.Schoemakers research identifies strong parallels with CAPIRE members interests: ofSenior executives commonly ponder such questions as "What mightkgive us continued competitive advantage?" and "What new productor markets should we enter and how?" Both questions go to the heart orof a firms strategic vision. [] Knowing the answers constitutes thewdifference between muddling through and running the business fromday to day with confidence and foresight. (Schoemaker 1997, p.43)alThus, the dilemma for business is one of developing an appropriate strategic vision toinenable corporate planning for action within a range of possible future scenarios. Toriginform this strategy a variety of research methods may be utilised to provide futureforesight, including:O Statistical techniques Decision analysis Standard forecasting Scenario techniquesSchoemakers 1991 research describes extensively the limitations of statisticaltechniques based on historically-derived, albeit complex models, which incorporateGREEN CAR FUTURE 2020: SCENARIO IMPLICATIONS FOR THE EUROPEAN AUTOMOTIVE INDUSTRY 18
19. 19. multiple known variables within a simplified view of the world, or decision analysisexamining the effect of one variable whilst holding others constant. His research onstandard forecasting observed that: forecasts are often wrong (Smyth, 1983; Zarnowitz, 1984, 1985), especially when dealing with the macro environment (Page, 1982; Leamer, 1983) [] The more stable the game, the more valuable forecasts are; the more unstable the environment, the more scenarios may be of help. (Schoemaker 1991, p.551)Pierre Wack (1922-1997), a successful practitioner of scenario thinking at Royal DutchlteShell, similarly identified the core risks of relying on forecasts alone: Pa Forecasts are not always wrong; more often than not, they can be reasonably accurate. And that is what makes them so dangerous. sh They are usually constructed on the assumption that tomorrows world will be much like todays. They often work because the world does not always change. But sooner or later forecasts will fail when they arei le needed most: in anticipating major shifts in the business environment that make whole strategies obsolete. (Wack 1985) SaPut simply, these traditional techniques produce outcomes which are to a large ofextent bounded by the influence of known variables. For example, Thomas Watson,chairman of IBM, predicted in 1943, "I think there is a world market for maybe fivekcomputers." informed by his bounding of the future using existing market models.or wHowever, if presented with scenarios that identify relevant and critical uncertainties,it is unlikely that business leaders should fail to recognise and understand outcomes alin alternative futures. It is therefore advantageous to develop scenario techniques inthat recognise and incorporate critical uncertainties and their driving forces, andrigbounds their potential impacts, opportunities, and risks in the form of relevantscenarios.OReferring to Figure 3, mapping differing degrees of uncertainty, businesses can seekto improve their knowledge of the future by: Firstly, identifying and developing a better understanding of the impact of known trends stable driving forces that will affect us and others, which we can predict quite clearly. e.g. population growth, universal data access, etc.GREEN CAR FUTURE 2020: SCENARIO IMPLICATIONS FOR THE EUROPEAN AUTOMOTIVE INDUSTRY 19
20. 20. Secondly, identifying and developing a better understanding of the potential impact and driving forces of unknown trends unstable forces that will affect us, but that we cannot predict clearly. e.g. the price of oil, recessionary recovery, demand for raw materials, etc. Thirdly, identifying uncertainties relevant unknowns that could significantly affect us - and developing an understanding of their potential impact and driving forces. e.g. intelligent highways, government subsidies, political succession, electromobility, etc.l te PaKNOWNsh UNKNOWN ile UNCERTAINSa of Source: Author analysisFigure 3: Degrees of uncertainty k orScenario techniques can facilitate exploration of all the above degrees ofuncertainty, and to a large extent are concerned with the likely challenges and woutcomes of the unknown and uncertain. Though in use since the 1960s and 1970s, it almust be recognised that they are a difficult technique to define and describe. and inthat their very flexibility and widespread applicability seems to limit their generalrigacceptance in everyday organisational use. (Verity 2003, p.186)OFurthermore, some practitioners (such as Shell) sometimes draw a distinctionbetween scenario thinking, which is aimed at the exploration of uncertainties, andscenario planning, which is aimed at applying scenarios to support decision-making,using probabilities, decision analysis, etc, to support other strategy methods.Henceforth in this document, scenario planning will be used interchangeably torefer to both scenario techniques of thinking and planning, as both elements will bevaluable in order to derive implications for the European automotive industry.GREEN CAR FUTURE 2020: SCENARIO IMPLICATIONS FOR THE EUROPEAN AUTOMOTIVE INDUSTRY 20
