You are on page 1of 32

AUTOMOTIVE

Automotive Competence Center Client Magazine > Study: Automotive Landscape 2025 > Interview: Michael Dinter, Partner, AS&P Albert Speer & Partner GmbH > Young Mobility Survey 2011: Shift in Young Mobility

No. 01_2011

Editorial

Contents
A look around the world 3 China: Development prospects for China's car rental industry

Dear Reader, The automotive industry has recovered quickly, so now is a good time to look a little further down the road. Accordingly, this issue of Automotive inSIGHTS centers on the automotive world in 2025. Our recent study "Automotive Landscape 2025 Opportunities and challenges ahead" identifies five megatrends that, in the coming years, will likely trigger the most far-reaching upheavals in the history of the industry. Drawing on the findings of the study, we spell out the ten greatest challenges and opportunities that lie ahead. In relation to the same study, Michael Dinter, Partner at AS&P Albert Speer & Partner GmbH, explains how these ten key implications for the auto industry will impact his work as a traffic and urban development planner. The current issue also gives you insights into our "Young Mobility Survey 2011: Challenges and opportunities". Unlike the Automotive Landscape 2025 study, which focuses on the future, the Young Mobility Survey 2011 concentrates on the here and now. It investigates the extent to which the expected change in mobility patterns is already discernible today. Scenario planning, a vital tool with which to forecast potential consequences for existing product portfolios, is likewise featured in this edition of Automotive inSIGHTS. I trust that you will find this publication informative, practical and entertaining. I look forward to hearing your views and discussing your questions. I wish you inSIGHTful reading. Kind regards,

Study 12 Automotive Landscape 2025 Interview 18 Michael Dinter, Partner AS&P - Albert Speer & Partner GmbH Shift in Young Mobility 20 Young Mobility Survey 2011: Challenges and opportunities Books & Studies 26 Famous cars: Porsche 911 G50 Scenario planning 28 An essential tool for long-term success in a rapidly changing automotive industry Contacts Automotive Competence Center worldwide

Ralf Kalmbach

Published by: Roland Berger Strategy Consultants GmbH, Mies-van-der-Rohe-Strae 6, 80807 Munich Editors-in-chief: Ralf Kalmbach and Ralf Landmann Editors: Dana Rehfu and Roland Berger Language Service Layout: RB_DesignTeam Printed by: Girodruck, Hamburg Circulation: 3,500, published three times a year No reprints without prior permission of the publisher

A LOOK AROUND THE WORLD


Development prospects for China's car rental industry

1. A brief history of China's automotive industry China's automotive industry has experienced spectacular growth since 2000, expanding by a factor of ten in the first decade of the new millennium. In 2009, it surpassed the US to become the world's largest market. In line with a sharp increase in private vehicle purchases, passenger cars' share of the overall industry grew from 34% in 2000 to 63% in 2010. This development is all the more astonishing given that private car ownership was virtually non-existent not so very long ago. Until 2000, passenger cars were owned mostly by government institutions, state-owned enterprises and taxi fleet operators. They were classed as assets for "revenue generation" rather than for private use. The table below summarizes some of the key numbers for the Chinese auto industry since 1990.

2. Origins of and growth in China's car rental industry China's car rental industry dates back to the Beijing Asian Games in 1990, when it was launched to cater to the transportation needs of foreign reporters and the employees of foreign diplomatic missions. Gradual, low-profile development then followed in the four cosmopolitan cities of Beijing, Shanghai, Guangzhou and Shenzhen. The practice of renting cars did not begin to catch on in other big Chinese cities until after 2000. According to Roland Berger's estimates, the total rental vehicle fleet in China reached about 140,000 units in 2009 and generated revenues of RMB 13.4 billion. In line with the strong growth experienced by China's automotive industry, the car rental industry entered a rapid growth phase between 2005 and 2009, delivering a compound annual growth rate of around 28%. The car rental industry is now expected to grow by 25% per annum, reaching 400,000 units in 2014 and generating revenues of RMB 38 billion (Figure 1).

1990 1995 2000 2005 2010 GDP per capita 341 at current prices [USD; IMF data] Passenger car (PC) sales [million units] 0.05 601 946 1,726 4,283 (est.) 3.3 11.8

0.5

0.8

PCs as % of total 44% car sales Approx. no. of PC brands 25

32% 40

34% 45

58% 80

63% 100

A LOOK AROUND THE WORLD

Increasing passenger car ownership is the key growth driver Experience in other markets indicates that growth in passenger car ownership has helped to spur the growth of the car rental industry. The rapid increase in passenger car ownership in China has created a large pool of potential consumers for car rental services. China's vehicle ownership has grown by 30% in the past five years, providing a forceful boost to the car rental industry. The car rental penetration rate is a key metric that reflects relative market maturity. Right now, China's car rental penetration rate is about 0.4%, lagging far behind Japan, the US and other developed markets. It also lags behind emerging markets such as Brazil (Figure 2).

Taxis versus rental cars Data from key countries indicates a strong substitution effect between taxis and rental cars. The higher the average taxi fare, the better developed is the country's car rental industry. The US is a good case in point. Conversely, rental cars offer no clear advantage where average taxi fares are low, which is the case in China. However, given that the average taxi fare has been increasing at about 5% a year, we expect the rate of car rental penetration to increase over the next few years (Figure 3). 3. Uniqueness of market and segment characteristics Heavy market concentration in tier-1 cities China's car rental industry is currently concentrated in four cities Beijing, Shanghai, Guangzhou and Shenzhen due

A LOOK AROUND THE WORLD


to higher purchasing power and higher car ownership and usage rates in these localities, which together account for about 60% of car rental revenue in China. The overall penetration rate for rental cars in these four cities is close to 1.3%, approaching that of developed countries. Many larger car rental companies operate in these four cities, including Shouqi and China Auto (Shenzhou) in Beijing, Dazhong, Yongda and eHi in Shanghai, and Topone (Zhizhun) and Longyaodi in the Guangzhou-Shenzhen region. Car rental services in tier-2 and tier-3 cities have also experienced strong growth in the past few years. Overall, these cities boasted a compound annual growth rate of 35% between 2005 and 2009. In the same period, their share of China's total car rental industry rose from 30% to 40%. Chengdu, Hangzhou and Xiamen have witnessed rapid market expansion and the emergence of many new car rental companies. Based on official statistics, the number of cars for rent in Xiamen more than doubled from about 2,000 in 2007 to about 5,000 in 2009, almost exceeding the total number of taxis available in the city. Supported by strong demand from self-drive tourists traveling around Xiamen, the short-term car rental segment (see segment description below) has grown rapidly and is approaching the size of the long-term rental segment (Figure 4). Fragmented, inhomogeneous markets At the present time, China lacks clear national rules and regulations to govern the car rental industry. Various aspects of this industry such as the nature of the business, tax rates, the legal status of chauffeurs, the commercial classification of rental cars, etc. are not yet clearly defined and therefore cannot be enforced consistently throughout the country. In view of this regulatory void, various local provincial and municipal governments have enacted their own rules to govern the car rental businesses in their territories. This has resulted in fragmented and inhomogeneous market development across China. The city of Xi'an, for example, has the most stringent regulations of all Chinese cities. Its car rental industry is regulated by rules similar to those that govern the taxi industry. All car rental companies are regulated by the car rental industry association and are required to provide a similar set of service standards and operate the same fee structure. By comparison, car rental services in Zhejiang City are only lightly regulated. Since the rule requiring car rental companies to have registered capital of at least RMB 5 million was abolished in 2005, lots of small car rental outfits began springing up almost overnight. This too has resulted in a highly fragmented market populated by companies that offer products and services of varying standards.

