Automotive industry: Turning the crisis into an opportunity

SALES AGENDA 2009/2010 Turning the crisis into an opportunity How the automotive industry can leverage current Sales organizations that leverage current pressures and market pressures and exploit potential in sales and systematically exploit the widespread potential that still distribution. exists will be the winners. They will emerge strengthened from the present crisis. Entitled "The automotive industry's last pot of gold"1), our first in a series of Europe-wide studies on automotive Why manufacturers must act now excellence was published in mid-2007. In that study we looked at sales and distribution and defined the key The downturn in the world economy triggered by the action fields that would cut costs while achieving financial crisis affected both mature and growth markets. sustained increases in both customer satisfaction and The automotive industry has been hit very hard, especially sales. since it was already in trouble and suffering from structural problems (overcapacity, overcrowded dealer networks, The structural problems within car distribution were etc.). The situation was exacerbated by a further collapse deepening. Pressure to act was building not only on in demand in 2009 – but cushioned by various scrappage manufacturers but also on the wholesale and retail schemes in major markets. Nevertheless, the crisis already level of the automotive industry. had done its damage, e.g. in Germany: The onset of the economic crisis and resulting slump > Up to 87,000 jobs (8% of workforce) in the German in sales worldwide in recent months makes the issues automotive industry are at risk of being lost between we dealt with back then even more critical. And this is 2008 and 2011 creating new challenges, like the dramatic piling up of car stocks or the growing threat of insolvency facing > Due to deteriorating company results OEMs have strategic trading partners. already adjusted their capacities and reduced their workforce by more than 14,400 employees (as Germany's green trade-in incentive scheme did bring relief announced until August 2009) in 2009 especially to the makers of economy and midsize cars, but the incentives will only push the sales problem > Along with the OEMs also the German supplier industry forward into 2010, unless the economy takes off again. has already announced the loss of approximately 12,500 jobs (as of first half 2009) The question we now pose for auto distribution is: "If not now, when will things be turned around?" This is > And despite the government incentive programs, the the central topic of our Sales Agenda 2009/2010, which number of OEMs sales partners went down by 600 identifies seven action fields and develops solution- until the end of Q1/2009 oriented initiatives. The search for quick ways to cut costs and raise per- Most of these actions are well-known. But what has so formance soon leads management to look at sales and far been lacking is the resolve to put them into practice distribution. For here lies enormous potential for improve- in a highly focused manner. The time has come to get ment. In Europe alone, the costs of distribution and service this done. amount to almost EUR 100 billion – or about one third of the price of a car. This can be illustrated with an example that in the current situation is more relevant than ever: 1) Available on request from Roland Berger Strategy Consultants 4 SALES AGENDA 2009/2010 Given this situation in automotive distribution, it is The Agenda identifies seven key action fields for change in imperative for the industry to maintain its strengths and auto distribution that can boost earnings in the short term. eliminate weaknesses. This process of change must be The potential gains will vary from manufacturer to manu- supported and accelerated by focusing on the right facturer. In the long term, they will enable the players action fields. For this purpose, Roland Berger Strategy to break out of the vicious circle of overproduction, Consultants has drawn up the Sales Agenda 2009/2010 – overcrowded retail networks and low profitability. in collaboration with experienced sales managers from the industry and representatives of selected dealer groups. 5 SALES AGENDA 2009/2010 The Sales Agenda 2009/2010 – Action fields and Action field 5: Professionalizing sales at the point potential of sale Despite the countless initiatives already taken, there is Looking at the current situation in the automotive industry, still scope to improve sales performance at the POS by up we have prioritized seven action fields. They cover what we to 10%. Surveys show that 60% of a dealership's regular see as the decisive levers in automotive distribution and clientele do not receive ongoing customer support in the are intended for manufacturers and dealers alike. We have run-up to their next car purchase. also developed a set of solution-oriented initiatives that, if implemented, will contribute to achieving the earnings Action field 6: Streamlining the wholesale level potential mentioned above. The action fields and potential The aim of actions in this field is to cut overhead cost at in detail: the wholesale level by up to 40%. The goal is above all to generate synergies by pursuing Europe-wide centralization Action field 1: Reducing new car stocks or bundling administrative functions at the regional level. Actions in the first field are designed to shorten the inventory periods for new and nearly-new cars from today's For many of the actions in the above fields to be three months (based on one year's output) by up to 30%. implemented effectively, there must be a sufficiently large This would allow the inventory period to fall back to a pool of customers and prospects. Auto brands that lack normal level of about two months (depending on the way this critical size will first have to work at raising their stocks are counted). It is also important here to ensure profile in terms of customer recognition. Only then can that reasonable inventory periods are maintained after they benefit from steps to make sales more professional. the various government's trade-in incentive schemes has The following, additional action field is designed ended. specifically for those brands. Action field 2: Professionalizing the used car business Action field 7: Positioning and developing the brand The aim of actions in this field is to reduce the average The point here is to ensure that potential customers inventory periods for unsold used cars. At present, used looking for a car will actually take notice of the brand cars are sitting in dealerships for at least 100 days and and see it as relevant to their choice. So the main task this period can be shortened by as much as 25%. And, of initiatives here is to improve brand attractiveness as in action field 1, reasonable inventory periods must and brand recognition. be maintained after the trade-in scheme has ended. All seven action fields must be tackled consistently and Action field 3: Restructuring the dealer network the initiatives they contain implemented in full. Only then A powerful dealer network is essential to raise sales can distribution costs be significantly reduced in the long performance. But this can only be achieved by reducing term and sales performance improved. Our analyses show network density, through takeovers and consolidation, that a medium-term cost-cutting potential of up to 12% for example. However, the actions in this field also aim exists for both manufacturers and dealers. We also to permanently boost network profitability. estimate that the negative impact of collapsing sales can be halved by systematic efforts to develop the Action field 4: Expanding the service and parts business market.