“The Changing Environment of the European Motor Industry” Phil Cooley Submitted in partial fulfilment of the requirements of the B.A in European Business Studies and Languages National College of Ireland Sandford Road, Raneilagh, Dublin 6 April 2000 Manufacturing organisations experiencing the difficulties associated with trading in the Automotive Industry today, see their external environment changing at a worrying pace. Throughout this dissertation the author outlines the theoretical explanations of what an environment is, and terms associated with it. The dissertation gives an overall view o f the European Motor Industry at present and then examines how these changes affect organisations, by using two organisations from the industry. Chapter three looks at the influence o f foreign competitors in Europe. The industry is then further examined through three personal interviews with industry representatives, offering a diversity o f experience and opinion. Emerging was the outcome that not only small manufacturers find difficulty competing in the intensified competition o f today, but also large manufacturers, which represents the limited room for improvement in the over-capacitated European Motor Industry. U8FIT LIBRARY Mm Acknowledgements Writing a dissertation is not an easy task, as those o f you who have completed one very well know, it requires a lot o f encouragement and support. Therefore I would like this opportunity to thank the people who have helped me complete my dissertation. I would like to my extend my appreciation to my supervisor Graham Worsdale, Head o f the School of Business and Humanities, who advised me throughout each stage and always extended encouragement The Staff o f the following libraries who were extremely helpful throughout my research; the National College of Ireland, University College Dublin, and Dublin Institute of Technology, Bolton Street. I would like to thank the three interviewees, John Fitzsimons from the Rover Group Ireland, Martin Conlon from the Volkswagen Group and Keith Butler from the Society of the Irish Motor Industry. To my fellow classmates and the girls in no. 3 Muckross Park for their help throughout the last few months. Thanks for letting me use your computer Sylvia. I owe my family a great deal of thanks for all their support during my time at the National College of Ireland and especially to my parents, for all their prayers especially around exam times. And lastly to David, who gave me the support and reassurance that I needed, ‘"thanks a million”. Table of Contents Abstract Acknowledgements List of Appendixes (0 (ii) (iii) Chapter 1 1.2 Literature Review An Overview of the European Motor Industry 1 5 Chapter 2 2.1 2.2 Environment Analysis Tools PEST Analysis SWOT Analysis 8 10 Chapter 3 3.1 3.2 Foreign Influences Japanese Influences American Influences 12 16 Chapter 4 4.1 4.2 Research Methodology Secondary Research Primary Research 18 19 Chapter 5 5.1 5.2 5.3 5.4 Case Studies Volkswagen Case Study Case Study Analysis Rover Case Study Case Study Analysis 21 24 31 37 Chapter 6 6.2 Findings Conclusion 47 49 Bibliography 51 Acknowledgements Writing a dissertation is not an easy task, as those o f you who have completed one very well know, it requires a lot of encouragement and support. Therefore 1 would like this opportunity to thank the people who have helped me complete my dissertation. I would like to my extend my appreciation to my supervisor Graham Worsdale, Head of the School of Business and Humanities, who advised me throughout each stage and always extended encouragement The Staff of the following libraries who were extremely helpful throughout my research; the National College of Ireland, University College Dublin, and Dublin Institute of Technology, Bolton Street. 1 would like to thank the three interviewees, John Fitzsimons from the Rover Group Ireland, Martin Conlon from the Volkswagen Group and Keith Butler from the Society of the Irish Motor Industry. To my fellow classmates and the girls in no. 3 Muckross Park for their help throughout the last few months. Thanks for letting me use your computer Sylvia. 1 owe my family a great deal of thanks for all their support during my time at the National College of Ireland and especially to my parents, for all their prayers especially around exam times. And lastly to David, who gave me the support and reassurance that I needed, “thanks a million”. Chapter 1 1.1 Literature Review Many different meanings are associated with the words change, environment, uncertainty and turbulence. Reference to these words will be used on numerous occasions throughout this thesis, so the author would like to start off by defining change, uncertainty, environment and turbulence, so as to avoid any misinterpretations. Following this the author will knit all of these together to show their effects on manufacturers in the European Motor Industry. “Nothing endures but change”, Heraclitus (John M. Thomas and Warren 1972, PP7) Change is something, which is constant and ever changing. Everywhere we look we see change, technologies change, scientific theories change, social values change and people change. In fact “the only certainty is change”(Singer and Taylor, 1990, PP15). Change however is not a new concept it is the rate of the change that we are experiencing which is new. Each new idea and each new technology pushes the change at a faster rate. If we look back twenty years, we find a world without personal computers, satellite television or mobile phones. If we look back a hundred years, the world would have been hardly recognisable, no cars, no airplanes, electricity supply or radio. If we look back a thousand years, we would have found ourselves in a totally different world. Many businesses today face the challenge of dealing with this change and have to try to ameliorate its affects. Singer & Taylor 1990 (PP15) find that, “Change tends to emanate from outside the organization”. The pace o f change is now so rapid, that organizations need to respond quickly to the changes that occur. Change has l always been something which managers have had to deal with, organizations must adapt to the speed of these changes, which requires management to pay more detailed attention to their external environments. Some organizations can deal with this change naturally, while other organizations fail to see the need to adapt to it and as time passes they fail to adapt quickly enough and the gap between what they should be and what they actually are widens. “As the pace of change quickens so the gulf between an organization and the environment it seeks to serve is likely to grow”(Singer and Taylor PP5). Often organisations try to anticipate change, discuss it, participate in it and make provisions to soften its effects. In spite o f all that they often resist it to such an extent that when the inevitable takes place and they find themselves unable to resist any longer, by then they may well have thrown away the chance to do anything about its effects. Organisations must prepare for this change and be flexible and ready to adapt to it. First they must look to the main source of this change, which is found in the external environment. There are two types of Environment, the organisations internal and external environment. The internal environment is made up of the current employees, management and the culture o f the organisation. The success of the internal environment, management, employee relations and culture hold a strong link between a business and its external environment. Decisions made internally in the organisation affect the organisations responses to its external environment and vice versa. The main focus o f this dissertation is on the organisations external environment and how the organisation is affected by it. The author will begin by defining the external environment and examine the components of the external environment. 