A LOOK AROUND THE WORLD


Unique market segmentation China's car rental industry is in many ways unique. Essentially, it can be broken down into long-term and short-term rental segments. The short-term car rental segment can be further sub-divided into chauffeur-driven and self-drive services (Figure 5). Long-term car rental Long-term car rental is currently the mainstream market segment and accounts for about 70% of the total industry. This contrasts sharply with developed markets such as the US and Europe, where short-term car rental accounts for more than 90% of the industry. The corporate sector is the main customer for long-term car rental services. Renting vehicles instead of buying and owning them helps companies to save on assets and financing costs. It also helps to reduce capital expenditure. As growth in short-term rental accelerates, long-term car rental is expected to see its market share decrease. Even so, it will continue to account for the lion's share of the industry for the foreseeable future. Short-term chauffeur-driven car rental Short-term chauffeured car rental services are almost unique to China and currently account for about 12% of the industry. In developed countries, this market is very limited, with the exception of special events and celebrations such as wedding ceremonies. Relatively low labor costs are one main reason why chauffeur-driven services are so widespread in China. In more developed cities, such as Shanghai and Beijing, it costs between RMB 3,000 and RMB 4,000 per month to hire a chauffeur. In tier-2 and tier-3 cities, the monthly cost is from RMB 2,000 to RMB 2,500. The development of this segment is uncertain as existing laws prohibit car rental companies from offering chauffeurdriven services. On March 17, 2011, China Auto Rental, a leading car rental company in Beijing, announced that it had voluntarily discontinued its chauffeur-driven service after its main competitor, eHi, was exposed by the state television company for illegally operating rental cars with chauffeurs. Institutional users are the main customers and account for about 90% of this segment. Private customers make up the remaining 10%. Foreign companies and indigenous small and mediumsized private enterprises are the main institutional users, accounting for 70% of the chauffeur-driven short-term rental segment. Instead of buying and owning vehicle fleets, these companies outsource their fleets to reduce capital expenditure, keep a cap on the non-essential headcount and reduce their administrative workload. Foreign enterprises typically use these rental cars to cover internal transportation needs, such as airport transfers and short business trips to nearby cities. On the other hand, ferrying clients is the main requirement for small and medium-sized private enterprises. Car rental companies are able to provide different vehicle models and on-demand chauffeur-driven services to meet the varying and intermittent transportation needs of these companies.

A LOOK AROUND THE WORLD


At the same time, these corporate customers (especially the private enterprises) are very conscious of the need to project the right company image to their business partners and clients. Accordingly, they typically prefer cars that are slightly more up-market, such as the Buick Regal, Buick GL8 MPV and VW Passat. Such business users are less sensitive to price but insist on high-quality service. It follows that, when car rental firms are able to establish good relationships with corporate users, the relationships tend to last for a long time. State-owned companies and government institutions make up a smaller share of the institutional users in this segment. Most of the transportation needs of these users are met by their own vehicle fleets. Occasionally, these institutions rent cars to cover vehicle shortages during peak demand periods or when VIPs require luxury vehicles for special purposes. These customers are more concerned with the reputation and size of the car rental company and do not tend to be sensitive to price. According to official statistics, the use of foreign direct investment (FDI) has been growing at a rate of 21% per annum, while the value of industrial output by small and medium-sized enterprises has been growing by 28% per annum. Roland Berger is optimistic that, as the business activities of these enterprises continues to grow, the chauffeur-driven short-term car rental segment will achieve an annual growth rate of 23% over the next few years, assuming that regulatory uncertainties can be resolved satisfactorily. Short-term self-drive car rental Although this is a very mature car rental segment in many developed countries, it has only recently taken off in China. Short-term self-drive car rental currently accounts for around 18% of the total car rental industry in China, with private customers accounting for roughly 80% of the segment. The remaining 20% of this segment is made up of institutional customers. Private customers rent vehicles primarily for leisure use. According to a study conducted by Roland Berger, more than three quarters of private customers rent vehicles for leisure travel or to visit relatives at weekends or on public holidays. About 60% of these private customers possess driver's licenses but do not own their own vehicle. Rather than traveling in guided tour groups, they rent cars so as to have greater freedom to choose their routes and carry extra belongings or travel gear. Car owners make up the remainder of the private customer group, renting cars for the simple reason that they sometimes need to carry more people. To do so, they either rent a bigger car or an additional one. Hiring a chauffeur-driven car is not an attractive option for private leisure travel as it is more expensive. The presence of a "stranger" the driver is another argument against this option. When renting vehicles, private customers attach greater importance to value-for-money and practical considerations. 74% of these customers prefer vehicle models with retail prices of under RMB 100,000, such as VW Santanas and Buick Excelles. Only 4% of private customers would rent vehicles that sell for more than RMB 200,000. The car rental company's reputation is another very important factor for this group of customers, as a good reputation is taken as evidence of a well-managed company, goodquality vehicles, clearly defined liability limits, transparent rental charges and peace of mind for the consumer. Official statistics show that gross national domestic travel expenses have been growing at a rate of 21% per annum since 2003. As this trend continues, as car rental penetration increases and as the car rental network improves nationwide, Roland Berger estimates that the short-term self-drive segment will grow at an annual rate of 27% over the next few years.

A LOOK AROUND THE WORLD


4. Competitive situation Competitive landscape A total of between 5,000 and 10,000 car rental companies were registered in China in December 2009. About 50% of these companies are concentrated in the four cities of Beijing, Shanghai, Guangzhou and Shenzhen. The average fleet size for these companies is less than 50 vehicles; 80% of them actually have less than 20 vehicles. China's car rental industry is very fragmented compared to that of other countries. The top ten companies together account for less than 11% of the industry, with the top 5 accounting for only 8%. The largest car rental company, Shouqi, accounts for less than 3% of the industry. (Figure 6). Key players The vast majority of large car rental firms are locally based companies that operate in just a single city or area. Examples of these companies include Dazhong, Jinjiang and Bashi in Shanghai, and Yinjian and Beichen in Beijing. Most of these companies began as taxi operators in their home cities and expanded into the car rental business later on. Long-term car rental typically contributes between 80% and 90% of their revenue. Car rental companies that operate nationwide include Shouqi, AVIS, eHi, China Auto (Shenzhou) and Topone (Zhizun). Shouqi and AVIS specialize in long-term rental and target medium-sized to high-end corporate customers. eHi, China Auto and Topone focus on the short-term selfdrive segment. In terms of target customers, eHi and China Auto cater to both institutional and private customers, while Topone targets medium-sized to high-end individual business customers. In addition, chauffeur-driven shortterm car rental accounts for a fairly sizeable proportion of eHi's business (see reference to eHi above). Developing a competitive strategy Making the right strategic decisions when a company is still in its infancy is crucial to build a successful business. Roland Berger has identified three elements that will help car rental companies operating in China to formulate and operate a winning strategy. Offering well-positioned products that address market requirements Roland Berger believes that the short-term rental segment holds out the highest growth potential and revenue opportunity for car rental companies. According to our market research findings, 48% of corporate customers and 74% of leisure-focused private customers in this segment prefer economy-class vehicles with retail prices of under RMB 100,000. In addition, the rental charge is the most important factor when consumers consider renting a vehicle. It follows that a car rental portfolio with lower-priced vehicle models or models with less extras will enjoy greater market potential.