21. 21. Therefore, scenario planning to reduce uncertainty for the automotive industryappears well-suited as a research method, as Verity, arguing for greater use ofscenario techniques in business environments that are increasingly complex,changing, and global, notes Michael Porters early advocacy of scenariotechniques to achieve competitive advantage: As Porter (1985) pointed out: Every plan is based on an industry scenario in one form or another, though the process is frequently an implicit one. He was an advocate for practising scenario techniques in strategy formulation. He recognised that the assumptions managers l used as background to generating their strategies were rarely madete explicit or challenged. By acknowledging the uncertainties, he foresawPa much improved strategy outcomes. (Verity 2003, p.188)Advancing Porters research, Schoemaker further identifies industry and corporate- shlevel conditions favouring the use of scenario planning, as described in Table 2. i leSa ofkorw al in Source: Schoemaker 1997 p.48Table 2: Business conditions favouring the use of scenario planningrigOThough these conditions may not reflect the views of all organisations in theautomotive industry, the symptoms have historical precedent and reflect theuncertainties and difficulties increasingly likely to be felt by the European automotiveindustry. Therefore, scenario planning is determined as an ideal research method toachieve the objective of this project.GREEN CAR FUTURE 2020: SCENARIO IMPLICATIONS FOR THE EUROPEAN AUTOMOTIVE INDUSTRY 21
22. 22. 2.3.3 Research method approachScenario planning is a flexible, non-prescriptive technique facilitating many differentresearch approaches, as its practitioners have noted, There are different schools ofthought about what scenarios are for, how scenarios should be built and when theyshould be used. (Verity 2003, p.186)Consequently, there are strong reasons why managers will resist or reject usingscenario techniques. Verity explains:l teOne of the reasons why scenarios are not adopted more widely is thisPadivergent set of methodologies and the different emphases onquantitative or qualitative input. It is difficult for managers to siftthrough the different approaches and know, with confidence, whichone to adopt for which business issue. (Verity 2003, p.187)shHence, to effectively develop Green Car Future 2020 scenarios and produceleimplications that will be confidently received and used by leaders and managers in iSathe European automotive industry, this section will draw upon scenario practitionerexperience to clearly detail:of What the scenarios will be for;k How the scenarios will be built;or When the scenarios should be used.wWhat the scenarios will be for ____________________________________________________alinThe scenarios produced by this report aim to serve two primary business needs forCAPIRE members and the wider European automotive industry:rig1. Strategic thinking: by exploring and highlighting large-scale forces thatOcould push the competitiveness of the European automotive industry inmarkedly different directions2. Strategic planning: by providing scenarios that encourage decisionsmade today to play out well across several different scenariosThe scenarios will provide analysis of the driving forces affecting the competitivenessof the European automotive industry within a range of critical uncertain futures.GREEN CAR FUTURE 2020: SCENARIO IMPLICATIONS FOR THE EUROPEAN AUTOMOTIVE INDUSTRY 22
23. 23. Company-specific decision scenarios will not be within the scope of this project. It isimportant to emphasise that the scenarios will not be a prediction of the mostprobable futures, but will aim to serve as strategic tools to permit learning,exploration, and decision-making, best expressed by Schoemakers analogy: Suppose you are planning to climb a mountain. Corporate planning of the past would provide you with a detailed map, describing the predetermined and constant elements of the terrain. Of course, this traditional planning tool is very valuable and, indeed, indispensable in this case. Just as geographical mapping is an honored art and science, so corporate mapping can be very useful. However, it isl te incomplete. First, the map is not the territory, but an incomplete and distorted representation (any two-dimensional map distorts the earths Pa surface). Second, it ignores the variable elements, such as weather, landslides, animals, and other hikers. The most important of these uncertainties is probably the weather, and one option is to gather sh detailed meteorological data of past seasons, perhaps using computer simulations. le Scenario planning, however, goes one step further. It simplifies the iSa avalanche of data into a limited number of possible states or scenarios. Each scenario tells a story