2 Thompson & Strickland 1999 PP27, see the Organizational environment as; “All elements existing outside the organizations boundaries that have the potential to affect the organization”. All companies are in some way or another restricted by their external environment. An organisation has three environments, local, national, and international. As an organisation moves further away from its local environment, they will experience less control over it. An organization has to learn to adapt to the needs o f its changing environment, in order to succeed. The organisations external environment is made up o f two layers: the general environment and the task environment. The general environment consists of the outer environment, it is influenced by social, political, technological, economic and international factors, which affect the organization indirectly, but do however have a substantial impact on them gradually over a long period o f time. The task environment is closer related to the organization and affects it on a day-to-day basis, such as its basic business operations and performance. These consist o f Customers, Competitors, Suppliers and the Labour market. The international environment is a combination o f both the general environment and the task environment, but on an international scale. It can provide new customers, new competitors, suppliers and a new labour market and it also influences the Political, Social, Technological and Economic trends. The reason why organizations are so concerned with their external environments and its changing pattern is due to the whole uncertainty o f it. 3 Uncertainty is defined as follows; “Uncertainty means that managers do not have sufficient information about environmental factors to understand and predict environmental needs and changes”. (Daniel Roos and Alan Altschuler 19 PP17). Uncertainty raises the risk of failure for an organisation in making responses to its external environment. It makes more difficult to calculate costs and probabilities associated with decision-making. As environmental uncertainty increases, so does the differentiation between organisational departments, which calls for greater communication. Uncertainty can sometimes result in organisational alliances. Uncertainty is dependent upon the amount of turbulence in the environment. Turbulence shows the need for an organisation to interrelate with its external environment. “Turbulence is related to dynamism. Dynamism reflects the stability of environmental factors”(Thomas and Warren 19 PP47). When turbulence is high, organizations have to adapt appropriately to match its environment changes. Naylor describes the process as being “tossed like a blade of straw among powerful currents or steered like a majestic ship more powerful than the tides”. Such is the complexity of these ever changing turbulent environments and shows that an organization must be solid and firmly connected to its external forces in order to have a ship more powerful than the turbulent seas of these competitive environments. The author will now look at the European Motor Industry, and see where the terms, change, environments, uncertainly and turbulence create a picture o f the stormy competitive conditions, and the affects they have on industry giants and small-scale competitors. 4 1.2 An Overview of the European Motor Industry Faced with intensifying competition and swelling capacity in the international economy, manufacturers must retool their market approaches, in order to compete with today’s global players, automotive manufacturers must think globally. The concept o f Globalisation introduces new concepts for manufacturing firms whom are required to make high quality, standardised products at low prices, across vastly expanded markets. The future o f the European Automotive industry is uncertain. The number o f vehicle manufacturers is falling and there is concern that those who are left unpartnered will be too small to survive. It is predicted that in the future we can expect to see only five players in the International Motor Industry General Motors, Ford, Volkswagen, Nissan and Toyota. Due to turbulent environments, small-scale operators can no longer compete and are being swept up by the industry giants. Global competition is becoming increasingly intense, smaller Brands can no longer survive the costs of production, logistics, research and development, along with added Government regulations and stringent environmental regulations, the only solution is to merge with other automobile manufacturers or to eventually be phased out by competitors. Here are examples of such acquisitions; VW acquired Audi, SEAT, Skoda, Bentley, Bugatti and Lamborghini. Honda, Rover and British Aerospace formed an alliance, but due to a failed merger, sold Rover to BMW, Ford acquired Jaguar, Volvos car business and Fiat, and now after a failed merger between BMW and Rover, Ford have gone a step further and acquired Land Rover while Rovers car production has been acquired by Alchemy. General Motors control Opel/Vauxhall and SAAB. The Automobile Industry has undergone many changes in the last 50 years. In Western Europe the post-war era saw the resurgence o f the European automobile industry, with German output increasing from 306,064 units in 1950 to over 2.055 million units in 1960. During the same decade 5 French output increased from 357,552 units to some 1.37 million units, and Italian output went up from 127,847 units to 644,633 units (Roos and Altshulerl979). The post-war European automobile industry remained mostly an export industry with the pattern o f export mainly within Europe, but by the late 1970's foreign competitors such as Ford had started integration of production and marketing and international division o f labour on a global scale. Ford began to rationalize production in 1984, by producing a model, whose engine was made in Australia, a gearbox made in Japan and a carburettor made in France. For the remainder of the 1980s internationalisation increased with further penetration by the Japanese and American players into European markets. The introduction o f Japanese manufacturers brought new manufacturing terms to Europe, such as Just in Time and Total Quality Management (which is discussed in Chapter 3). The early 1990's saw a decrease in the demand o f cars in North America, Japan and Europe, due to market maturation in North America and Europe and market saturation in Japan by 1995, when the Japanese Government lifted the trade barriers, while in Asia, Eastern Europe and Latin America vehicle registrations increased. In 1995 Western European sales grew but mainly due to incentives, such as scrappage schemes, trade-in deals and special offers on finance, however in 2000, new car registrations in Western Europe increased by 3.6% compared with January 1999. New passenger car registrations reached 1.3 million in January 2000 up from 1.26 million units in January 1999, due to increased demand in France, Italy, Spain, Ireland, Portugal and Finland. Ireland showing the steepest year to year growth, with registrations accelerating up to 56%, Italy 18.4%, Portugal up 17.9%, France with a 8.3%) rise and Britain with 1.8%. Economic growth being the main reason for this spur o f growth. (Motor Industry Management. February 2000). At present the market appears saturated, global competition is increasing. Manufacturing overcapacity in Europe is at seven million cars a year, the major manufacturers are rushing to build more, each believing that 6 it will survive while others will not. BMW and Porsche are producing cars, which can cruise at 280km/hr. On the other hand Mercedes and Swatch have gone into the Mini Car range, producing the New Smart car, Rover are relaunching the Mini and Volkswagen have gone back to Beetle Mania. Are these small cars the way to the future or is this an indication that the industry is trying to find new competitive angles and make some adverse changes for the 21st Century. Over the Past Decade several developments have propelled the automobile industry into an evolving worldwide competitive playing field. Industry internationalisation is due to the growing similarity in demand among major markets. The Maturation of European, Japanese and American markets has reduced the amount of product differentiation between these countries. Scale economies are added factors for increasing internationalisation. Economies are dependant on the different car size classes, where there are higher scale economies associated with smal 1-car production and niche car production. However equally as high are economies in research and development costs. Such concerns have become more important to automotive manufacturers because of the enormous design requirements for pollution control and energy conservation. Therefore multinational producers have significant economies because of their international integrated manufacturing systems. This allows them the opportunity to compete in Global markets jncluding markets protected by trade barriers, when foreign manufacturers produce in a country, they are exempt form trade barriers like high tariffs and stringent environmental requirements. Through the location o f production facilities in developing countries it allows them to have a competitive presence, while still being part of an integrated worldwide manufacturing system, which enables them to steer through the turbulent environments, constant change and the uncertainty that lies ahead. 7 Chapter 2 Chapter two looks at analysis tools, which can be used to establish an organisations position in the industry, these tools are the PEST and SWOT analysis. The External environment in which an organisation operates can be considered under four major headings; Political, Economical, Sociological and Technological, these are known as Michael Porters PEST factors (Thompson and Strickland 1999). The PEST factors allow organisations to analyse how the external environment affects their business activities. The author will now explain each of these factors. 