A LOOK AROUND THE WORLD


Exploiting synergies among business segments Since renting out cars is a very capital-intensive industry, high asset turnover levels are critical to ensure profitability. For instance, the break-even utilization rate for short-term self-drive car rental service is around 60%. Keeping utilization rates reasonably high across both peak and non-peak rental periods is thus a key challenge facing short-term car rental operators. Roland Berger estimates that most short-term self-drive car rental operators enjoy utilization rates of 70% and higher at weekends, for the reasons discussed above. However, rental utilization rates from Monday through Thursday typically fall below 50%. Granting discounts on rental charges is the most common practice to encourage higher take-up during weekdays. For example, weekday rental rates for the Chevrolet Lova, a sub-compact sedan, can drop to as little as 10% to 15% of the regular rates. One strategy to resolve this issue is to identify vehicle models that can deliver synergies across different customer segments. Our research found that around 72% of self-drive private customers rent vehicles at weekends, whereas about 78% of chauffeur-driven customers travel on weekdays. Logically, therefore, offering vehicle models that are desired by both customer segments will result in high overall utilization rates. Our research also found that approximately 36% of institutional customers in the chauffeur-driven short-term rental segment occasionally also need self-drive rental cars as well. Hence, cross-segment selling can enable companies offering short-term self-drive services to tap this market opportunity to increase their utilization rates during weekdays. Potential synergies can also exist between the long-term and short-term car rental segments, as institutional customers tend to use the same car rental firms to provide both services in order to keep communication as simple as possible. Our research on institutional customers found that "providing a full range of services" is the second most important factor after rental rates. Car rental companies that provide long-term rental services can thus enjoy stable, longer-term revenue streams and mitigate uncertainties in their short-term rental business. Building a balanced network that provides both national coverage (scope) and necessary scale in key cities Discrepancies exist between the utilization rates in developed cities and those in lower-tier cities. In the four major cities of Beijing, Shanghai, Guangzhou and Shenzhen, the average rental car utilization rate is typically 70% or greater, whereas rates of between 30% and 40% are common in tier-2 and tier-3 cities. Companies' presence in tier-2 and tier-3 cities is, however, primarily driven by the need for strategic market coverage. Overall corporate profitability could be improved by making operations more efficient in tier-1 cities and the more highly developed tier-2 cities. Based on Roland Berger's estimates, the break-even fleet size for a car rental outlet is around 25 vehicles. 5. Operating economics: analysis of costs and profits However one looks at it, the car rental business is never going to deliver exorbitant profits. The average net income margin for a reasonably well-run rental car business is around 10%, as indicated in Figure 7. The largest cost components are, in descending order, depreciation, insurance, maintenance and repair and marketing costs. As far as insurance and maintenance/repair are concerned, there is no significant variation among different players as these elements are largely market-driven (Figure 7).

A LOOK AROUND THE WORLD

The acquisition, financing and disposal of vehicles are three critical elements in a rental vehicle's lifecycle, and all three hold out significant potential for higher profits. Vehicle acquisition The price discounts that can be realized when purchasing vehicles have a very significant and direct impact on the overall profitability of car rental businesses. Currently, most car rental companies are not regarded by automotive OEMs as priority customers. Although they routinely obtain discounts of between 10% and 15% on the recommended retail prices of new vehicles, a further one to two percentage point increase in these discounts is still feasible and should be targeted. By selecting appropriate vehicle models of the same brand and from the same manufacturers, and by shortening the replacement cycle, car rental companies can increase their annual purchasing volume and gain better bargaining power with OEMs. Financing Since the car rental business is very capital-intensive, the rate of expansion is directly related to a company's financial resources and its ability to leverage capital. There are four main ways to obtain financing, of which types 1 and 2 are the most prevalent in the current operating environment: 1. Revolving credit authorization from banks (no collateral required) 2. Vehicle loans from automotive financing institutions 3. Vehicle loans from banks 4. Vehicle financing from leasing companies
10

Used vehicle disposal The disposal of used vehicles is the third and final window of opportunity for car rental companies to realize profits on their vehicles. Given that the preowned car market in China is still a "seller's market", car rental companies can dispose of their used vehicles at fairly good prices. On the other hand, the relative immaturity of preowned car markets means that there are as yet very few efficient channels for the wholesale disposal of used vehicles. 6. Industry trends Business expansion strategies Direct ownership versus franchising In markets outside China, proprietary stores and franchise stores are the two most common expansion strategies adopted by car rental companies. For example, 23% of AVIS rental points in the US are franchise stores. In other markets, the proportion of AVIS franchise stores is even higher, at 67%. Based on the historical performance of key industry players in China, it is unclear whether expanding via proprietary or franchise stores is the more effective channel. Hertz's strategy of operating through franchise stores when it entered China in 2002 was not successful. On the other hand, Shouqi operates 6 proprietary stores and 40 franchise stores in China.

A LOOK AROUND THE WORLD


Both methods of network expansion offer advantages and disadvantages. Expanding via proprietary stores ensures consistent management and service standards, but requires more up-front investment, entailing a longer payback period and therefore increasing the business risk. Expanding through franchise stores facilitates faster market penetration and requires less capital up front. However, it is difficult to ensure consistent standards and coordinated management across all stores. Roland Berger recommends building franchise stores in smaller markets where business risks are higher, but building proprietary stores in bigger markets where business risks are lower. Mergers and acquisitions Mergers and acquisitions are another common means to achieve rapid growth. M&As provide quick access to the target company's established customer base. If the target company also has a recognized brand, that can help to reduce marketing costs too. The acquisition of Dollar Thrift by Hertz in April 2010 is one successful example. Hertz was able to penetrate the mid-range and leisure rental segments without diluting its own brand image. Hertz's revenue expanded by 45% as a result of this acquisition. Hertz was also able to realize significant annual cost savings thanks to bundled purchasing, IT systems integration and the sharing of a common vehicle fleet, etc. On a practical level, however, pursuing M&As in China's car rental industry is not an attractive strategy right now, as there are no target companies of the kind of size and reputation that would make them attractive. Having said that, opportunities for M&As will emerge as the industry grows and players become bigger. Vertical integration Car rental companies might also want to consider the vertical integration of other services, such as vehicle maintenance and repair, vehicle/preowned vehicle insurance and financing, to augment their existing business. ORIX in Japan and Localize in Brazil are two successful examples of vertically integrated players in the car rental industry. Trend in industry consolidation As things stand, China's car rental industry remains highly fragmented. Many small, stand-alone, mom-and-pop car rental stores continue to coexist with bigger players, as they enjoy significant cost advantages relative to the larger incumbents. Small operators often have no rental expenses, no IT system and in some cases no defined operating standards. These small outfits can effectively cater to the needs of price-sensitive private customers where bigger players cannot. However, low-cost, mom-and-pop car rental outlets have no lasting competitive advantage over larger players. As private customers become more affluent and begin to trade up, brand reputation, service quality and consistency will grow in importance. Over time, bigger players will be able to compete on price due to economies of scale and cost improvements. In light of these developments, Roland Berger estimates that, over the next five years the total market share of the top 5 players will increase to between 15% and 20%. With two of the largest car rental companies receiving huge external investment in 2010 China Auto received RMB 1.2 billion (about USD 180 million) from Legend Holdings, the parent company of Lenovo Computer, while eHi received USD 70 million from Goldman Sachs China's car rental industry appears poised for faster expansion and consolidation in the near future.

