In the previous posting of Beyond the KM, we took a look at the competition that the European automakers from Peugeot to Porsche will face in the coming years. We examined some of the East Asian manufacturers and assessed their strategies in Europe. In this installment we will suggest some strategies that the automakers might employ to fight off the increasing competition from Asia.
First, the marketing must change at European carmakers. Mercedes-Benz, for example, will see competition in the form of a Chery – Chery Automobiles of China that is. As noted in part 1, pointed out before, Chery will compete on price. Mercedes-Benz could never be profitable producing their vehicles and then selling them for $20,000. They require higher costs and profit margins. As a result, Mercedes and BMW must offer superior channels for delivery of vehicles, offer more models to fit as many niches as economically possible, and they must offer as much customization as possible, and they must develop a special connection with owners to retain current customers and gain more. These factors are essential to not just grow the market, but to retain market share in the face of stiff, price-based competition.
A second strategy that the automakers must focus on is innovation. Innovation does not mean BMW’s iDrive (few people find it fun OR enjoyable to spend five minutes “configuring” a car in order to turn it from mild mannered coupé into deadly beast). The innovation will not just come from more computers that interfere with driver usability, rather the innovation will come in the form of safety systems, handling improvements, design improvement, and improvements in drive train. Most importantly in the coming years will be improvements in engine technology that allows for more fuel-efficient engine designs and later the implementation of alternative fuel engines such as hydrogen.
Third, auto service must become increasingly important to the Europeans. Not only do they have the home field advantage, the companies have existing service centers. Additionally, service is typically higher profit than new car sales. Additionally examine, the highline car market. The average profit for a domestic car in the U.S., of which tens of thousands are made each year compared to the Porsche 911, which has fewer and far more customized vehicles, is vastly different. A Ford dealership may make just a few hundred dollars, but a new Porsche can make thousands because it is more exclusive, higher priced, and a very customized vehicle.
In another example, BMW has a service program called BWM Ultimate Service, available only in the U.S. This program should be offered everywhere because it really puts BMW in a class of its own in the way it deals with the customer. Any problem is easily taken care of, no questions asked. This allows the service departments at dealerships to run like cogs in a well-oiled machine. Service is where the profit is and will be in the future, car companies must embrace this.
Another area that will require change in the future will be on the part of government. Government changes must take place at the national and international levels. Tax laws must favor automakers and suppliers both. Labor laws must become less restrictive and more flexible as the market changes. Import laws must also be modified to handle imports from China. The European Union must take notice now so as to allow proper time for discussion.
Finally, the labor force must change. Germany’s automakers are some of the least product in the world. Only recently did VW force its unions to make its members more flexible in the hours it works. Until the recent agreement, VW workers were working under 29 hours per week and were the highest paid in the world! In addition to flexibility of the workers, the work forces in the EU and even U.S. must become smarter. Education levels are rising and the “blue collar” work is the worker of yesterday. In the future, workers will have to be mentally more flexible and be more innovative in the way they work.