2.1 PEST Analysis Political Environment The Political environment consists o f the different levels o f local, national and international power. This environment contains the legal and judicial framework established by governments in which an organization operates. The relationship between the government and the organisation is important as issues such as power, pressure and influence may arise. Large organisations need to be aware of these influences so they can be prepared for them and ensure they do not affect their business. Within each country, there are different requirements from each government. Within each government legal system there are laws by which companies must abide such as paying taxes, minimum wage issues, environmental concerns, safety at work standards, and fair recruitment. In cases where governments have set attitudes, it can affect an organisations decision-making, on the other hand, if the government portray a laissez faire attitude towards the organisation then operations will be easier. Governments desire to create a good economic and social environment and often organisations, are faced with questions such as what is their business confidence and what is their willingness to invest and expand 8 in that economy? Within the international political framework there has been increased growth of trade alliances within the E.U and N.A.F.T.A regions. Economic Environment The Economic environment relates to the flow o f energy, information, money, products and services, which are critical to the success o f the organization. Economic change can greatly affect organizational operations. In a national domain, the health o f the economic situation can be measured by the impact of growth and decline in Gross Domestic Product, income and inflation, interest rates and employment. Like with the political environment, the economic environment becomes more complex in international markets, due to varying government policies and trade blocks, fluctuating exchange rates and converging economic indicators. Sociological Environment Social forces can be considered as traditions, values, trends in society and societal expectations of a business. A company must respect social traditions and values such as practices, which have been in place for decades or issues that a society hold in high regard. Societal trends can present an organisation with opportunities or threats, if their products are popular, in fashion or dated. Demographic trends are also an important part o f the forces, which can affect business opportunities. The demographic and lifestyle variables will influence the expectations and whereabouts o f the organisations labour supply and customers, and issues such as baby booms. Societies expectations can also present opportunities or threats for a company. The people who form these groups are called stakeholders. Organisations must look at international markets where values change and adjust over time, so policies need to be updated annually or changed depending on the trading area, since the values of one country may not be compatible with another. 9 Technological Environment The Technological Environment is related to the development of knowledge about machines, materials, processes and tools. The level o f technology in an organization, industry or society determines the kinds o f product and service, which can be produced, the equipment used and the methods of management required. Technology can be used as a driving force shaping the future of an organization and therefore a way of gaining competitive advantage. Technology allows companies to perform tasks at lower costs and ensure higher quality, which in turn brings greater customer satisfaction. Failure to recognize this need for new technology can result in organization failure. 2.2 SWOT Analysis The second analytical tool as previously mentioned is the S.W.O.T analysis, now the author will discuss this tool in more detail by giving examples of what each entails. The Strengths, Weaknesses, Opportunities and Threats (S.W.O.T) analysis is an excellent tool used to pinpoint an organisations overall position in the market. Thompson and Strickland see the S.W.O.T analysis as being useful in order “that strategic-making efforts must aim at producing a good fit between a companies resource capability and its external situation”. A S.W.O.T analysis conducts, an analysis of a companies resource advantages and deficiencies, its market opportunities in the future and its threats that could affect the company in the future. Strengths, a strength can be a positive characteristic, which a company possesses, which gives then a competitive advantage above other companies. An example of such can be a skill or expertise, valuable physical assets, valuable human assets, organisational assets, valuable intangible assets, competitive capabilities, alliances or cooperative ventures. 10 Weaknesses, a weakness is something a firm lacks or does badly which leaves them at a disadvantage. Weakness can relate to lacking in competitive skills or expertise, a lack o f competitively important physical, human, organisational or intangible assets, or lack o f competitiveness in key areas. A weakness may or may not make a company competitively vulnerable, depending on how much the weakness matters in the market place and whether it can be overcome by the resources and strengths in the companies position. Examples of Weaknesses are internal operating problems, a debt on the balance sheet, lack of R&D, weakness o f product quality, weak brand image or reputation, high overall cost units relative to competitors. Opportunities, if a companies opportunities are assessed properly it can help them to opt for an effective strategic direction. By identifying their opportunities, they can build on these and plan to achieve them. These opportunities involve increased customer range, falling trade barriers in attractive foreign countries. Alliances or joint adventures. Threats, a threat is as the name suggests a threat in the current market, which causes an organisation to be less competitive. Often what happens in a companies external environment, can pose threats to a companies profitability and market position. Examples o f these are cheaper technologies, new products by rivals, entry o f foreign competitors with lower costs, adverse changes in foreign exchange rates. The author will apply the PEST factors and the S.W.O.T analysis to the Case Studies in chapter 5. 11 Chapter 3 Foreign Influences The European Automobile Industry has been greatly influenced by Foreign Manufacturers, to the greatest degree by the Japanese, and during the post war era by the American, but the Japanese styles evolved to be the most successful and have been adopted in Europe. 3.1 Japanese Influences Japanese success lies in the co-operative nature o f the relationship between the Japanese Government and the automobile industiy, their focused quality control, manufacturing methods and personnel practices. They have gained entry into European Markets since the 1970's and many European Manufacturers have copied their techniques and formed partnerships with them. The Japanese are regarding as having the best manufacturing systems in the world, however the origin of these manufacturing styles did not come from Japan. The total quality concept is assumed to be Japanese in origin, but it was introduced by an American called J.M Juran. Juran's philosophy was that quality control should be an important part of management. Juran and other quality control experts such as Denning and Feigenbaum were conveying these ideas to manufacturers in Europe and America, but they were ignored. Schonberger (1982) believes that the Japanese took to their ideas due to the resource scarcity in Japan, which called for elimination of waste, which was caused by bad production output. Also in Japan there is the idea of' specialisation in organisations, Schonberger suggests that this has lead to the reason for quality becoming “natural place” in organisations, especially where production is concerned. This was however strongly in contrast to the Western view, who exercised the “policeman” approach which portrays the idea o f inspectors with measuring sticks keeping a constant eye on the production lines and the workers. 