Jun Shen Partner, Roland Berger Strategy Consultants, Shanghai jun_shen@cn.rolandberger.com

Chin-Lim Ong Senior Project Manager, Roland Berger Strategy Consultants, Shanghai chinlim_ong@cn.rolandberger.com

Jasmine Jiang Senior Consultant, Roland Berger Strategy Consultants, Shanghai jasmine_jiang@cn.rolandberger.com

11

AUTOMOTIVE LANDSCApE 2025


Study

Automotive Landscape 2025, the latest study conducted by Roland Berger Strategy Consultants, analyzes the opportunities and challenges facing the global automotive industry. Almost all 39 Roland Berger offices around the world were involved. In completing the study, we spoke to more than 60 leading experts from the automotive industry and other related organizations worldwide (Figure 1). In the coming 15 years, this sector will undergo the greatest transformation it has ever experienced in its history: > Production and sales will shift to the Asian markets on a dramatic scale > Small and low-cost cars will gain more and more importance > Electric vehicles will account for about 10% of new vehicle sales by 2025, while hybrids will achieve a 40% share > In-vehicle connectivity will be a key factor in 2025 and beyond > New business models will emerge > Successful organizations will undergo structural changes and open up to partnerships

I. Five megatrends will drive a huge leap forward in the development of the automotive industry over the next 15 years Five megatrends will influence the automotive industry in the years ahead (Figure 2): > Geopolitical change: Asia will continue to grow stronger, regionalism will increase and regulations will support geopolitical interests > Changing demographics: The world's population is set to balloon by another 1.1 billion people by 2025, reaching a total of eight billion. This population growth will come almost entirely from economies in transition. At the same time, the world's population is aging. No fewer than 87 countries currently have fertility rates that are below the replacement level. Combined with increasing life expectancy, this may soon lead to a situation of over-aging. By 2025, one in six people worldwide will be aged 60 or over. In industrialized countries, the ratio will be even more dramatic: No less than one in three people will have reached retirement age by 2025.

12

AUTOMOTIVE LANDSCApE 2025

Urbanization too is on the rise. As the trend toward urbanization continues, the number of megacities (cities with a population of 10 million and above) will rise from 22 to 29 by 2025. By this time, eight of the ten largest megacities will be located in emerging markets. Only two Tokyo and New York will be in mature markets. > Sustainability: While sustainability and climate change are an increasingly prominent feature in public debate, oil will still be the number one energy source in 2025, as it is today, followed by coal and then gas. Some 80% of primary energy demand will still be met by fossil fuels. Demand for coal is growing very quickly. Soon after 2025, demand for coal as an energy source is actually expected to surpass demand for oil. At the same time, however, renewable energy is likely to increase its market share, leading to both rising prices and price fluctuations: Producing renewable energy is still more expensive and much less reliable than conventional energy. > Evolution of mobility: Overall, motorization will increase and low-cost cars will meet the demand for basic transportation. As a countertrend, younger people in metropolitan areas in the triad markets will lose interest in cars.

> New technologies: New materials (such as carbon fibers), powertrain electrification (hybrids, batteryelectric vehicles and fuel-cell electric vehicles), and the "connected car" have the potential to transform the traditional automotive value chain. II. Three scenarios Of course, 2025 is still a long way off. While the megatrends described are either likely (geopolitical change, evolution of mobility) or even almost certain to happen (demographic change), the degree to which they materialize may vary. Nobody can say exactly what is going to happen in 15 years' time; and extrapolating from the past is a fool's game. With this in mind, we based this study firstly on research, secondly on interviews with experts and thirdly on an analysis of scenarios. Rather than the traditional approach of defining between two and five different scenarios and then simulating each one on a quantitative basis an approach that yields so much detail that one can easily lose sight of the most significant findings we identified the drivers common to three scenarios and condensed them into a collection of key success factors for automotive players.

13

AUTOMOTIVE LANDSCApE 2025


Our three scenarios are based on the megatrends discussed above. Each one paints an extreme picture of the world in 2025. We call them the high-tech scenario, the budget scenario and the sustainability scenario (Figure 3). 1. The high-tech scenario foresees a wide array of car features that allow drivers to stay connected to their networks, use the Internet and personalize the manmachine interface while driving. 2. The budget scenario describes a world in which customers' purchasing power is sharply reduced due to taxes and inflation combined with low income growth. Cars are less affordable and the money spent on cars competes with spending on other items. 3. The sustainability scenario describes a world in which consumer behavior is strongly influenced by regulations, legislation and tax, but also by rating recommendations. In all three scenarios, a number of challenges can be identified as "common denominators". III. Challenges to the automotive industry The shift to Asia A dramatic shift to the Asian markets will take place. Both production locations and sales will be affected, with a significant share of the customer base coming from Asia and requiring products that are specifically tailored to their needs. The shift to Asia will be intensified by a significant shortage of skilled labor in Europe and the US. Both economies will be forced to tap into additional resource pools of employees from a variety of backgrounds (Figure 4). Small and low-cost cars In Asia low-cost cars as well as A/B segment cars in general are an important entry point. The small car segment will grow in mature markets too as values continue to change (Figure 5). As populations grow and prosperity increases, overall car ownership levels will rise between now and 2025. Growth in North America and Europe will not be as high as the global average rate. However, the desire for individual mobility in the BRIC markets will continue to grow, ac-counting for 83% of future market growth. In China alone, car ownership is predicted to grow by 6% per annum. At the same time, cars will continue to lose their appeal for younger generations. Starting in industrialized countries, a radical change in values will take place. For younger people, cars will no longer be as much of a status symbol as in the past. In major urban areas, car ownership will become unnecessary, spawning an increasing trend toward demotorization. We will thus see initial signs of "mobility eco-systems" that provide cars and other mobility sources on demand.

14

AUTOMOTIVE LANDSCApE 2025

Car fleets, including cars used for car sharing purposes, are nevertheless growing around the world. This will increase the pressure on sales margins for new cars as more and more purchases will be handled by professional buying centers. Electric vehicles and connectivity The cars in question will predominantly be electric, and one in two will have a fully or partially electrified power-

train. Electric vehicles will account for about 10% of new vehicle sales by 2025. Hybrid vehicles will achieve a 40% share, while internal combustion engines will still account for 50% (Figure 6). The growing overall share of electric drivetrains will reshape the current mobility value chain for OEMs and suppliers, but also for utilities and third parties. Many, if not most vehicles will be permanently online, sending and receiving information via the Internet.

