Carmakers need to fulfil three basic criteria to have a chance at financial success in the current economic climate. The first is to have a manufacturing system that offers the maximum amount of production flexibility possible in order to successfully respond to customer demand for a particular model.
Many OEMs have been following their individual technology paths for a number of years with the specific goal of increasing production flexibility. For example, in this issue’s Vehicle maker article (p.18), Hyundai/Kia and GM Daewoo are both looking into ways of building in even more flexibility into their already responsive, adaptable production lines. For example, the massive R&D division at Hyundai/Kia is (among other things) currently designing an eight-sided welding buck to double the number of different models that can be produced on a single line.
The second way that an OEM carmaker can take control of its own destiny in times of financial pressure is, quite obviously, to reduce costs. It’s a fairly safe bet that there is not one current OEM CFO that has not been working to reduce their company’s bottom line expenditure.
Some have been more successful than others at doing this. Ford has reported that it has recently completed a debt restructuring process, reducing overall debt by $9 billion and reducing annual interest payments on loaned money by $500 million (based on the interest rates available at the statement’s release).
On the other hand, Saab has filed for the Swedish equivalent of Chapter 11 bankruptcy in order to reach a serviceable agreement with its creditors. While no details have been released, should proposals fail to convince the court-appointed overseers of the company’s viability, the famous marque could go into liquidation within months. The third part of the plan is getting customers to buy your product. Put bluntly, scrappage incentives work. Backed by the Italian government, a scrappage scheme almost singlehandedly saved Fiat in the late '90s and March 2009 car sales in Germany rose 40% on the back of a similar plan. Additionally, incentives such as US Hyundai’s unemployment insurance scheme (lose your job, bring the car back) is proving a hit. Of course, key to that is making sufficient numbers of desirable vehicles. While the GM Volt (Ampera) or Tata Nano might demonstrate their respective companys’ forward thinking, supply of both models is likely to fall far short of demand.
Which brings us back to the first point of flexibility. If a company hits a winner, a sales ‘home-run’, production lines building comparatively dissimilar models should be able to switch model output in a timely manner to take advantage of the market. Were that not possible, it would simply amount to a missed opportunity, something which no OEM can afford.