of how the various elements might interact under certain conditions. Where relationships between elements can be formalized, quantitative models can be developed. of Each scenario should be evaluated for internal consistency and plausibility. For example, high visibility and heavy snow drifts are an k implausible combination. Although the boundaries of scenarios might or at times be fuzzy, a detailed and realistic narrative may direct your attention to aspects you would otherwise overlook. Thus, a vivid snow w drift scenario (with low visibility) may highlight the need for skin protection, goggles, food, supplies, radio, shelter, and so on. al (Schoemaker 1997)inHow the scenarios will be built____________________________________________________rigA typical scenario-building exercise, illustrated in Figure 4, requires the definition of aOcore issue, scope, and stakeholders (to provide context and a test of relevance),followed by identification of trends and uncertainties, which are then developedinto scenarios by various means, and disseminated to permit strategic thinking andplanning.GREEN CAR FUTURE 2020: SCENARIO IMPLICATIONS FOR THE EUROPEAN AUTOMOTIVE INDUSTRY23
24. 24. Define focal issue(test of relevance) Identify trends anduncertaintiesDevelop scenarios lDisseminate scenarios tote stakeholdersPaUse scenarios for strategicthinking and planningshFigure 4: Overview of typical scenario-building process ile Source: Author analysisSaNumerous sources have been referred for guidance, however only Schoemakerprovides a comprehensive ten-step guide to scenario-building and dissemination,ofwhich is adapted in Table 3 to provide an overview of the scenario planningkactivities included within this project.or w Scenario planning activity Implementation within Green Car Future 2020 projectTime frame: 2020 (incorporating changes in technology,alproducts, services, competition, markets, economies post-2011) inScope: scenario implications for the European automotiveindustryrigIssues: how to compete in the green car future 2020 1. Define the issues understanding uncertainty to industry risks and opportunitiesO 2. Identify the majorstakeholdersSee Section 3 3. Identify basic trends 4. Identify key uncertainties 5. Construct initial scenarios 6. Check for consistencyand plausibilitySee Section 4 7. Construct learningscenarios 8. Identify research needs See Sections 5 and 6, including scenario implications andGREEN CAR FUTURE 2020: SCENARIO IMPLICATIONS FOR THE EUROPEAN AUTOMOTIVE INDUSTRY24
25. 25. Scenario planning activity Implementation within Green Car Future 2020 projectrecommendations 9. Develop formal models Not in project scope 10. Create decision scenariosNot in project scope Source: adapted from Schoemaker 1997Table 3: Scenario planning activities implemented in the Green Car Future 2020 projectThe main purpose is to identify dynamics of critical uncertainties and potential ltebusiness environment states that might affect the competitiveness - for better, orPaworse - of the European automotive industry. Table 4, adapted from Schoemakersexperience of developing and applying scenarios in industry, provides the criteriathat will be used to direct and evaluate the quality of the final Green Car Future sh2020 scenarios. i leSaHow can you assess if your scenarios are good ones?of 1. Objective: The scenarios should cover a wide range of possibilities and highlight competing perspectives (within and outside the industry), while focusing on k interlinkages and the internal logic within each future. or 2. Relevant: To have impact, your scenarios should connect directly with the mentalw maps and key concerns of those who will use them (e.g., senior executives, middle managers, etc.). al 3. Consistent: The scenarios should be internally consistent (and be perceived as such) in to be effective.rig 4. Distinctive: The presented scenarios should be archetypal - that is, they should describe generically different futures rather than variations on one theme.O 5. Sustainable: Each scenario should ideally describe an equilibrium or a state in which the business environment might exist for some length of time, as opposed to being highly transient. It does an organisation little good to prepare for a possible future state that will be quite short-lived. Source: adapted from Schoemaker 1997 p.54Table 4: Essential criteria for successful scenariosGREEN CAR FUTURE 2020: SCENARIO IMPLICATIONS FOR THE EUROPEAN AUTOMOTIVE INDUSTRY25
