Global viewpoints: technology leads the way
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While layoff notice on top of layoff notice and declining vehicle sales clearly define an ailing North American automotive market—"an automotive industry recession," Delphi CEO J.T. Battenberg calls it—there is no evidence of correlating health issues relating to automotive technology innovation. ArvinMeritor's titanium exhaust on the 2001 Chevrolet Corvette and Delphi's four-wheel steering system that debuts on a 2002 General Motors full-size truck are examples of how technology marches forward, regardless of whether vehicle sales are moving in the same direction, as they did in 2000, or retreating, as they are in 2001. Advanced technologies by themselves may not have the power to lift the automotive industry out of its swoon for the remainder of the year, but they may lend a helping hand.
 The Jeep Liberty replaces the Cherokee. |
"We're going to decrease our emphasis on technological innovation" is a quote unlikely to pass the lips of any automotive industry executive. Which is not to say that companies should not, in Battenberg's words, keep their product portfolios "under constant surveillance"—especially when cost pressures are as great as they are now. The key is striking the right balance, which is why one is no more likely to hear an automotive executive saying, "We plan to develop technology for technology's sake."
Far from diminishing the importance of technological innovation, cost pressures are increasing it, in the view of Textron Automotive Co. CEO Jack Sights, who is, like Battenberg, an engineer. "We have to innovate not just in our products, but also in our processes, in our business model, on the factory floor, in how we train people—in everything. The idea is to constantly drive out cost, and at the same time deliver ever-higher value. It's a very difficult trick," he said.
Textron is among a number of suppliers that are striving for new levels of technological innovation while negotiating with the Chrysler Group for relief from the automaker's demand of a 5% price reduction in 2001 and an additional 10% through 2002. The material cost reduction program is among the most dramatic elements of Chrysler's ambitious turnaround plan, which this year also calls for the elimination of one shift at five North American assembly plants, line speed reductions at two others, and the closing of two South American assembly plants and a Mexican transmission plant. The company expects to lose $2-2.5 billion in 2001 and achieve "modest" profitability in 2002.
In addition, the turnaround plan calls for a 20% workforce reduction by 2004, 75% of which is expected to be realized by the end of this year. The workforce reduction will affect hourly and salaried employees in equal percentages. The company will not say how many engineering positions will go.
 The Lincoln Blackwood is a brand new model. |
Although sales were slowing in the first part of 2001 for the Big 3, the Chrysler Group's difficulties reach further back. Unit sales declined from 3.2 million in 1999 to 3.0 million in 2000, revenue dropped 8% to $64 billion, and operating profit plummeted to $500 million. Even introduction of the hot-selling PT Cruiser couldn't stop the bleeding. The company is banking on launches of the brand new Jeep Liberty and the redesigned Dodge Ram to spur sales this year. By renewing more than two-thirds of its products between 2000 and 2003, the Chrysler Group will, at 2.1 years, have the youngest product range of any North American OEM, according to the company.
Not to be outdone, Ford Motor Co. and General Motors Corp., both of which came close to U.S. sales records in 2000 but which have imposed layoffs of their own in 2001 because of sales sickness, are planning important product launches. Ford, Mercury, Lincoln, Jaguar, Land Rover, and Volvo saw total unit sales inch up 1% to 4.2 million in the U.S in 2000, despite the recall debacle involving the big-selling Ford Explorer. This year, Ford is counting on the redesigned Explorer, the new Ford Thunderbird, the new Lincoln Blackwood, the Land Rover Freelander, and the five-door Focus to keep sales numbers high.
In a recent speech, Ford's Executive Director of Global Consumer Insights, Arthur Redmond, said one of the more important global trends automakers are adjusting to is the drop in demand for mid-market vehicles. "There are value brands and there are premium brands, but everything in between is fading away," he said. "We're seeing brands like Jaguar, Mercedes-Benz, and BMW introducing so-called value models—and doing quite well—while brands like Plymouth and Oldsmobile are being discontinued." Ford indicates its Mercury brand is not in danger.
GM for the 2001 model year rolled out GMC Sierra light- and heavy-duty models and the Pontiac Aztek, which has fallen short of sales expectations and is going back to the shop for what the company calls "superficial," non-sheet-metal modifications. GM sold 4.95 million vehicles in the U.S. in 2000, a 1% decline from 1999. Introductions for the 2002 model year include the Cadillac CTS entry-luxury car, the Saturn VUE compact sport utility vehicle, the GMC Envoy, the Buick Rendezvous, the Oldsmobile Bravada, and the Chevy Trailblazer and Avalanche. Those are among almost 40 new products that GM has committed to launching by 2003.
Despite the best efforts of the domestic automakers, those from Europe and Asia are eating an increasingly large percentage of the North American sales pie. According to Autopolis, of the record 19.8 million passenger cars and light trucks sold in North America last year, GM's share was 28.3% and Ford's 22.9%, meaning DaimlerChrysler and non-domestic OEMs accounted for 48.8%. The company predicts the share of non-domestics to rise to 49.9% by 2005, but with total sales dropping to 17.5 million. American Honda Motor Co. Inc. led the way for foreign automakers in 2000 with a 7.6% unit sales increase, eclipsing the 1 million mark for the first time (1.16 million, including Acura). Non-domestic sales leader Toyota U.S.A. saw sales increase by 9.7% to 1.6 million. Volkswagen, BMW, Mitsubishi, Suzuki, Subaru, Hyundai, and Kia all enjoyed double-digit sales growth in 2000. Mercdes-Benz sales were up 8.5%.
 The VUE gives Saturn a place in the SUV market. |
According to the U.S. Department of Commerce, the Big 3's share of U.S. car and non-commercial light truck sales slipped from 68.3% in 1999 to 65.4% in 2000, the largest dip in at least the past five years. Sales of Japanese models are skyrocketing, with a full 1.5% market share gain from 1999 to 2000. Korean nameplates accounted for 2.7% of sales in 2000, up from 2.0% in 1999 and just 1.0% in 1996. Korean and Japanese automakers as groups each gained another 0.5% share in the first two months of 2001 while American models are down to 64.8%.
The results of a subscriber survey in the April issue of Consumer Reports indicate that while U.S. makers have made great strides in improving the reliability of their products, they still trail their Asian and European counterparts. Chrysler, Ford, and GM models had 23 problems per 100 new cars and minivans; the figure for Japanese makers is half that.
Honda, Toyota, Nissan, and DaimlerChrysler's U.S. Mercedes-Benz unit are all expanding vehicle and/or engine production capacity in the U.S. as their portion of sales increase. Foreign automotive suppliers also see riches in America and are continuing to expand their U.S. presence. Bosch, for example, announced at the SAE 2001 World Congress that it hopes to triple U.S. sales by 2010.
By how much vehicle sales tumble in 2001 is anyone's guess. So is the number of sales conducted via the Internet, but the fact that each is going in opposite directions is not in dispute. According to J.D. Power and Associates, Internet reliance is on a steep upward trend (see graph). For automakers, the Internet is much more than a consumer tool; they are also using it to purchase parts from suppliers and to collaborate with them in the design of those parts.
FreeMarkets has established itself as a major player in automotive online auctions, providing services for Dana, Delphi, Eaton, Navistar, Pilkington, SPX, and Visteon, among others. Valeo announced in February that it will use the Pittsburgh-based company's B2B global marketplace to reverse auction more than $300 million worth of goods and services in 2001. By comparison, Covisint—the joint venture among the Big 3 and Renault/Nissan, Commerce One, and Oracle—was still searching for a CEO as of this writing.
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