15

AUTOMOTIVE LANDSCApE 2025


Connectivity will be a key factor. Well before 2025, cars or customers' mobile devices, to be more precise will be accessing the web directly to use online (navigation) services. Younger generations will expect cars to dovetail seamlessly with other means of mobility, and to support hassle-free connectivity with their mobile devices. As a result of this trend, the automotive industry will converge with other industries, such that a cross-industry perspective becomes a management imperative. New business models With all these changes taking place in usage patterns and technology, new business models and value chain partners will emerge and challenge the status quo especially where they come from sectors outside the automotive industry (Figure 7). Automotive companies will engage in multiple partnerships as a way of accessing technology and customers and securing economies of scale. These new business models will not just be about selling cars, but about integrating software and hardware as well. Organizations in transition In the pursuit of greater size and access to fresh sources of engineers and other specialists, automotive companies will move away from centralized organizations. Instead, they will begin to operate "glocally", i.e. combining global reach with adaptations to local needs and regulations. Consolidation will continue among suppliers, while new original equipment manufacturers (OEMs) are likely to emerge from both inside and outside the industry. IV. Implications for OEMs and suppliers The changes and challenges outlined above are of a fundamental nature. They will affect all players in the automotive industry: OEMs, suppliers, third parties and both newcomers and incumbents. The key is for companies to remain open and flexible. They must adopt and apply a big-picture mindset if they are to benefit from the opportunities ahead. While we do not see a disruptive change in the pipeline, it is nevertheless time to act now. Why? Because change needs time and 2025 is only two product lifecycles away. > Markets and customers: The practice of building or maintaining a strong brand position in established markets must be accompanied by efforts to capture a share of growth markets, especially in Asia and Brazil. Close proximity to customers and an in-depth understanding of varying customer needs demands a genuinely glocal approach in all processes and structures.

16

AUTOMOTIVE LANDSCApE 2025

> Technologies and products: Effective management of a large portfolio of technologies is crucial as are global module kits that allow economies of both scale and scope at the same time. > Organizations and people: Flexibility and speed are growing ever more vital. A robust corporate culture that allows for diversity while focusing strongly on the core of the business model, that is open both to partnerships and to collaborative networks is a key success factor. To launch the process of change, we recommend a five-step approach: 1. Use scenario techniques to describe how the future might look. Define targets for your company's own future role with respect to markets, customers, products and services (see interview in this issue) 2. Define long-term requirements for the organization (core competencies/skills, regions, essential partners) 3. Assess the current status and identify any gaps 4. Define a long-term (10-year) roadmap to close these gaps 5. Draw up a short-term (3-year) action plan and set up an implementation organization to start transformation To order a copy of the study, please mail Dana Rehfuss at dana_rehfuss@de.rolandberger.com

If you would like our support in assessing your position and the specific opportunities and challenges facing your business, please do not hesitate to contact us. Together, we can make sure that the journey ahead is not just an exhilarating but also a rewarding one.

Dr. Wolfgang Bernhart Partner, Roland Berger Strategy Consultants, Stuttgart wolfgang_bernhart@de.rolandberger.com

philipp Grosse Kleimann Partner, Roland Berger Strategy Consultants, Munich philipp_grossekleimann@de.rolandberger.com

Dr. Marcus Hoffmann Principal, Roland Berger Strategy Consultants, Munich marcus_hoffmann@de.rolandberger.com

17

INTERVIEW MICHAEL DINTER


Dipl.-Ing. Michael Dinter Partner AS&P Albert Speer & Partner GmbH Frankfurt, Germany One of the world's leading architectural and urban planning partnerships

Our Automotive Landscape 2025 study distills three possible scenarios from five expected megatrends and identifies ten key implications for the automotive industry. Examples include the shift in both markets and growth to Asia, increasing urbanization, the trend toward smaller vehicles, the electrification of the powertrain, and a still minor but growing trend known as "demotorization". To what extent do you see issues here that link up with your work as a traffic and urban planner? Dinter: Optimizing the design of traffic flows is a major challenge to urban planning. On the one hand, traffic is part of the lifeblood of modern cities. On the other hand, it also places a burden on both urban systems and people who live in urban areas. Seen from this angle, the mobility implications you describe are very important to my work as a traffic and urban planner. We expect there will be much less private motorized traffic on the roads in future than we see today. Instead, there will be flat rates for mobility, similar to those we have already witnessed in the telecommunications market. Intermodal systems will allow customers to choose whichever means of transport they need at any given time: subway, bus, shared car, scooter, e-bike or regular bicycle.

How will it be possible to resolve the infrastructure issue for electromobility? There is still no sign of an industry standard Dinter: Many possible strategies are emerging right now. I don't believe there is enough space in our cities for recharging to take place in people's homes. That would also be far too inconvenient. No, I think the mobility flat rate I just mentioned will include options such as always having a fully charged vehicle at your disposal or having one brought to the door. So the mobility service providers are the ones who will integrate the mobility ecosystem and build the necessary infrastructure. Looking at the megatrends and their implications, what does all this mean for tomorrows urban landscape? Dinter: Urbanization is on the rise, and compact sub-centers are taking shape within our cities. Motorized travel is thus eliminated as relevant destinations move closer together. Given that more and more people are now doing their shopping online especially for their daily needs the importance of stationary retailers will likewise erode. That will eliminate even more private journeys, although more travel will be needed for goods distribution. Logistical flows will thus gain in importance and will have to be organized efficiently and intelligently. The networking or logistics firms, their vehicles and their routes will help.

18

INTERVIEW MICHAEL DINTER


How can the further virtualization and networking of vehicles help to keep urban traffic under control? Dinter: Intelligent and efficient mobility systems enable capacity for different modes of transportation to be well used. That also frees up more space. Think of it like air traffic: 80% of the aircraft are in the air at any given time. If all aircraft were grounded at the same time, no airport would ever have enough space. Along the same lines, intelligent mobility systems will help cities to get rid of city-center parking space, giving public space back to the residents instead. Are there differences between developments in Europe and Asia? Dinter: In Europe, things have been able to develop slowly. Evolutionary developments and systems that have grown organi-cally predominate here. But not so in Asia. China, for example, will leapfrog entire developmental stages and plunge straight into the widespread deployment of electromobility and mobility ecosystems. We have talked a lot about the consequences of these mega-trends and implications for urban development. Will there be an impact on rural mobility too? Dinter: We have to be careful not to lose sight of rural regions amid all the discussions surrounding urbanization. I believe that special rural mobility formats will emerge. That will involve bundling travel, often on a basis organized by private enterprise. People out in the country already get a taxi voucher that their health insurers will pay for when they visit the doctor. And the health insurers will naturally try to bundle such journeys and make them as efficient as possible. With the technology that will be available in the future, that will become much easier. I see the Car2Gether format a new take on the car-sharing theme as a precursor to this development.