26. 26. When the scenarios should be used ______________________________________________The industry-level scenarios, themes, and frameworks developed within this projectshould be used by firm managers for four complementary purposes:1. To test existing strategy: by applying industry level scenario planning toexisting firm-level strategy, managers will be able to test the resilience andflexibility of their strategies within a range of critical futures. Resilientstrategies are those which are sustainable across multiple scenarios. l2. To develop strategy (existing and new): industry level scenario planningtemay be used to develop understanding of opportunities and risks within Paexisting strategy, and to identify and test new strategic opportunities.3. To develop organisational awareness: by propagating scenario themes shwithin the organisation, managers and employees can together benefitfrom increased organisational awareness of risks and opportunities incritical future scenarios. i leSa4. To develop organisational agility: responsiveness during uncertainty isoften demanded of modern organisations; by propagating awareness of offuture critical scenarios an organisation can begin preparing foruncertainty, and learn to understand and recognise signals and signpostskof change. or wUltimately, scenario planning can help an organisation make better decisions, asillustrated in Figure 5, by encouraging multiple perspectives, and striving for analintegrated analysis and understanding of critical future scenarios.in rigO GREEN CAR FUTURE 2020: SCENARIO IMPLICATIONS FOR THE EUROPEAN AUTOMOTIVE INDUSTRY26
27. 27. l tePa sh i leSaof kSource: adapted from Schoemaker 1991 p.558 orFigure 5: Generic levels of scenario analysisw2.3.4 Data collection and analysisalinThe data collection methods selected for this research will be aimed at supportingrigthe production of scenarios that:O Cover a wide range of possibilities Highlight competing perspectives (within and outside the industry) Focus on interlinkages and the internal logic within each future Describe sustainable futuresAs the Green Car Future 2020 scenarios will, by definition, aim to exploredevelopmental (change) factors in relation to context, the data collection andanalysis method most appropriate to this project is the case study. Thomas (2011)GREEN CAR FUTURE 2020: SCENARIO IMPLICATIONS FOR THE EUROPEAN AUTOMOTIVE INDUSTRY27
28. 28. offers the following definition of case study: "Case studies are analyses of persons,events, decisions, periods, projects, policies, institutions, or other systems that arestudied holistically by one or more methods.Yin (2003) further defines a case study as: an empirical inquiry that: investigates a contemporary phenomenon within its real-life context; when l te the boundaries between phenomenon and context are not Pa clearly evident; and in which multiple sources of evidence are used. shTo analyse the perspectives, interlinkages, and driving forces influencing theleautomotive industry in a plausible, cohesive manner, it will be necessary to obtaini Saand evaluate data from a variety of sources, in a method appropriate to thesubsequent scenario-based analysis. Rosenberg and Yates (2007 pp.449-450) outlinea framework for identifying and analysing data, as shown in Figure 6. ofkorw al inrigSource: Rosenberg and Yates 2007 p.449OFigure 6: Identifying data collection and selecting analysis methodsHowever, in contrast to Rosenberg and Yates approach of selecting data analysisstrategies after collecting data, scenario planning requires that an analysis strategy(the scenario building method) is selected before collecting data, after which therequired data collection methods may be identified. It is evident that scenariobuilding will require the collection of data supporting content, thematic, andstatistical analysis, necessitating both qualitative and quantitative input.GREEN CAR FUTURE 2020: SCENARIO IMPLICATIONS FOR THE EUROPEAN AUTOMOTIVE INDUSTRY28
29. 29. Due to time constraints, resource limitations, and the requirement to collect a largerange of unbiased data, only secondary research will be conducted. As far as isreasonably possible, attempt will be made to use multiple sources of evidence, andto aid scenario learning by identifying relevant assumptions and limitations ofcollected data (in so doing, it may also be more readily feasible for others todevelop this research beyond the scope of this project).It is envisaged that the nature and quantity of data required will inhibit thederivation of purely quantitative models of relationships by which to determinel tedriving forces; similarly, the incorporation of qualitative data will necessitate a more Pastochastic method. It is therefore reasonable to determine that a heuristic method ofscenario building will be required in order to efficiently identify and understandsignificant driving forces and their relationships within the timescale of this project.shHenceforth, proven qualitative and quantitative models and frameworks will be leutilised for analysis and scenario building where possible, and where necessary, iSalogical, bounded approximations to models will be developed and applied. ofIn order to capture a full perspective of the driving forces affecting or capable ofaffecting the European automotive industry, data collection will encompass thekfield-of-vision proposed by Day and Schoemaker, illustrated in Figure 7, aimed atorhelping organisations1 actively capture strategic signals from the periphery. wal inrigO1 Although Day and Schoemakers original intent was to help capture signals at the organisationallevel, many of the areas identified are equivalent at industry level, and therefore these areas areconsidered advantageous for identifying driving forces at industry level.GREEN CAR FUTURE 2020: SCENARIO IMPLICATIONS FOR THE EUROPEAN AUTOMOTIVE INDUSTRY29