12 The Just In Time (J.I.T) idea is simple; “produce and deliver finished goods just in time to be sold, sub assemblies just in time to be assembled into finished goods, fabricated parts just in time to go into sub-assemblees and purchased materials just in time to be transformed into fabricated parts” Oliver and Wilkinson 1998, pp 15). A simpler explanation is the goal o f JIT has been described as <lto produce instantaneously, with perfect quality and minimum waste”(Bichenol987,p.l92). The Japanese aim is to achieve perfect quality by maintaining strict control over the production process and minimising waste which involves removing any non­ value added operations from the process, examples o f these are storage, inspection and movement in the factory, all these factors actually add cost to the product and not value. The reasons for the origination of the Just in Time process was due to the oil shortage in the early 1970's. It was also enhanced by the development of the Japanese Economic circumstances, as they were a small nation with few natural resources, geographically isolated, and scarce land space in relation to population. Compared to Western Competitors, they had a severe disadvantage; therefore Just In Time was developed as a response to their resource constraints. In order for J.I.T to work effectively, you need swift machine set-ups, simple direction material flow, effective production line layouts, group technology and total quality control. Here are examples o f set up times, Set Up times in hours - Toyota-0.2, USA-6.0, Sweden -4.0, West Germany-4.0, Oliver and Barry. As you can see the Japanese have much quicker set up times. Ways of reducing these set-up times are machine standardisation, pre-kitting, development of todls and intensive training of operators. European Entry Japanese car manufacturers made their entry into international markets from the beginning of the I960's. They had succeeded in finding an effective organisational model, and a new labour relations model, which was comprised of 13 all of the above mentioned, company based unions with guaranteed lifetime employment, increased worker participation and new manufacturing methods, with emphasis on quality, such as just in time production and total quality management, these methods allowed them to make a breakthrough in production organisation, which enabled the Japanese to produce a car more quickly and obtain manufacturing accuracy in mass-market production, which had not previously been achieved, “the assembly of a typical volume produced car in the European Community took 36 hours, Japanese firms achieve the same in 20 hours or less. (NCC, 1990). This gave Japanese firms a strong competitive advantage, which allowed them to produce more efficiently and thus generate more profit. This lead to the increase o f Japanese Manufacturers market shares in America and Western Europe. Their penetration of American markets even affected smaller European manufacturers, as they experienced a decline in market share and by 1973 the Japanese had directly affected the European market. This resulted in Western European countries starting to retreat from open trade, due to Japanese imports. First the British government limited Japanese car imports to 11% of their market share. In 1977, France did the same with a limit o f 3% market share on Japanese imports. Germany had an informal agreement that Japanese manufacturers would limit imports in to the German market. In. 1981, Belgium limited Japanese imports to 7%, and Netherlands followed suite. In 1982, the Japanese were not allowed to reach beyond the 9% limit set by the EEC. Japan agreed to this voluntary trade restriction, which was to last until 1999. In 1982 the Japanese Automotive Industry saw a decline due to a strong yen, which increased reasons for overseas production, this brought about severe penetration in to Western Europe and American markets, which led to Foreign Direct Investment. Continuous trade restrictions had restricted the growth of sales in Europe and it had become commercially viable for Japanese manufacturers to establish manufacturing plants in the EEC. Japanese Manufacturers set up plants in Britain, of which the UK became their largest single market outside Japan and the USA, later they continued transplantation in Mexico, Spain and Australia. 14 It was then that Europe experienced the inside experience of Japanese manufacturing systems. Japanese penetration into Europe brought increased competition, new working practices, new management strategies and Just In Time manufacturing and also a different style of industrial relations, which introduced a new concept for Europe. According to the Japanese manufacturers there is “no traditional difference between management and workers. Everyone uses the same car park and canteen, has the same sickness scheme and perks”. (Guardian 11 Sept 1990,) In response to Japanese competition, many companies adapted their manufacturing styles such as obtaining competitive edge by sparing the use of human resources and material resources, by having built in quality practices, by keeping “buffer” stocks to a minimum which helped reduce production bottlenecks and helped prioritise production. The approach o f reducing trade union influences in the workplace and using single sourced components as opposed to multi-source components were new. Japanese management introduced the idea that production workers should be treated as professionals and taught the skills to diagnose problems, repair equipment and find defects, thus reducing the number of supervisors and repairmen as quality improves. Production and Working Methods, During the 1980's, Vauxhall, Talbot, ford and British Leyland tried to adopt to these flexible working practices of the Japanese, which meant giving assembly workers responsibility for machine maintenance and inspection. British Leyland made the best attempt in adopting these methods, adapted teamwork, with a responsible for output in a particular zone. This integration o f rotation of tasks, delegation of responsibilities, this was a break away from classic Ford production line principles. In order to cope with the single European market and free trade, Japanese competition and the problem of overcapacity, European companies responded to market pressures by following the Japanese way, following a restructuring process of copied manufacturing systems and work practices, and forming partnerships with other manufacturers. Garrahan and Stewart 1992 believe that 15 “only the strong will survive the continuing upheavals in the global auto industry”. 1998, showed Japanese Manufactures with a market share in Western Europe of 11.1%, up from 10.9% in 1997, and a decline in market share of 10.5% in 1999, down from second place in 1998, but none the less are now ranking in third place in Western markets. With the removal of voluntary restraint agreements in 1999, some of the smaller Japanese manufacturers are gearing up for major sales offensives, while the larger players are planning expansions in European manufactured output. Whether or not the Japanese succeed in increasing market share, their efforts will continuously affect the competition o f the Automotive Sector for years to come. 3.2 American Influences American manufacturing principles, founded in Detroit, gave rise to assembly workers, machine feeders and material handlers with limited skills and little knowledge about the entire production operation. These were followed by a set of workers who maintained the machinery. A third group supervised the line and maintenance workers checked quality control and communicated information to management. Shop floor workers were required to show no initiative in spotting faults, reporting problems or repairing their own machines. Quality was to be checked by supervisors or industrial mechanics. American manufacturers followed mass production systems o f standardised products, machines and extensive stocks of spare parts to act as “buffer5' stock in case o f shortages. These production systems were seen as the greatest in the world, but now these were questioned in European markets as Japanese systems begin to prevail. During the mid 1950's, two thirds o f the world motor production took place in the USA, but during the mid 1960's, penetration from Foreign importers such as Japan and European Firms caused market decline for domestic producers, which forced American manufacturers to look to European Markets. The European and American markets were open to each other by the early 1970's, where there was already a substantial trading arena, but large amounts of 16 investment in manufacturing took place in both directions. From the USA to Europe in the 1960's ad vice versa in the 1970's. This caused unrest in Europe in the late 1960's about the new “American Challenge”/w h ic h could lead to American control in the European Industry. Ford and General Motors achieved control successfully and it gave them a strong foothold in Europe, setting up plants primarily in Britain. This in turn affected European Competitors, for example VW moved production from North America to the United States and European car manufacturers e.g. Volvo, Daimler-Benz and Renault bought small American Truck manufacturers. With this increased contact between European and American Manufacturers also came more management styles. US manufacturers however did not affect European manufacturing systems the way Japan did, American firms gained market share by firstly setting up production plants in Europe and then buying into smaller companies, like they are continuing to do today, for example General Motors acquired Opel/ Vauxhall, Saab and others, Ford acquired Jaguar, Volvo, Fiat and most recently Land Rover, previously owned by the BMW group. Ford group however are losing their 1998, While Daimler Chrysler admits that they need to improve their quality output and extend their product line if they want to increase its customer base in Europe. American companies realise that the European market is highly concentrated, described by industry watch as “one of the most Hottest in the world”. (Feb29, 2000), due to these Foreign Influences primarily from Japan and America. 