Auto Manufacturers, Suppliers Fail to Profit From Decade of Vehicle Improvements

Inefficiencies, structural issues loom, but new capabilities, collaborative relationships promise transformation by 2010, says Accenture, CAR research

DETROIT, December 10, 2001 – Automotive manufacturers and suppliers have teamed to significantly increase car features and safety, but these improvements have not registered on the industry’s bottom line, according to Estimating the New Automotive Value Chain, new research conducted by Accenture, in collaboration with the Center for Automotive Research (CAR) in Ann Arbor, Michigan. This comprehensive research, however, also reveals a path for the industry to rebuild its capabilities and signficiantly enhance outcomes by the end of the decade.

According to the research:

Challenges Increase
The research identified two reasons for this state of affairs: the failure of automakers to address the inefficiencies of their business model and the inability of the industry to recognize and address the structural changes that have destabilized the industry since the late 1980s.

"To say that the entire auto industry is operating under a broken business model is a gross understatement," said David Cole, director of the Center for Automotive Research. "With manufacturers plagued by operational and financial woes, suppliers asked to do more for less and cash reserves dwindling rapidly, the industry is in a state of significant instability, with many companies near the breaking point."

Automakers’ inefficiencies are most visible in the areas of product development, sales and marketing and capital expenditures. Automakers saw their marketing and sales costs balloon $650 per vehicle over the last decade, while their capital expenditures and product development costs increased $150 and $250 respectively per vehicle over the same period.

Getting Back on Track
"The good news is that manufacturers and suppliers have the ability to cure what ails them," added Barba. "The process will be far from simple or quick, but they can succeed with focused, well-executed strategies."

Suppliers, he continued, could achieve 25+ percent market share by determining methodically where and how they will compete. To this end, they should analyze each business line for its growth potential, determine whether it fits with their core technology capability and understand its return on assets and competitive intensity. Specifically, they should:

Similarly, automakers should:

Better and Stronger by 2010
"If automakers and suppliers devote their energies to making needed changes, the industry will look noticeably different in the next 10 years," predicted Barba.

There will be fewer suppliers in the future, and those that remain will be bigger and have deeper capabilities than even the best companies today. Because of the value that they contribute, they will also have more leverage and better, more collaborative working relationships with automakers.

By 2010, some automakers will no longer exist, and some will be smaller, producing fewer brands to maximize returns on product development. Their primary areas of expertise will most likely be design, assembly and marketing. They will focus on improving overall operating models, particularly in supply chain management, working with major systems suppliers to allow both better margins and real innovation. Automakers will carry little excess capacity, and what they have will be more flexible and modular.

"With leaner, more focused operations, automakers will also improve the efficiency and return on key processes and functions, such as product development, marketing and sales," concluded Barba.

Estimating the New Automotive Value Chain is a six-month study conducted by Accenture, in collaboration with CAR. The study quantified industry performance and assessed the degree of instability and its genesis. It is based upon an analysis of public, industry and government data, as well as in-depth interviews with automaker and supplier executives in the finance and strategy areas.

About The Center for Automotive Research
The Center for Automotive Research (CAR) was FORMED in October 2000 at the Environmental Research Institute of Michigan (ERIM). Its purpose is to conduct research in significant issues related to the future direction of the global automotive industry and organize and conduct forums of value to the automotive community.

About Accenture
Accenture is the world’s leading management and technology consulting organization. Through its network of businesses approach — in which the company enhances its consulting and outsourcing expertise through alliances, ventures and other capabilities — Accenture delivers innovations that help clients across all industries quickly realize their visions. With more than 75,000 people in 47 countries, the company generated net revenues of $11.44 billion for the fiscal year ended August 31, 2001. Its home page is