30. 30. l te Pa sh Source: Day and Schoemaker 2007 p.22leFigure 7: Capturing external and internal driving forces at the organisational leveli SaResearch will therefore be undertaken to identify the external and internal drivingforces affecting (or likely to affect) the competitiveness of the European automotiveofindustry by exploring the following five areas: k or Political, legal, social, and economic forces Emerging technologies and scientific developments w Influencers and shapersal Customers and channels in Competitors and complementorsrigTo provide perspective within each source, appropriate macro-level evidence fromOeconomic, industry, and consumer perspectives will be sought, using academic,industry, and available media sources. Where possible, insights and opinions will bederived from multiple disciplines and industry thought leaders, thereby developing arichness of insight that is encouraged and desired when conducting as Shell havedone workshop-based, global scenario building processes (Lawrence Wilkinsonn.d.). It is also considered advantageous to refer to published scenarios at theeconomic, industry, and consumer foresight level, spanning multiple timelines, asGREEN CAR FUTURE 2020: SCENARIO IMPLICATIONS FOR THE EUROPEAN AUTOMOTIVE INDUSTRY 30
31. 31. these research sources, despite their differing methods, will help identify core datasources and further inform the application of scenario planning techniques.Together, the above approaches are intended to reduce bias errors when exploringareas we dont know (second class see Figure 3), and areas which are unknown tous (third class), as observed by Schoemaker:Various biases - overconfidence, narrow framing, the tendency tolook for confirming evidence-plague all three classes, but by far thegreatest havoc is caused by errors of the third kind (Russo &lSchoemaker 1992). Although no fail-proof techniques exist to avoid tethem, much improvement can be garnered by focusing our attentionPaon classes two and three. (Schoemaker 1997, p.68)By reducing systemic errors when collecting data in the realm of uncertainty,shscenario planning is more likely to achieve effective understanding and learningsince, as Schoemaker (1997 p.68) described it is essentially a study of our collectiveignorance.i le Sa2.3.5 Research limitationsofTo achieve the aim of this research project using available resources, the researchkscope is intentionally limited to focus on the driving forces affecting the passenger orcar market only; LCVs (Light Commercial Vehicles) and buses will not be explicitlywanalysed. This decision is considered appropriate because, during 2009:al 14 million passenger cars were produced in the EU by 17 countries, inincomparison with only 1 million LCVs produced by 10 EU countries.rig Truck production accounted for 0.25 million units, whilst buses representedonly 0.035 million units of production.OSource: ACEA 2009 p.70Although EU production figures alone do not reflect the full interest of the Europeanautomotive industry, the above data illustrates the greater significance of its carproduction activities. Furthermore, as the market for LCVs and trucks is primarilyconcerned with demand for transport of goods and not people, it is desirable toseparate this element from analysis of the market for cars and mobility, unlessdetermined as a key driving force. Nonetheless, it is envisaged that the analysis andGREEN CAR FUTURE 2020: SCENARIO IMPLICATIONS FOR THE EUROPEAN AUTOMOTIVE INDUSTRY 31
32. 32. implications presented in this report will be of value to all members, irrespective ofmarket interest.Implicit research limitations likely to influence this project will arise due to behaviouralbias; namely, the author of this report will, by definition, incorporate individual biasesinto data collection, scenario development, and analysis, hence every attempt ismade to identify assumptions and minimise errors by seeking a broad range ofrelevant perspectives. To mitigate against researcher bias and inexperience, thefinal report will incorporate comments and changes advised by an experiencedl teacademic professor.PaFollowing the preliminary completion of this report, it may be desirable to solicit andincorporate feedback from CAPIRE members, however to achieve these activitiesshwithin the project timescale is unfeasible, therefore this intention may instead beconsidered as the scope of a follow-on research project.ile Saof kor w alinrigOGREEN CAR FUTURE 2020: SCENARIO IMPLICATIONS FOR THE EUROPEAN AUTOMOTIVE INDUSTRY32