17 Chapter 4 4.1 Research Methodology The author, choose to focus her dissertation on the Automotive Industry, which has always been of great interest to her, with its rapidity of change and technological advances. Her interest was further enhanced due to the work experience she received in the industry. The Author carried out her Research Methodology in the form of Secondary and Primary Research. 4.1 Secondary Research Secondary data is “information that already exists somewhere having been collected for another purpose7' Kotler (1993 PP89). The author made use of this data during research and the information collected in chapters one to six of this dissertation. The Secondary Research was undertaken prior to Primary Research, which involved extensive reading in order to receive general background knowledge in the Motor Industry. This secondary research was carried out by an extensive search of relevant books, journals, magazines and computer databases. Having carried out her secondary research the author decided that there was good grounding for further discussion, to examine the changing environment and the unsure future of so many manufacturers. Secondary Research provided would the necessary information, theoretical and industrial background. Then in order to outline the industry structure, she carefully selected two companies to carry out a case study on, in order to show the effects o f the environment on different manufacturers. The author choose to compare a leading manufacturer with a lower end manufacturer, merely to show the difficulties the environment poses on 18 both, while at the same time outlining the regularity o f acquisitions and highlighting the importance of being competitive in order to survive. 4.2 Primary Research Primary data is the collection of data for the specific purpose at hand. When carrying out Primary Research there are a number o f options one may use, firstly qualitative or quantitative data. By the term Qualitative “we mean any kind of research that produces findings not arrived a by means o f statistical procedures or other means of quantification”. Qualitative data can refer to research about persons, lives, stories, behaviour, but also organisational functioning or social movements. Quantitative research is a “genre which uses a special language which looks at “variables, control, measurement, and experiments. (Strauss and Corbin PP12). Quantitative research contains five methods o f quantitative research. These include a social survey, an experiment, official statistics, structured observation, or content analysis. Other types include questionnaires open or closed, interview, structured or semi structured, or case studies. According to Strauss and Corbin, there is the possibility to combine both Qualitative and Quantitative methods. Most researchers focus on one or the other, but it is possible to combine both, one might use qualitative data to illustrate or clarify quantitatively derived findings, or one could use some form of quantitative data to partially validate ones qualitative analysis. (Strauss and Corbin PP20). Hence in this dissertation the author used primarily qualitative data, but also used quantitative data in instances where it was needed to portray a particular point. The author decided the use a semi-structured questionnaire, which was useful in order to obtain opinions of industry representatives. Then by carrying out more extensive data research, the author looked for articles in Newspapers, Magazines, Internet and Annual Reports o f both companies. She also had direct contact with both companies Irish Representative groups and Rover group U.K. by telephone in order to attain annual reports. The information gathered from the two case studies 19 allowed the author in turn to compile a suitable questionnaire, to back up information already found and to get a glance o f what might be expected to arise in the Future. Appendix (ii) contains the schedule. Three Industry representatives were chosen, one from the Volkswagen group, one from the Rover Group and One from the Society of the Irish Motor Industry (S.I.M.I), in order to get a balanced view of the industry. Initial contact was made by telephone to acetate their willingness to participate where they were given a brief outline o f what the interview would contain, this was followed by an appointment to meet. The questionnaire was phrased in simple terms. The semi-structured questionnaire was useful for maintaining a consistent direction and format. Personal interviews were used to obtain best results, as some o f the questions were open. Questionnaire Responses are listed in Appendix (1). 4.3 Overall Comments The author experienced difficulties in obtaining textbook material, which were mostly written in the 1970's and out o f date. While researching magazine articles, there was the necessity to cross-referenced everything to get quality data. It was extremely difficult to get annual reports from both company’s Irish representatives for 1998 and neither held one on file previous to 1998. BMW presented their group figures, but Rover were hidden among them. See Appendix (2). The SIMI were particularly helpful, with sales figures, they supplied the author with forwarding email addresses to obtain sales figures for European and World sales. The Research Method chosen was best suited to the authors information needs and the questionnaire gave her the confirmation that she needed to bring her point across. 20 Chapter 5 Chapter 5 is an examination of two case studies personally selected by the author, which are the “Volkswagen Group” and the “Rover Group”. These case studies are used to support the author’s argument, that the changing environment o f the motor industry has a significant impact on automotive manufacturers decisions, whether they are a small or a large scale producer. This chapter first of all, gives a general outline of both companies, and then an analysis of each company is presented using the analytical tools from Chapter 2. 5.1 Volkswagen Case study A conversation which took place between Adolf Hitler and Ferdinard Porsche a renowned car designer, led to the production o f the Ultimate German car: the Volkswagen Beetle. The foundation stone of the Volkswagen factory was laid near Fallersleben in 1938. The Factory originated from Hitler’s obsession to produce the “Volkswagen” the “Peoples Car” . In 1942 the majority of the workforce was provided by forced labour from various countries during the war. In 1944 due to air raids, parts of the factories production halls were destroyed. After the war, the post-war reconstruction under British direction began; ownership o f the plant was divided between the Federal Government o f Germany and the Government of Lower Saxony. In June 1945 work recommenced with the repair o f British Army vehicles. Ford’s British representative Ernst Breech, had the option o f taking over VW, but his famous reply was “1 don’t think what we are being offered is worth a damn”(Nelson 1967,PP57). The factory that nobody wanted was turned over to the Germans and run initially by a British Army Officer, called Ivan Hirst. Who was responsible for keeping the factory going, which many saw as ironic, that a 2J British army officer could fulfil Hitlers dream. Hirst was glad that Ford declined the oifer; he believed the factory belonged to the German people. In 19485 Dip Ing. Heinrich Nordhoff became General Manager and took over the running of the Factory. Production started to increase. Heinrich had 3 main objectives, which he achieved. Firstly at home he achieved market dominance, then he started exporting first of all to Europe, then the USA, later Australia and Brazil in 1956. Volkswagen had become a multinational company with its increasingly widespread network of production plants in the 1950s and 1960s, however their foreign connections were not just production based, they established a transport company in Sweden, a leasing company in Mexico, an assembly plant in Sarajevo, Yugoslavia, and in Germany a large car rental company. By the early 70's the motor industry was becoming more competitive, the consumer expected better standards of comfort, safety, economy and environmental factors. Nordhoff died in 1968 at the age o f 69. He had achieved great success during the 1950's and 1960's, but increased competition had required new strategies and now his successors faced the challenge of creating them. In 1974, came the oil crisis and the economic recession. This Arab oil embargo, led to a ban on Sunday driving in Germany. Due to this embargo and economic recession a number of employees were made redundant. VW had to fight back to remain competitive and so they introduced the Polo and the Passat. In March 1973, VW produced its second great success; the VW G olf VW contirued to expand by opening plants in Egypt where the Beetle cars were produced and later they set up a parts factory in Canada. In 1983 they signed an agreement with China and the first Santana was assembled. This was a great achievement because of China's renowned entry barriers. In 1986 they acquired SEAT, from the Spanish government. In May 1990 they set up an in-house import and distributing company in Japan called “Volkswagen and Audi K.K” They also set up a Property Management Company. In