19

SHIFT IN YOUNG MOBILITY


Young Mobility Survey 2011: Challenges and opportunities

Roland Berger Strategy Consultants' Automotive Landscape 2025 study examines the challenges and opportunities that will bring fundamental change to the world's automotive industry over the next 15 years. Contributing to this discussion about the future, the Roland Berger Young Mobility Survey 2011 focuses primarily on the present. It investigates the extent to which the projected change in mobility patterns especially among the younger generation is already visible in Germany today. The study discusses how important the automobile still is to today's young generation. At the same time, it analyzes the role of the connected car and the extent to which young buyers feel their needs as a target group are being addressed by car makers. Key findings of the Young Mobility Survey: > The car is primarily seen as mean of transportation with decreasing emotional value > Carsharing as alternative mobility model is known to the young generation but not yet fully accepted

> An awareness of connectivity is beginning to arise but customer needs are not yet fully articulated > The young generation perceives itself as target group but the car makers are doing to little to appeal to them > Implications of shifting mobility patterns in Europe set the direction for future development in Asia Automotive Landscape 2025 The study "Automotive Landscape 2025" examines in detail the key automotive trends that we have to expect over the next 15 years. In many ways, the automotive industry is to experience the most extensive transformation in its history. The study sees three dominant developments. On the one hand, road traffic is increasing dramatically worldwide, driven by emerging markets. Demand for cars is following accordingly. In Brazil, Russia, India and, in particular, China, growing populations and increasing prosperity are enforcing demand for personal mobility.

20

SHIFT IN YOUNG MOBILITY


The study assumes that these markets will account for 83% of market growth until 2015. In China alone, the number of car owners will grow by an impressive six percent per annum (Figure 1) for the next decade. Even in saturated markets, changing values will drive further growth however, shifted towards the compact car segment. On the other hand, a trend toward demotorization is particularly present among the young generation in the world's developed markets. Detailed focus interviews and trend analyses conducted in the course of the Automotive Landscape 2025 study show that, over the next 15 years, it will no longer be necessary to own a car to get from A to B in the world's larger cities. Between now and 2025, the proportion of vehicle owners aged under 39 will decline by six percentage points, for example (Figure 2). Demotorization will also drive progress in mobility ecosystems. Car sharing, for instance, will optimally cover the demand for automobiles and other means of transport. At the same time, analyses indicate that options such as "always-on" Internet access for the driver and the possibility of linking portable devices to a car's control system will rank among future success factors. Especially for the young generation, connectivity will play a key role. Embedded electronic equipment will therefore become a must-have feature if young people's mobility requirements are to be satisfied. Young Mobility Survey 2011 There is still no clear consensus about how far the trends outlined above are already affecting the automotive market today. For this reason, Roland Berger Strategy Consultants conducted a representative survey for Germany in collaboration with TNS Infratest querying 1,000 people aged 16 to 22 in relation to these issues. Based on insights gained from the 2025 study, the following five key questions were addressed: 1. How important is the automobile for the younger generation? 2. What is the younger generation's attitude toward alternative mobility models? 3. How important is the connected car? 4. How important is the younger generation to today's automotive business and how well does this generation feel its needs are addressed by the automotive industry? 5. What implications can be derived from these findings for saturated markets such as Germany and the future focal region of Asia?

21

SHIFT IN YOUNG MOBILITY


Findings 1. Importance of the automobile: Already today changing values among the younger generation can be perceived to be undermining the status of the automobile: Nearly half of all respondents said they could imagine living without a car. Even 52% of the respondents living in urban areas would do without their own car. Every third respondent who already owns a car could image being without it again. Earlier studies delivered far lower scores in response to the same issues an indication of the significance of the change that is currently taking place. A similar picture arises on the question of how important cars are compared to other consumer goods. The respondents as a whole see automobiles as the last but one important consumer good. Merely 38% of respondents over the age of 18 evaluate cars as extremely or very important, against nearly 60% who say the same for laptops and 43% for smartphones. Over-18s regard only iPods and vacation travel as less important than cars (Figure 3). In addition already today, automobiles are clearly forfeiting their standing as status symbols. Functionality has become far more important. Fully 75% of respondents associate cars with utility, only 40% with prestige. Only every third respondent acknowledges an emotional value. These numbers indicate that a shift has already occurred in the mindset of the young generation. The conditions for a trend toward demotorization are now in place. In all probability, the emotional value added by cars in the developed markets will continue to decrease in future. 2. Alternative mobility models: The young generation is clearly receptive to alternative mobility models. Already today, their patterns of mobility center primarily around the use of public transportation. Nearly 40% of respondents use public transportation every day, against only 21% who said they use their car. At the present time, however, the younger generation remains skeptical of car sharing programs. Though 73% of respondents over the age of 18 are aware of car sharing offerings (Car2go is the best known provider, with a recognition rate of 24%), 80% have never made use of this option (Figure 4). Moreover, only 9% of those respondents who can imagine living without a car would use car sharing instead. In addition the whole group of respondents is very reluctant about the possibility of using car sharing models in future too. Only 6% of respondents over the age of 18 would definitely be prepared to use this mobility model. The majority remain undecided, while nearly every tenth respondent rejected the possibility of using such a model. However reluctant they personally may be, 74% of respondents over the age of 18 did at least declare that car sharing would gain in importance in the future.

22

SHIFT IN YOUNG MOBILITY

3. The connected car: Now that the Internet has conquered the world, cars too are increasingly going the way of connectivity. Yet though both the Internet and social networks are widespread and perceived as important, the young generation's active demand for in-vehicle online and connectivity interfaces is so far low. By 2025, all kinds of vehicles will most likely feature online access and be able to send and receive information. They will also be able to communicate with other vehicles and with their immediate environment. This trend will be influenced by the use of media in general and the Internet in particular. Internet penetration levels are considerable among the younger generation. 83% of respondents spend between one and three hours a day writing e-mails, compared with 50% who spend the same amount of time watching TV. Social networks such as Facebook enjoy significant popularity too. 68% of respondents under 18 years of age spend between one and three hours a day in these communities, 18% even devote between three and six hours a day. Meanwhile, usage figures for the mobile Internet show that the trend toward being "always on" is only just emerging. Though 58% of respondents do not yet use this medium at all, its usage is already more prevalent among over-18s (43%) than among under-18s (35%).

Today however, more rational and responsible considerations prevail when the decision is made to purchase a car. Value for money, safety and eco-friendliness are top of the wish list for young buyers. The majority of respondents regard connectivity options as only slightly important or completely unimportant (Figure 5). Among female respondents, the figure is actually 70%. Even so, the survey confirms that connectivity does indeed add value in the eyes of young people, although this perception is only now beginning to take shape. Accordingly, the assumption is that it will still take some time before this trend becomes fully established. 4. The young generation as an economic factor and how it is addressed by the automotive industry: Today's generation of 16 to 22 year olds is a small but significant subset of the automobile market. Almost every second holder of a driver's license in the respondent universe already owns a car. Customers in this age bracket thus account for roughly 4% of new and 6% of pre-owned car sales.1) For the automotive sales business, however, their role as trendsetters and positive image is much more important. In addition with a view to their customer lifecycle, they are likely to develop into a customer base with strong purchasing power in the future.