33. 33. 3Driving forces analysis3.1ScopeThis section details the scope and method used to identify the competitiveenvironment, major stakeholders, basic trends, and key uncertainties.Focal issue ______________________________________________________________________The focal issue is to identify the significant drivers of change that could result inl tecritical scenarios likely to strategically impact the competitiveness of the EuropeanPaautomotive industry in 2020. An overview of the approach to developing scenarios isshown in Figure 8.shi le Saof k or w alinrigSource: adapted from Schoemaker 1991 p.558Figure 8: Building blocks for scenariosODrivers of change will include basic trends and key uncertainties, the significance ofwhich will be evaluated based on their likelihood of change and the sustainedimpact this might have on the competitiveness of the European automotive industry.Competitive environment ________________________________________________________GREEN CAR FUTURE 2020: SCENARIO IMPLICATIONS FOR THE EUROPEAN AUTOMOTIVE INDUSTRY 33
34. 34. As the Green Car Future 2020 project addresses the competitiveness of theEuropean automotive industry within a global environment, an understanding of thescope and nature of the competitive context is warranted:In 2005, the global automotive industry made over 66 million cars, vans, trucks andbuses. If vehicle manufacturing (only) was a country, it would have equated to bethe sixth largest economy in the world. (OICA 2006)In 2011, the six major competing global automotive industry suppliers, defined byleconomic interest and development are: tePa The European automotive industry (EU) The North American automotive industry, including Mexico (NAFTA)sh The Japanese automotive industry The South Korean automotive industry i le The Emerging Markets automotive industries (BRIC)SaThe global market share by volume of each competitor is illustrated in Table 5,describing relative 2009 passenger car production. Note that these figures do not re- ofdomicile overseas production by national car manufacturers, either through joint kventure production or wholly-owned overseas factories. Furthermore, there may be ora surplus between passenger car production and actual sales. w al inrigOSource: OICATable 5: Passenger car production worldwide - 2009GREEN CAR FUTURE 2020: SCENARIO IMPLICATIONS FOR THE EUROPEAN AUTOMOTIVE INDUSTRY34
35. 35. The relative share of total global sales is shown in Figure 9, describing total worldwidemotor vehicle registrations for 2010, and illustrating how the EU represents a marketfor one in four vehicles sold in the world.l tePaSource: ACEA 2010 p.77 shFigure 9: Motor vehicle registrations worldwide - 2010 i leSaTrade between economic blocs provides an important global import and exportmarket for each competitors business activities. The European automotive industry is ofa net exporter of business activities, generating net value for the EU as highlightedby the EC:k or With an annual turnover of 780 billion and a value added of over 140 billion, it [the European automotive industry] makes a majorw contribution to the EUs GDP. It exports far more than it imports, with a surplus of over 60 billion on overall exports of 125 billion. (Europeanal Commission 2009b, p.3) inThe importance of the industry to Europes prosperity is underscored by the scope ofrigits network of business and economic activities, acknowledged by the EC:O The European automotive industry is one of Europes flagship industries. It is a key driver of growth, exports, innovation and jobs. Its impact filters down across a wide variety of other sectors. And it has a particularly important cross border reach, with suppliers, manufacturers and sales and servicing downstream creating a web of mutual interest that touches every one of the EUs Member States.GREEN CAR FUTURE 2020: SCENARIO IMPLICATIONS FOR THE EUROPEAN AUTOMOTIVE INDUSTRY35
36. 36. As a consequence, the value of intra-Community trade in automotive products is substantial with around 360 billion in 2008. Any downturn in the automotive sector therefore strongly affects other sectors and all EU Member States. (European Commission 2009b, pp.23)Highlighting the importance of exports, Figure 10 illustrates the relative contributionby value of EU passenger car exports, whereby North America, Asia, and EasternEurope represent approximately 80% of total export value of 40 billion (down from60 billion in 2008).l te Pa sh ileSa ofkorw Source: EurostatFigure 10: Relative value of EU passenger car exports 2009al inOverall, the domestic European market (illustrated as EU in Figure 9) representedrigthe largest market for the European automotive industry, registering 16.6 millionpassenger cars in 2009, of which 2.3 million cars were imported from non-EuropeanOautomotive industries, primarily Japan and South Korea, as shown by units of sales inTable 6.GREEN CAR FUTURE 2020: SCENARIO IMPLICATIONS FOR THE EUROPEAN AUTOMOTIVE INDUSTRY 36