December 1990, Skoda became the fourth mark in the group. This gave them expansion into Eastern and Central Europe, along with lower production costs. VW bought 31% o f Skoda in the 22 takeover from the Czech Automobile Manufacturer and by 1994 they increased their share holding to 70%(Volkswagen Annual Report 1995). VW 's main aim was to marry German efficiency and quality control with Czechoslovakian low costs, resulting in the production o f competitively priced cars which could be sold in Western and European Central markets. The additional brand o f Skoda led to a new adaptation in management styles, which separated the Group Management and the Marque Management. In 1993, Dr. techn. h.c Dipl.Ing.ETH Ferdinard Piech took over as Chairman of VW AG Board o f Management. Since his appointment, his turnaround of VW has been remarkable. He has had to deal with the nasty suing over ex General Motors Executive Jose Ignacio Lopez and was accused of stealing GMs company secrets. In 1998, he went on a $1 billion shopping spree for Bentley, Bugatti, and Lamborghini brands, bringing the Brand total to seven brands. Piech sees it as running two groups, one for the traditional driver, the other for the sporty drivers who want the latest technology. Piech has set each brand a target competitor, Volvo for Skoda, Alfa Romeo for Seat, BMW for Audi and Mercedes for Volkswagen (Volkswagen Representative). His future plans are to raise the reputation o f VW to that o f Audi by further boosting quality and within two years bringing out a car, to compete with the Mercedes S Class, there are also developments forecast for an Audi A 10, and a new class of lower end Bentleys, expected to bring total production o f Bentleys from 2,000 to 9,000 units. He also hopes to custom build between 100 and 200 Bugattis a year (The European 1998). While Ford spends $6.45 billion for Volvos car business and acquired Fiat, and BMW sells Rover, Piech says he will spend $37 billion in the next five years, all from cash flow, to retool factories, expand his engine line up and make heavy trucks. Although the industry believes he will bid for Volvos truck division and BMW, but Piech claims he has finished his shopping spree for now, (Motor Industry Management December 1998). The author will now use the SWOT analysis outlined in Chapter 2 to illustrate the Volkswagens, strengths, weaknesses, opportunities and threats in the market. 5.2 Case Study Analysis Strengths Volkswagen’s underlining principle is its commitment to quality. “VW macht der Qualitiat”, Volkswagen produces quality, the message is clear and simple. They offer a wide range o f cars from the lower market segment the Lupo to the prestigious newly acquired Bentley range. With this varied selection they can meet the demands of all future customers. Through their acquisitions of Audi, Seat, Skoda, Bentley, Lamborgini, and MG, they have increased their range of customers and increased their market share. They are customer focused and offer free phone numbers on which the customer can contact the factory direct, or by email. VW are trying to perfect the art of low cost manufacturing with the assistance of their highly mechanized machines. The renowned “halle 54” in Wolfs burg is one of the most advanced production lines in the world. They have previously being operating on four platforms, now they have perfected the art to just two, which saves additional costs, which means the models are similar and have shared components. “As the group (VW) perfects its platform strategy, designing lots of models that share many basic parts - its economies of scale will rival those of its suppliers”(The Economist, 1996, March 2nd). Even though the shared platform method is an old method, it seems to be working well for VW. GM tried it in the past and found many of their models suffered brand identity, and a lot of them were alike in driving and appearance. VW are now operating on “a just in time system” and have further concentrated on the lean production system methods (the Japanese Approach), which can be seen effectively in their plants in Emden and Mosel. A proven strength of Volkswagens is their investment in Advertising and Promotion. Their adverts are up to date, witty, challenging and above all effective. 24 Volkswagen use these styles with all their brands, their most recent approach, seems to be showing a car and not revealing its identity until the end which has you guessing what it is and is effective, because you will remember next time you see the add. An example of this is the Advertisement where there is a shell of a tortoise and the legs of a hare, but they don’t let on what brand it is or even what car it is! Also for example with the Skoda range, which in the past was seen as less important than the Volkswagen brand, VW have turned the brand around and now the car has surplus sales figures and unlimited interest. While people now associate the car with quality, and a firm backing, VW have always highlighted the association between the Brands and not just with Skoda, but with all their brands. These points drive home the fact that Volkswagen’s brand name, image and company reputation is an intangible asset to them and they have the marketing ability to utilise it. Volkswagens Research and Development team are highly skilled engineers. When Peich was asked how he managed the process o f running seven different brands, he replied it was simple when you had one o f the world’s greatest engineers at the top (Economist 1999). His research and development team, are keen and produce innovative products, and respond to customer needs, from inbuilt Personal Computers, Navigation Systems, Inbuilt coffee machines, refrigerated cool boxes, added safety and special needs features. Along with these they are constantly working on new ways to improve their models and face lift old ones, for example their latest invention is the updated Volkswagen Beetle, which everyone once reminisced on and associated with the era o f the Beetle and Flower Power, and now they can relive it. Volkswagen have production plants in each o f the following countries, which are Belgium, Czech Republic, Germany, Austria, Spain, Poland, Taiwan, Brazil, Indonesia, Mexico, Bosnia-Herzegovina, South Africa, USA, Portugal, Hungary, China and Japan (Annual Report 1998). Volkswagen has an excellent distribution network. The monstrous 7 deck ships and endless train carriages conduct their transport systems from these countries to the rest o f the world. 25 Weaknesses While the above are Volkswagens positive traits, like every other organisation they also have their problems. VW workers are flexible and hard working and while there is a positive working environment, these same workers carry a strong trade union influence. VW negotiates its working and pay conditions with its own workers. The workers are part of a union called the IG Metal. This union exerts a strong influence on VW and can demand higher wages and affect decisions to produce outside Germany. For example when VW set up its plant in Mexico, it was estimated that a typical worker in Mexico is paid onetenth of what the same worker receives in the U.S. (The European, October 19th 1998). Germany is a country with the highest labour costs in the whole automotive industry. VW estimates that their Mexican plant saves them 12 and 15 per c-i;nt compared to German costs. (The European, 1998). Average costs in Germany run at 64DM per hour including benefits, in comparison the U.S averages out at 45DM per hour. These figures shown for 1998, it has since increased, with continuous upward pressure, most recent pay rise sought by workers was 6%, and probably set to continue as VW continue to churn out the profits. VW has seven production plants in Germany who are all part o f the IG Metal, which could pose increased future threats to VW decisions. This leaves the company in a vulnerable position. As a result of these strong trade union influences, in sourcing has developed. VW have reduced its amount of outsourcing and increased its amount o f in sourcing, i.e. taking back work from their suppliers. VW have agreed to sack fewer workers, so they can offer greater flexibility on wages and work practices. An example of this is when VW moved production o f its power steering and axles back inside the company, when it was decided that workers could make them cheaper than to outsource them. According to the Economist May 16 1996, even Volkswagens outsourcing can look like in sourcing. Continental, a tyre company whom makes tubing for VW, hired workers and factory space from VW. VW 26 insists they are not loosing out on reducing their outsourcing, when their workers can make them cheaper and thus reduces trade union aggravation and job losses. VW has had internal disputes, which have affected their share price. Jose Ignacio Lopez, who was a confidante o f GM boss, Jack Smith, left GM to join VW. Apparently he had stolen company secrets, such as GMs product plans. This resulted in a string of legal cases, against Lopez and VW executives. GM sought $4 billion in losses. As the battle continued, it painted a bad picture for VW and had