MAIN PAGE | EVENTS & PROGRAMS | 2001 | IGM | SPEECHES | RUDOLPH A. SCHLAIS, JR.
PACIFIC BASIN ECONOMIC COUNCIL
MAIN PAGE | EVENTS & PROGRAMS | 2001 | IGM | SPEECHES | RUDOLPH A. SCHLAIS, JR.
Regional Vitality in the 21st Century
April 6-10, 2001 — Tokyo, Japan
Mr. Rudolph A. Schlais, Jr.
Strategic Reorganization in the Global Automotive Industry Slide 1 Thank you for your kind introduction. It is a pleasure for me to be on this distinguished panel of industry leaders. GM is honored to once again be a part of this year's meeting. Our topic today is the "Strategic Reorganization of Global Industries." It's appropriate. The four of us are all involved in industries, automotive, insurance, banking and electronics, that have seen major restructurings. Slide 2 Those of you who have been following the automotive industry over the past few years are no doubt as amazed as I am about the rapid consolidation that has been taking place. Many experts predict that by the end of this decade there will only be a handful of global automakers. Slide 3 When the topic of Global Reorganization is discussed, people traditionally think in terms of same-business to same-business. In my industry, we generally discuss the tie-up of automaker to automaker. What we hear less about is the ripple effect such tie-ups have among the huge supplier base. And, what we rarely hear about is how traditional industries are being reorganized along non-traditional lines… how seemingly strange bedfellows are allying themselves to create new businesses, new products, new services and most importantly new revenue streams. I'm talking of course here about bricks and clicks… in our case, the aligning of automakers with Internet or communication companies. This afternoon, I will take a look at all three strategic reorganizational trends… (Pause) Consolidation has always been a fact of life for the automotive industry. General Motors came into existence in 1908. And between 1908 and 1910 GM acquired 25 companies. Admittedly, things slowed down significantly for eight decades or so, but in the last few years, the pace seems to have returned to those days of GM's founder Willy Durant. Slide 4 Mr. Durant theorized almost a hundred years ago, what has become an accepted dictum of the industry today. And that is "No automaker can remain viable very long if its strength is based in one country, in one region, or in one market segment." Slide 5 Today's consolidation is of course driven in large measure by globalization. With reduced barriers, industries are scrambling to take advantage of the huge economies of scale now possible. In addition, because our industry is a "Big Cash" industry, funding new technology to respond to consumer demands, safety requirements and environmental concerns are also key drivers. This cost and investment pressure in the auto industry has forced global rationalization. Today, there's a general realization that big is good … and big, fast and diverse is even better. Companies that want to remain competitive, therefore, have two basic options:
Slide 6 General Motors, for the most part, has chosen the latter strategy for a number of reasons. This rationalization can be painful. It's definitely not for the faint hearted. The argument that the result of this rationalization is a consolidated industry centered and manufacturing in a few countries and exporting all over the world is a myth. It just doesn't work that way. The reality is that "national brand" characteristics and "nation of origin" matter to the customer. The reality that customer expectations vary dramatically from country to country and that local sourcing and local manufacture is critical to safeguard against the effects of currency fluctuations and policy issues. In order to address these issues, some companies have taken the approach of acquiring or merging and then trying to assume or at best retain the acquired company's brand characteristics. To complicate this further, the acquirer forces its business culture on the acquired company. Sound complicated? It is. Slide 7 General Motors has taken a different approach. We went after collaboration not control. We went after win-win, not win-lose. We went after strategic cooperation, not tactical one-off commercial venture. In essence, we took an Asian approach based on relationship, trust and respect. Beginning in the early 1970s, GM entered into a number of steady, long-term relationships with other global automakers. Slide 8 Today we own:
We refer to this group of independent companies as "The GM Network." GM did not randomly choose these four companies. We looked for firms that complemented our own strengths here in Asia and around the world. Of course, our alliance partners were looking for the same thing. Let me discuss briefly how our alliance strategy is paying off for General Motors in Asia Pacific. Slide 9 First, our alliances are indeed making GM bigger and more diverse. They are making us faster. They are helping us expand in Asia, where we have not been as strong compared to the Americas and Europe. On our own, GM has a share of around 4 percent of the Asia Pacific market. If you add in our four alliance partners, our market share grows to just over 18 percent. On a global basis, GM accounted for 8 percent of the under U.S. $10,000 dollar market in eight key countries; with our alliance partners the total was 34 percent. Our alliances are helping us do far more than we could accomplish on our own - by the power of four - and giving us a foothold in nearly every key market in the region … especially in those where we are a small player, such as here in Japan and in India. Slide 10 Second, our alliance partnerships are giving GM and our partners the ability to deliver products and services faster than we could by going it alone. An example is the YGM-1, which we will begin manufacturing and selling in Japan in September. GM and Suzuki developed the product especially for Asia in an incredibly short amount of time. The YGM-1 is just the tip of iceberg. We are also cooperating with our alliance partners in sales and distribution in markets across Asia. Globally, we have begun to coordinate platforms, powertrains and purchasing. Slide 11 A third benefit of our alliance strategy is it is providing us many of the same advantages of an acquisition - without the complications of a full merger. DaimlerChrysler is a case study in the difficulties of full mergers, especially those involving companies from different countries. In many cases, alliances are the only form of cooperation that other companies will consider, which