The global economic disruption of the past few years has given way to a renaissance in the US automotive industry. Executives are optimistic about the industry’s future, despite current sales being down from the roughly 17 million vehicles sold annually during the last decade, according to a recent Booz & Company study. We believe this optimism is due to companies learning to grow smartly, without letting capacity grow faster than natural market demand. In the future, suppliers and OEMs must remain disciplined and focused on generating profitable returns by reducing debt, investing in product/capital, and aligning supply with demand to ensure a bright future for the US automotive industry.
In a post-recession world, US OEMs and suppliers have regained strength and ingenuity, and are positioning themselves to be formidable competitors globally. The industry is at a watershed moment in history, and as a whole it will be shaped by four key factors in the next few years: the re-emergence of fundamental profit models, shifting demand centers, technology investment options, and an interconnected supply chain.
Suppliers and OEMs must remain disciplined and focused on generating profitable returns by reducing debt, investing in product/capital, and aligning supply with demand to ensure a bright future for the US automotive industry
The US automotive industry emerged from the recession with a ‘back to basics’ approach, focused on embedding world-class processes to strengthen balance sheets, build vehicles that excel in quality and performance, and keep supply from outpacing demand. Executives are optimistic that the current state of the industry is “much better” or “somewhat better” than last year – 94% of OEMs and 92% of suppliers, respectively, gave those responses. If manufacturers remain disciplined, the industry can achieve consistent levels of profitability at lower annual sales volumes.
Emerging markets have strong growth prospects in the long term – 53% of respondents project a US market share of 4% or more for Chinese OEMs by 2020. OEMs must preserve their competitive position in established markets while funding investment necessary for longer-term growth elsewhere. To that end, they must gain a greater understanding of the requirements, dynamics, and needs of emerging markets, and they must assess how best to compete in markets with fundamentally different economics, consumers, and competitors.
If US OEMs can continue to develop innovative technologies with discipline and preserve the efficiencies they fought to implement, the industry will be smaller, but will remain cost competitive with the most efficient car markets in the world
Alternative powertrains, specifically full and mild hybrids, will continue to gain market share, but their continued success will remain dependent upon government support. Other technologies will also play a key role in vehicle production; the difficult part will be deciding in which technologies to continue investing.
When recent disasters struck, such as the Japanese tsunami and floods in Thailand, the limitations of a lean and highly interconnected global supply chain became excruciatingly evident. OEMs and suppliers must find new ways to anticipate, and with greater agility manage, future global supply chain disruptions.
If US OEMs can continue to develop innovative technologies with discipline and preserve the efficiencies they fought to implement, the industry will be smaller, but will remain cost competitive with the most efficient car markets in the world. Most importantly, it will sell higher-quality cars at greater profitability.
The opinions expressed here are those of the author and do not necessarily reflect the positions of Automotive World Ltd.
Brian Collie and Scott Corwin, Partners, Booz & Company. For more information, visit booz.com/automotive
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