37. 37. l tePa Source: EurostatshTable 6: Origin of EU passenger car imports 2009 leHowever, when compared by value received (see Table 7), Japan (8 billion) and iSathe Unites States (3 billion) were the largest non-European industry competitors,differences attributable to a higher average cost of cars sold. ofkorw al inrigO Source: EurostatTable 7: Value of EU passenger car imports 2009Nevertheless, the European automotive industry remains a net exporter for the EU,representing a trade balance of nearly 26 billion in 2009 (down from 40 billion inGREEN CAR FUTURE 2020: SCENARIO IMPLICATIONS FOR THE EUROPEAN AUTOMOTIVE INDUSTRY 37
38. 38. 2008), as shown in Table 8. Note that these figures classify geographically European,non-EU countries within the European Free Trade Agreement (EFTA) - Turkey,Switzerland, etc - as export markets.Source: EurostatlTable 8: Trade balance of EU automotive industry passenger car sales 2009 tePaGreen context _________________________________________________________________The US, Japan, China, Korea and the EU have given priority to reducing the climateshimpact of automobile production and use by developing programmes which targettwo outcomes: ile Sa 1.Reducing primary energy requirements: Growing dependency on primary (naturally sourced. i.e. non-fusion) energy sources suggest thisof factor is very likely the most motivating one. In the EU, 73% of all oil (and about 30% of all primary energy) is consumed by the transport sector. k (EGCI Ad-hoc Industrial Advisory Group 2008)or 2.Reducing greenhouse gas effect on climate change: Vehicle emissions w are contributing to the increased concentration of gases that lead to al climate change; Figure 11 illustrates the global contribution of roadin transport to total man-made CO2 emissions in 2007.rigOGREEN CAR FUTURE 2020: SCENARIO IMPLICATIONS FOR THE EUROPEAN AUTOMOTIVE INDUSTRY38
39. 39. Source: OICA 2007Figure 11: Global contribution of Road Transport to man-made CO2 emissionsThese electromobility and green car programmes primarily focus on developingintegrated transport methods to reduce the energy and climate cost of personalmobility, and the production of commercially-viable electric vehicles, which can bepowered from clean energy sources and are estimated to reduce energy demandbeyond that achievable by internal combustion engine (ICE) cars: l A comparison with the situation ten years ago shows that in the lastte decade the technological evolutions have radically changed the impact of the electrical vehicle on primary energy consumption: from Pa about 30% higher primary energy consumption as compared to the ICE in 1998 to about 25% energy savings in 2008. These figures do not yet take into account the potential for energy harvesting e.g. by sh modern low cost on-board photovoltaic technology. (EGCI Ad-hoc Industrial Advisory Group 2008)leNonetheless, traditional fuelled vehicles are widely expected to prevail by 2020. iSaFigure 12 illustrates the relative proportion of climate impact during the productionand use of a typical vehicle in use for 8 to 10 years. ofk or w alinrigO Source: WWF-UK 2006Figure 11: Distribution of energy demand/carbon consumption throughout the life cycle of atypical carMajor stakeholders ______________________________________________________________GREEN CAR FUTURE 2020: SCENARIO IMPLICATIONS FOR THE EUROPEAN AUTOMOTIVE INDUSTRY 39
40. 40. Scenario stakeholders will be international or national groups or individuals whohave, or potentially will have, an interest in the drivers of change and theirimplications for the European automotive industry, including those who couldsignificantly influence change.Figure 12, adapted from Schoemaker (1991), provides an overview of the macroand industry-level forces likely to affect industry, which will be utilised as a taxonomyto identify influential stakeholders, with direct interest on driving forces inferred forindustry stakeholders and indirect interest for world and country stakeholders. lte Pashile Sa ofkSource: adapted from Schoemaker 1991 p.558 orFigure 12: Typical industry-level driving forceswInterested and influential industry stakeholders include: alinrig SuppliersEuropean automotive manufacturers2 CustomersPrivate transportation buyersO Business transportation buyers2 The vehicle manufacturing business is highly complex. It is not limited to the assembly of vehicles andproduction of engines. The same manufacturers engage in testing, sales/marketing and distribution,maintenance, recycling and disposal. Most also make components although the degree of verticalintegration varies. They also have separate finance arms. These finance companies can providefinance to their dealer network, leasing activities and to final customers (captive finance). In recentyears these non-automotive parts of a vehicle manufacturers business have tended to generate moreprofits than their core manufacturing assembly operations and in some years may have been the onlysource of profits, thereby supporting the loss making automotive arm.(IHS Global Insight 2009)GREEN CAR FUTURE 2020: SCENARIO IMPLICATIONS FOR THE EUROPEAN AUTOMOTIVE INDUSTRY 40