started to affect their share price, within one day of the court ruling, Volkswagens market share had fallen by 5%(The Economist November 30th, 1996). VW suffered the most damaging affects and apparently the mpst damaging press releases were released by VW insiders in order to tumble Piech from power, however Piech did not fall from power, he sacked his internal enemies along with them and settled the dispute. Opportunities As the author has previously mentioned above the issue o f environmental issues are an added cost factor, but are also an area, which could give companies an added competitive advantage. VW who are working in a very environmental conscious Germany, are very advanced on environmental issues. They are already planning to build a car, which is totally recyclicable, which means cars will no longer be thrown on scrap heaps. Car batteries can already be recycled, and with further research, and proper recycling procedures, recycling will benefit the costs gone into research when manufacturers will have less material costs. Volkswagen have opportunities in the future to expand into the prestigious car market, while they have already acquired the brands o f Lamborghini, Bentley and have rights to the Rolls-Royce Brand until 2003, they are beginning to invest more into the Bentley in order to produce a lower priced Bentley model. A further opportunity to advance into this segment could be by approaching BMW, who are now one of the two un-partnered manufacturers (along with Porsche) left in the automotive industry. BMW is at present a direct competitor o f Volkswagens Audi 27 division, such a merger would increase Audi’s market share in this luxury segment and at the same time reduce a competitor. Threats As we have seen in Chapter 1, the automotive industry is experiencing rapid changes and organisations are finding it more and more difficult to survive the competition. Volkswagen is no exception to this situation. They are in a comfortable first position in Europe, but on a larger scale they are less dominant position and suffer a threatened future. VW, like all manufacturers are becoming more and more vulnerable to the slow down in market growth, with each competitor fighting for a larger slice o f the market. VW profits for 1999 are down on 1998 figures, see appendix (2). In Global terms, they are too small to continue competing effectively. They are vulnerable to the industry driving forces, such as shifts in industry growth and the present increased supply in production but reduced buyer demand. Their future may be focused on merger or acquisition. Additional regulatory requirements, reduced emissions output, more environmentally friendly cars (VW are already talking about the totally recyclable car of the future), and the whole issue o f recalls are all added cost factors to the manufacturers of today. The latter has begun to impose increased threats on manufacturers, which can damage a company’s reputation. A recall is when a car is taken back from the customer due to a technical fault. For example in 1999, a number of Audi TT's, were called back when it emerged that the car was unsafe travelling at lOOmiles/hr. This type o f blow, can greatly affect a brand reputation, causing the customer to think again before purchasing. As we have seen in Chapter two, an organisations external environment can greatly affect a company’s actions and decisions in different trading areas and often the Political and Economic environments are interrelated. Companies undergo many changes in relation to their external environments. 28 Political and Economic Environments During the post-war era, VW went through a difficult period of restructuring. The war had cost Germany 1,128,000,000,000 DM (Nelson 1967), needless to say the economy was in a state o f depression and the mark was worthless. The VW factory at Wolfsburg didn’t have money to buy raw materials, so they were reduced to bartering. They traded cars for steel, food, shoes and clothing to obtain the bare necessities for their workers. They traded with the British Army in order to get tyres, Nelson reported “to have had as much as one hundred cars on the floor with no wheels or tyres or glass, waiting for further supplies”. There was no money available to them, bartering was the only way. It was by no means a good time to build a car especially when “every German would have been lucky to get a new suit every 40 years, a new shirt every 10 years and a pair of socks every 4 years”, but thanks to Hirst and Nordhoff, they pulled through. In 1989, VW saw Economic growth opportunities in Eastern Germany. Political freedom allowed them to pursue their objectives, with the opening of the frontiers between East and West on November 9th, 1989. VW took the initiative in realizing a vehicle-manufacturing project in the East. Volkswagen IFA-Pkw set up a production plant in December 1989. VW were well placed in order to achieve this project. They had during the 1980's, set up a golf engine factory for the IFA, who produced Tabant cars. Since the 1970's VW had purchased goods from what was formerly East Germany and since 1988 set up a plant in Chemnitz that supplied engines, which is situated near Dresden. After the unification, they also set up a plant in Mosel near Zwickau. VW at the time was the largest private investor in the new states. With the break down o f these political barriers, the combination of economic growth and political intervention brought many opportunities for VW. Also a similar situation arose in Czechoslovakia, which paved the way for opening up new markets in Central and Eastern Europe. The Czech Government decided to enter into cooperation with VW by integrating Skoda into the VW Group, which was expected to and has brought immense profits for both sides and 29 play a key role in future economic development. This development was part of VW's preparations for the single European Market in 1993 and to achieve a better competitive advantage throughout Europe. In markets such as China, Japan, Brazil, and Mexico, political and economic issues affected VW. VW was the first European manufacturer to gain entry into China, this market was extremely hard to enter, later the Chinese government selected two other German companies, which shows.entry was only by a selection process. The Chinese government introduced an automotive policy in 1994, which prohibited new car manufacturing plants until 1997 and they had further restrictions. Any companies wanting to produce in China must show a commitment by investing in the components sector. In Japan entry was also difficult, due to Government trade barriers and stringent safety checks. The Japanese government were protective of their environment and they introduced stricter environmental laws, which forced manufacturers to produce more environmental friendly fuels and vehicles. In Brazil and South America, VW lost sales due to a collapsing car market and government influences. The market had improved by 1993, when VW made an agreement with the Brazilian government to start production of the beetle. In Mexico similar problems arose, during the 1980's, sales declined due to massive indebt ness o f the Mexican government, taxation on cars, strikes and poor labour relations. Sociological Environment Sociological problems experienced by VW were mainly due to the effects of the Second World War. In 1949, when Nordhoff went to New York to look for American customers for the Beetle, the response he received was negative. The Beetle was perceived as “a Nazzi creation”, (Walter Henry Nelson 1967 PP43), this opinion was still felt even four years after the war. The Americans also saw it as out of tune and out of date with public tastes. When VW entered Czechoslovakia in 1989, many Czech’s did not approve of their entry, having caused so much suffering during the war. Now today VW are paying contribution money to the slaves and their families, who 30 had to work in VW plants during the war. They have set up a fund in total o f 20 Million DM (Annual Report 1998). Technological Environment Technological advances have become the key to organisational success and VW have acknowledged that fact. VW have introduced world-class technology, their production line in Wolfsburg is one o f the longest enclosed assembly lines in the world. They have also introduced Just In Time Production techniques at Emden and Mosel. They are now operating on their two-platform strategy, on a QS9000 standard. They have technological advances in computerised car testing, quality checks, crash dummy tests, heat, cold and rain perseverance tests. New technological developments in the areas of Internet customer service, direct selling and Intranet car ordering for dealers, which enables the dealer to check where the car is, in shipment, production line or at its destination. VW have intensified research into motive power technologies. They are exploring the prospects o f using a methanol-based fuel cell as opposed to Petrol or Diesel. They also supply a telematics service, which supplies traffic updates, and geographical information systems, which are based on, satellite tracking, mobile communications and state of the art computer technology. Using the same structure, the author will firstly give a background to the Rover Group and then she will examine the Rover Group using the same tools as in the previous section. 