1) Calculation based on the trend in new vehicle licenses and average prices for new and pre-owned cars from 2006 through 2009, as documented in the DAT Report 2010, coupled with new and pre-owned car statistics supplied by the study respondents. 23

SHIFT IN YOUNG MOBILITY


For some reason, however, the young generation has still not really made it into car manufacturers' awareness. True, young people believe that car manufacturers are aware of them, as confirmed by 68% of respondents. In contrast 70% of the under-18s in our survey feel that car makers are doing too little to appeal to them. Still 61% of over18s agree with this sentiment. This dissatisfaction is reflected in the relative unwillingness to pay for brands. Only 34% of under-18s are willing to pay more for the "privilege" of a specific brand image. In the over-18 age bracket, the number is still 43%. Clearly, car manufacturers especially in the premium segment must rethink their strategies if they are not to lose young customers in times of decreasing prestige value of the automobile. In this context, a OEMs find themselves in front of a dilemma. The target group that will represent the strongest demand for online and connectivity interfaces in the future is currently the one with the least purchasing power. 5. Implications for Asia: Analysis of the temporal implementation over which different trends will become established reveals significant implications for OEMs' future efforts to cultivate global markets. Comparing shifts in preferences regarding the attractiveness of cars between European and Chinese car buyers, the Automotive Landscape 2025 study clearly shows that Chinese respondents are following the lead given, for example, by European respondents but with a certain time lag. Whereas the attractiveness of automobiles in general continues to decline in the developed markets, it is still on the rise among Chinese respondents, for whom attractiveness is expected to decline five years from now (Figure 6). It is thus reasonable to conclude that the implications for saturated markets such as Germany will quickly set the direction for future development in Asia. Logically, therefore, any OEM that knows how to serve the mobility preferences of Europe's younger generation will very soon assure a global competitive advantage. Outlook: What must be done now? To recap, many of the trends revealed by the Automotive Landscape 2025 study are indeed already apparent among the younger generation. Demotorization is only one example. This realization has three lasting implications for car manufacturers' future business development: > Unlike the "Generation Golf" of the 1990s prestige and status is no longer given priority by today's buyers. The automobile is now primarily regarded as a mean of getting from A to B and can thus be more easily substituted by local public transportation. Alternative mobility models such as car sharing are known to the young generation but not yet accepted as

24

SHIFT IN YOUNG MOBILITY

genuine alternatives on a broad front. Attractive pricing models and no-gaps coverage could, however, make the younger generation more keenly aware of the potential benefits of car sharing. > An awareness of connectivity is now beginning to emerge among younger target groups. Customers have thus not yet fully articulated what will in future be perceived as a must-have feature in the context of mobility. This situation gives manufacturers the chance to act as first movers, setting future standards now and thus occupying a strong market position. This in turn will allow them to cultivate perceived needs while, at the same time, proactively driving innovation in the same direction. OEMs should nevertheless be aware of drawing false conclusions: The challenge in the current context is to build a business case on a sound economic foundation that explicitly takes account of the financial situation of first-time buyers. > Asia, the regional focus of automotive business in future, is running through a similar but time-shifted and accelerated development compared to Germany. After successfully positioning their innovations in the saturated markets of Europe and the USA, car manufacturers must therefore quickly turn their attentions to Asia to optimize their accommodation of mobility needs too.

Ralf H. Landmann Partner, Roland Berger Strategy Consultants, Frankfurt ralf_landmann@de.rolandberger.com

Jan-philipp Hasenberg Project Manager, Roland Berger Strategy Consultants, Frankfurt jan-philipp_hasenberg@de.rolandberger.com

Christian Weber Consultant, Roland Berger Strategy Consultants, Munich christian_weber@de.rolandberger.com

25

BOOKS & STUDIES


E-Mobility Opportunities and risks for Germany's production systems industry The joint study by VDMA and Roland Berger Strategy Consultants shows that the expansion of electromobility presents new business opportunities for the industry, but also major challenges. The German production systems industry will benefit strongly over the next few years from the expansion of electromobility. The introduction of vehicles with electrical powertrains demands areas of expertise in mechanical engineering that were once rarely required for automotive production. This is because cost-cutting production technologies are now in urgent demand. This will present attractive market opportunities to companies making machines and production systems. In terms of new production plants for electric batteries, the industry is looking at EUR 4.8 billion in potential business by 2020. will be essential in order to offer turnkey production systems from one supplier and to secure key competitive advantages. These are the core findings of a joint study by the VDMA and Roland Berger Strategy Consultants on "E-mobility Opportunities and risks for Germany's production systems industry". Download (only German version available): http://www.rolandberger.com/expertise/publications/ 2011-05-09-rbsc-pub-E_mobility_and_German_ production_systems_industry.html How automotive companies successfully coordinate their activities across borders This study focuses on the coordination of international development, production and marketing activities core functions in which automotive managers have repeatedly identified room for improvement. Many automotive companies have expanded beyond the borders of their home markets. Some, however, have paid too little attention to coordinating the resultant decentralized activities; and that is the reason why today's automotive managers acknowledge a significant need for action in this regard. The present study, which comprises 95 automotive companies, investigates how firms successfully coordinate their activities across borders.

On the other hand, the industry will have to face some major challenges in developing new business models. Collaborations and alliances among the engineering firms

FAMOUS CARS
porsche 911 Since its initial launch in 1963, the Porsche 911 has been considered the epitome of the classic sports car. Nevertheless, the 911 is an excellent everyday car. This combination has come to characterize the name Porsche. With its reliable 6 cylinder boxer engine and classic design, the 911 to this day remains unique in form and substance and lets the hearts of true sports car enthusiasts beat faster. This is a picture of the legendary Porsche 911 G50 in front of the Kronberger Friedrichshof Castle (built in 1883 by Empress Victoria Friedrich). This car has an air-cooled 231 horsepower engine without airbags or ABS, just the way purists like it. The G50 tips the scale at a mere 1,210 kg and is today still an agile sports car. Then there's the unmistakable roar of its engine. The model kept practically the same body design, but with constant engine upgrades, from 1973 to 1989. More than two-thirds of the models manufactured are still on the road today.
26

BOOKS & STUDIES


Six coordination mechanisms were studied: (1) centralization/decentralization of decision-making; (2) direct personal supervision; (3) bureaucratic coordination; (4) output coordination; (5) socialization and networks; and (6) informal communication. In view of the findings of our study, we especially advocate the greater use of socialization and networks to successfully coordinate cross-border activities in the automotive industry. Suppliers and manufacturers should focus on establishing a corporate culture that connects the various units of a company, and on promoting networks to foster nonhierarchic information sharing between them. Since not all companies are yet taking advantage of these mechanisms, the study closes with a presentation of several tools and actions that are appropriate to strengthen coordination by leveraging socialization and networks. Download: http://www.rolandberger.com/expertise/ publications/2011-05-05-rbsc-pub-Automotive_ activities_across_borders.html Automotive Engineering 2025 In our recently published study, "Automotive 2025", we gave an overview of megatrends which will heavily impact the automotive industry over the next 15 years. We described ten key findings based on these megatrends, the different scenarios and the key success factors common to them, to help management define their long-term strategy for > Markets, customers and products > Partnerships, business models and the value chain > Organizational structures, employees and necessary changes With this "Automotive Engineering 2025", we take our findings to the next level and outline approaches for coping with the special challenges automotive engineering is facing.

Interested in the study? Contact: dana_rehfuss@de.rolandberger.com

27

SCENARIO pLANNING
An essential tool for long-term success in a rapidly changing automotive industry

Emerging technologies and innovations can rapidly change the business models of OEMs and suppliers. Scenario planning is an essential tool to forecast potential impacts on the current product portfolio. Roland Berger Strategy Consultants has developed a quick and comprehensive scenario planning approach to identify major challenges and link these to specific actions to ensure future success for our clients. In a world of rapid-fire economic and technological change, companies must constantly adapt their business models in order to stay competitive. This is especially true in the automotive industry. Significant challenges lie ahead in this industry, as our recently published Automotive Landscape 2025 study shows [1]. Other industries provide good examples of the kind of pitfalls that exist. Nokia, for instance, developed the first smartphone, the Communicator. However, the firm failed to see the business potential of this technology. Today, other companies such as Apple, Samsung and HTC dominate the market for this type of phone [2].