was the case of Fiat and Fuji Heavy Industries. Slide 12 Finally, our alliance partners address the "national brand" characteristic and "nation of origin" issues. Isuzu, Subaru and Suzuki are all strong brands with a sizable presence in this region. These companies have innate understanding of the market … and this has proven invaluable as we prepare to launch new products and expand into new markets. Our alliance strategy is working for GM in Asia Pacific and working well and we've just begun to tap the potential. Slide 13 The consolidation among automakers has had a strong effect with similar intensity up and down the value chain. It has set off a series of mergers and acquisitions and alliances in the parts and components industry. The result is a major reorganization of both Tier 1 and Tier 2 suppliers. Let me back up. For a long time, smaller suppliers were able to compete alongside the major players such as Delphi, Visteon and Johnson Controls. Times are changing. Slide 14 Companies like the GM Network and the Toyota Group are looking for suppliers that can provide product and logistics expertise anywhere in the world. We are seeking companies that can supply our global operations, from Detroit to Shanghai. Slide 15 As a result of the improved economies of scale as a result of supplying several automakers on a global basis rather than one on a local basis improves your cost picture significantly. Incidentally, a saving that we the customer wants to share in. DaimlerChrysler caused a major outcry among suppliers earlier in the year when it demanded a price cut of 5 percent across the board. Slide 16 Another force behind the global supplier reorganization is that companies are looking to buy pre-assembled modules rather than individual parts. This makes it easier for automakers to build-to-order - to produce the individual configuration that meets the requirements of today's Internet consumer. Build-to-order is still a small portion of the market, but it is going to really take off because this is what consumers are telling us they want. Slide 17 Meanwhile, automakers are demanding innovation from their suppliers. We are looking for the next "big" or "new" technology such as programmable seats, smart controls and head-up displays that will give us a leg up on the competition. This, of course, requires a significant amount of investment in R&D on the part of suppliers. Companies like Lear, TRW and Delphi have been aggressive in seeking alliances among smaller local firms. At the same time, automakers such as GM, Ford - and increasingly Japanese companies - have been divesting themselves of their parts businesses. Slide 18 According to a recent report, only 25-30 Tier 1 suppliers will exist by 2010. Today there are more than 600. Tier 2 suppliers are also expected to decrease from the present 10,000 or so to about 800 by the end of the decade. Definitely significant changes are taking place. And, they are taking place in non-traditional ways. Slide 19 The third reorganizational trend, and the most profound, is the non-traditional. How many of you have cars that are connected to the Internet or have used the Internet to purchase a car? If I asked you to raise your hands, I'm sure not too many of you would. But if I were to ask this question five years from now, I am sure almost all of you would have your hands raised. Slide 20 GM believes strongly in the power of the Internet, and we and our competitors are reaching beyond our own industry to position ourselves to take advantage of the possibilities inherent in e-commerce. Last year alone, 857,000 GM vehicle sales worldwide resulted from online leads. That's more than $8 billion dollars of revenue. And, that's enough to convince me that we are on to something. Slide 21 But as is the case with the other two trends, we've learned in the e-commerce arena, we cannot go it alone. E-business demands new core competencies - in both technology and customer relationships - that are broader than any one company. So we've formed alliances of a different nature. We've forged alliances with major portals like AOL, e-Bay and NetZero; with infomediaries like Kelly Blue Book and Edmunds; and with relationship-building Web sites like Black Voices and College Club…just to name a few. Last week we announced a new joint venture with Sun Microsystems to deploy the latest Java-based operating system as part of B2C efforts. In effect, we're racing to cover all facets of the Internet. AOL and GM, for example, will develop new products and services that will permit consumers to use the Internet and interact with dealers … in essence, to assist them throughout the entire ownership lifecycle online. With our alliances, GM does not have to replicate customer relationships. Instead, we leverage them. In the process, we can achieve great cost savings and great new revenue possibilities. In fact, we're focused on revenue…on results. We like to differentiate ourselves along these lines. We like to say we're not a dot.com. We're a dot.corp. Think about it. Slide 22 The car is becoming part of the communication process, an Internet portal on wheels. Wireless telecommunications are linking the vehicle to consumers whether they're at home, at work, or traveling in between. Systems like GM's OnStar communications system are bringing the Internet into the automobile. Again, automakers and suppliers are tying up with those companies that have the expertise to improve the technology and expand the array of services. Today we have nearly one million active OnStart subscribers. We expect to have four million subscribers by the end of 2003. And you can expect to see more strategic reorganizations among global auto makers and e-com, dot.com and telecom companies. I think we have only begun to scratch the surface of possibilities. Conclusion Slide 23 As you can see, the automotive industry is rapidly reorganizing. And we're going in new directions. The new alliances and partnerships are helping us achieve far better cost efficiencies than ever before. They are helping us introduce newer, more advanced technology around the world more quickly. And they are allowing us to better meet the needs of customers. In other words, they are changing the way we do business. Slide 24 And the lesson for us in the room is that we need to anticipate these trends, decide where we want to go, then get into the driver's seat, put our hands on the steering wheel, our foot on the pedal, and get out on the highway. The future awaits. Thank you. |
![[ Regional Vitality in the 21st Century ]](../logo128.jpg){kind=logo}