Downside of Global Expansion

Downside of global expansion Optimierung globaler Produktionsnetzwerke in der Rezession Jost Kamenik Managing Consultant PA Consulting Group München, 24. März 2009 Throughout the last years, production capacities for Commercial Vehicles have been ramped up substantially Installed Production Capacities per Continent Europe Volume 2002 (thsd.) North America Volume 2006/7 (thsd.) 1 2 372 482 1 2 321 497 Asia South America 1 723 2 904 2002 2006 101 190 Source: - OICA (International Organization of Motor Vehicle Manufacturers) - Global Insight Automotive World Truck Industry Forecast Report, March 2005/7 © PA Knowledge Limited 2008. Page 2 In 2007 / 08 this has led to a high level of plant utilisation, averaging at approx. 90% for OEMs from high-cost countries Benchmark Plant Utilisation High Cost OEM in % 98 98 97 96 Average 92 94 86 90 86 84 84 85 82 OEM 1 OEM 3 OEM 5 OEM 7 OEM 9 OEM 11 OEM 13 OEM 2 OEM 4 OEM 6 OEM 8 OEM 10 OEM 12 © PA Knowledge Limited 2008. *Source: Annual Reports; PA Benchmark Analaysis 2008 Page 3 While differences in plant utilisation appear to be minimal, impact on cost per vehicle is substantial with delta between “Best” and “Worst” at > € 800 / vehicle Cost of Fixed Assets (€ / unit) Financial Delta per year (€ / unit) ∆ to ∆ to Average Region average best Best Practice OEM 1 -343 0 OEM 2 -303 40 OEM 3 -289 54 Better OEM 4 -272 71 then OEM 5 -174 169 Average OEM 6 -159 184 OEM 7 -69 274 OEM 8 121 464 OEM 9 133 476 Worse OEM 10 168 511 then OEM 11 297 640 Average OEM 12 411 754 OEM 13 481 824 500 700 900 1.100 1.300 1.500 Source: - Volume: OICA (International Organization of Motor Vehicle Manufacturers) - Capacity: Assumption based on Volume from 2002 to 2006 (or 2007) © PA Knowledge Limited 2008. Page 4 The impact might even go far beyond this due to radically falling sales numbers combined with critical investment decisions to be taken – now! Development Profit vs. Growth Comments (2006-2007) With global economies now being confronted with impact of downturn, questions arsing for production departments are substantial: – What will downturn mean for future volumes? – How to arrange current and future portfolios best across global plants? – Where to allocate future investments best? – What will this entirely mean for production cost per vehicle? Cost Impact? Investment Impact? © PA Knowledge Limited 2008. *Source: Annual Reports; PA Benchmark Analaysis 2008 Page 5 Over-capacity results in > € 30m of additional cost for average European OEM Possible Scenarios for an average European OEM (in cost of fixed assets per vehicle) • Compared to benchmark, the Scenario 1: Worst 1.392 average European OEM has a 1.