New trends and technologies are changing the face of the automotive industry. Over the past decade, however, some suppliers have missed out on joint ventures or cooperations to provide e-mobility products such as Li-Ion battery cells, likewise suppliers of mechanical components have to rethink their current product portfolios, as sales of electrified components will gain a boost from the rising popularity of electric vehicles. Leading Japanese companies such as Denso and Toyota, both of them pioneers in hybrid vehicles, became market leaders due to their far-sighted and long-term planning approach. Some family-owned firms, such as Bosch, Freudenberg and Brose, have also been very successful thanks to their long-term planning perspective. Scenario planning is an efficient tool for developing long-term business strategies as well as identifying blind spots (neglected factors) and weak signals (indicators of significant changes to the existing business model or product portfolio). Scenario planning was pioneered by Igor Ansoff, who is now known as the father of strategic management [3].

28

SCENARIO pLANNING

Yet this vital technique is all too often neglected in the business world. At Roland Berger, we have therefore developed a refined scenario planning approach in conjunction with the Leipzig Graduate School of Management. Figure 1 outlines our basic scenario planning technique. Both macroeconomic drivers and emerging technologies and innovations are factored into the scenarios. Our Automotive Competence Center leverages its own network of experts as well as contacts to universities, research institutes, government authorities, OEMs, suppliers and internal stakeholders to obtain a full understanding of relevant trends and technology drivers. To do so, we apply a sys-tem of 360 stakeholder feedback. We evaluate relevant trends in terms of certainty (e.g. time to SOP) and poten-tial impact (e.g. penetration rate and impact on existing product portfolio) in order to form scenarios. Concepts and action plans are developed for these scenarios and linked directly to short- and mediumterm strategy planning. The approach is described in Figure 2.

In summary: Scenario planning is a swift but comprehensive way of identifying the potential need for changes in a company's business strategy and preventing blind spots. The relative certainty and impact of these trends is estimated based on a comprehensive survey of all stakeholders. Managers can link the scenarios to specific actions to ensure they make the right decisions in a fast-changing business environment.

29

SCENARIO pLANNING
The Roland Berger Automotive Competence Center is currently helping leading suppliers to apply this approach. Our global network and tried-and-tested methods are the best guarantee of success. Further reading: [1] Kalmbach, R.; Bernhart, W.; Grosse Kleimann, P.; Hoffmann, M.: Automotive Landscape 2025: Opportunities and challenges ahead Study, Roland Berger Strategy Consultants GmbH, Munich 2011 [2] Wulf, T.; Krys, C.; Brands, C. Meissner, P.; Stubner, S.: Prognosetechnik: Ein Radar fr die Strategieplanung. In: Harvard Business Manager, March 2011 [3] Ansoff, I.: Managing Strategic Surprise by Response to Weak Signals. In: California Management Review, Volume XVIII, 2/1975 Dr. Wolfgang Bernhart Partner, Roland Berger Strategy Consultants, Stuttgart wolfgang_bernhart@de.rolandberger.com

Stephan Bueb Consultant, Roland Berger Strategy Consultants, Munich stephan_bueb@de.rolandberger.com

30

BENELUX Ren Seyger Phone +31 (20) 7960-620 rene_seyger@nl.rolandberger.com CEE Rupert Petry Phone +43 (1) 53602-100 rupert_petry@at.rolandberger.com CHINA Jun Shen Phone +86 (21) 52986677-874 jun_shen@cn.rolandberger.com CZECH REPUBLIC Roland Zsilinszky Phone: +420 ( ) 210219524 roland_zsilinszky@cz.rolandberger.com FRANCE Max Blanchet Phone +33 (1) 53670-907 max_blanchet@fr.rolandberger.com Jacques Rad Phone +33 (1) 53670-366 jacques_rade@fr.rolandberger.com GERMANY Ralf Kalmbach Phone +49 (89) 9230-8669 ralf_kalmbach@de.rolandberger.com Ralf Landmann Phone +49 (69) 29924-6300 ralf_landmann@de.rolandberger.com Marcus Berret Phone +49 (711) 3275-7419 marcus_berret@de.rolandberger.com Dr. Wolfgang Bernhart Phone +49 (711) 3275-7421 wolfgang_bernhart@de.rolandberger.com

Philipp Grosse Kleimann Phone +49 (89) 9230-8718 philipp_grossekleimann@de.rolandberger.com Dr. Thomas Schlick Phone +49 (69) 29924-6202 thomas_schlick@de.rolandberger.com Norbert Dressler Phone: +49 (711) 3275-7420 norbert_dressler@de.rolandberger.com IBERIA Christoph Beseler Phone +34 (91) 590 3-141 christoph_beseler@es.rolandberger.com INDIA Wilfried Aulbur Phone +49 (89) 9230-8282 wilfried_aulbur@de.rolandberger.com ITALY Roberto Crapelli Phone +39 (02) 29501-235 roberto_crapelli@it.rolandberger.com Andrea Marinoni Phone +39 (02) 29501-296 andrea_marinoni@it.rolandberger.com JAPAN Ken Mori Phone +81 (3) 35876-724 ken_mori@jp.rolandberger.com Satoshi Nagashima Phone +81 (3) 358 76-683 satoshi_nagashima@jp.rolandberger.com Masugi Kaminaga Phone +81 (3) 35876-365 masugi_kaminaga@jp.rolandberger.com

MIDDLE EAST Michael Wette Phone: +973 (17) 5679-51 michael_wette@bh.rolandberger.com NORTH AMERICA Juergen Reers Phone +1 (248) 729-5111 juergen_reers@us.rolandberger.com Antonio Benecchi Phone +1 (248) 729-5125 antonio_benecchi@us.rolandberger.com RUSSIA Uwe Kumm Phone +49 (30) 399 27-3534 uwe_kumm@de.rolandberger.com Boris Firsov Phone +7 (495) 287 92 46 boris_firsov@ru.rolandberger.com SOUTH AMERICA Thomas Kunze Phone +55 (11) 3046 7111 thomas_kunze@br.rolandberger.com Stephan Keese Phone +55 (11) 3046 7111 stephan_keese@de.rolandberger.com SCANDINAVIA Per I. Nilsson Phone: +46 31 75755-14 per-i_nilsson@se.rolandberger.com Per M. Nilsson Phone: +46 31 75755-10 per-m_nilsson@se.rolandberger.com TURKEY Erkut Uludag Phone +90 (212) 3700066-0 erkut_uludag@tr.rolandberger.com

Amsterdam Bahrain Barcelona Beijing Berlin Brussels Bucharest Budapest Casablanca Chicago Detroit Dsseldorf Frankfurt Gothenburg Hamburg Hong Kong Istanbul Kyiv Lisbon London Madrid Milan Moscow Munich New York Paris Prague Riga Rome So Paulo Shanghai Singapore Stockholm Stuttgart Tokyo Vienna Warsaw Zagreb Zurich

Roland Berger Strategy Consultants 06/2011, all rights reserved www.rolandberger.com