5.3 Rover Case study The Rover company was founded in 1877, when a partnership was formed between John Kemp Starley and William Sutton. After a short time, Sutton left the business while Starley remained with the company until 1901. In 1888 Starley designed and manufactured a motorized tricycle and was produced in 1903. By 1904 the first rover car was manufactured. Until the late 1920's Rover continued to make a simple, robust and well-made economy motorcar. In 1933, the Wilks 31 brothers took over management of the Rover Company and they introduced a new product philosophy, which concentrated on image and British Quality. From 1936 onwards Rover participated in the governments factory scheme, which resulted in building new factories at Birmingham and Solihull. Encouraged by unexpected success, the Rover company were quick to widen and expand their range of motorcars and went on to produce their next success the “P2” in the late 1930's and then in 1949 saw the launch o f the Land Rover. There next success was the “P5” in 1958, which was described “as having a combined elegance with dignity and had a traditionally well-appointed interior”(Rover Product Publication 1999). In 1963, they developed the “P6” model, which started the trend of executive cars. The effects of the 2nd World War on the British Motor Industry in the post war period did not leave Rover untouched. In 1968, came the alliance of Britain’s largest car manufacturers. The British Motor Company who owned Austin, Morris, and MG. British Leyland Rover was merged with Triumph and Jaguar as a maker o f upmarket specialist cars. Rovers P5 and P8 model was discontinued in 1973 as they were too close in competition to the Jaguar XJ6. The new Rover car of 1976 was the SD1 and it received the car of the year title. Rovers, parent company British Leyland had encountered financial difficulties in 1975, which led to the nationalisation o f the company. It had been renamed British Leyland Motor Corporation, the Company was nationalized by the Labour Government to stop its collapse. It became a continual loss making organization. In the early 1980's it received state aid o f £2 Billion and still had accumulated losses of £2.6 Billion (Whislerl996). With such a loss making entity they were forced to sell off two parts. Unipart and Jaguar were floated off as separate companies (Jaguar was purchased by Ford, and Unipart bus and truck operations were sold to Volvo and DAF. The Car business was kept and started to plan how it was going to reshape itself for the future. Under the BLMC they produced a cavalcade of low quality cars; the Allegro, Maxi, Marina and the Princess. Chief Executive at the time Michael Edwards wanted to bring about a rationalization plan and was determined to control the trade union power which 32 dominated during the 1970's and early 1980's, which had a major contribution to British Leyland’s falling profits. The Rationalization Plan did not succeed and the company continued to make losses. The conservative government at the time were becoming uneasy about the idea o f pumping more money into a non-profit organization. Management saw the need for an alliance. In Desperation Michael Edwards asked Honda to help out in 1978. In September 1978 the Strategic Alliance was formed after a meeting between the two companies in San Francisco. They formed Links in 1979, bringing advantages for both sides. It gave the Japanese carmaker an important European outlet for its products when it was under increasing competition at home by Nissan and Toyota. Honda needed a manufacturing base to gain access to the single European Market; Rover provided it, together with a UK brand name well Known in Japan. From Rovers viewpoint, Honda appeared as a rescuer from possible collapse. In 1979, Rover had slumped to a £46 million loss from the previous years £71 million profit (Whisler 1996). Big Losses continued in each o f the next three years and by the mid 1980's the connection with Honda had still not lifted Rover out of trouble. Rover had prevailing problems beset by poor Labour relations, strikes and low productivity. Rover hoped to revive its fortunes through Honda’s injection of expertise. Rover, were in a prime position to learn and apply Japanese production and technology. 33 Operating Profits of the Rover Group 1982-1993 It wasn’t until 1987 that Rover resurfaced, due to extensive restructuring programmes brought about by Sir Graham Day. For Honda the alliance produced immediate rewards* In 1989 Honda sold 141,000 cars within the European Community; in 1990 it increased sales by 17% to 165,000 (Whisler 1996). As we can see from the graph above, from 1991 to 1993, mutual gains had become obvious in sales and production levels. Rover had the chance to finally make use of the knowledge associated with Hondas innovative, quality driven approach to engineering and Honda had been able to share costs and exploit a European distribution network. By the mid 1980's cracks had begun to appear in the joint vehicle production programme. Problems, such as different management and production traditions. The two companies had a culture clash as early as 1981, with the troublesome Project XX, which was the joint production o f the Rover 800 executive saloon and the Honda Legend executive car. Both Companies were determined to preserve their own working methods, which led to breakdowns in communications. 34 This corporate deadlock resulted in several time consuming errors, apparently two and a half years into Project XX, Honda produced an engine slightly too big to fit the car. This created an 18-month delay. Clearly the idea that Rover should manufacture Hondas car did not work out. However the Project XX did teach both partners some worthwhile lessons. After that both companies doubled their efforts to ensure high quality and Rover had seen the need for improved training of its staff. The Rover 200 and 400 launched in 1989 were jointly produced with the Honda Concerto and were recognized to be better quality Rover products. Fears grew that the future collaboration of both Companies was to be limited. Hondas objectives were dominating and indicated that Rover would become just a badge on someone else’s car (Whisler 1996). Hondas 20% share in Rover cemented a relationship that lasted 15 years and lifted Rover from its financial gloom, while allowing the dignity o f the British carmaker to remain intact. In June 1994 British Aerospace sold their holding, 80% of Rover to BMW for £800 Million leaving Honda with its 20%(The Economist July 1994). Honda had the opportunity to purchase but refused to buy any more than 47.5% share of the company. To British Aerospace (Bae) this refusal to take a risk summed up Hondas approach from the start. While Honda undoubted taught Rover to make better cars it also got a cheap entry into Europe (and a customer for its engines). The Japanese were wary of going any further, refusing to invest in Land Rover for example, or to help Rover market its products in Europe and North America. So when Honda turned down the option, BMW offered £800million and BAe quickly accepted. The deal gave Bae a clear exit from Rover, which it had bought an 80% share in, in September 1988 from the British Government. It offered BMW a world leading four-wheel drive manufacturer - Land Rover, which was far less expensive than to start building its own four-wheel drive brand. It also gave BMW access to a company, which thanks to its 15-year long relationship with Honda, it had direct experience o f the Japanese manufacturing methods and at the same time it removed a competitor. 35 The match of Rover and BMW had somewhat o f a sentimental value, in that the uncle of Bernard Pischetsrieder (BMW chief executive o f the Rover Project) was the engineer who designed the original Mini. BMW invested $1.3 billion in Rover over the five years previous to 1998, and yet Rover reported a loss of $1 billion in 1998, dragging BMW group profits lower, causing market share to dive from 12% in 1995 to 8.5% in 1998, which eventually resulted in the resignation o f Pischetsrieder (Marketing February 1999). Problems in productivity and management were beginning to arise, BMW had kept Rover management at an arms length, which was beginning to show and there was the everlasting problem o f branding. Many thought Rover would generate mass- market demand for BMW. They tried to position Rover as a premium brand, even though its cars were distinctly mid-market. BMW generated nearly $1 billion in free cash flow in 1998. The trouble was most o f that money was soaked up by Rover. The new chief executive Joachim Milberg moved swiftly in taking control of Rover. He had planned an investment of 30 billion marks over the next five years to introduce new models and boost sales. Milberg expected the money-losing Rover subsidiary to break even by 2002 (Motor Industry January 1999). As recent as January 2000 BMW reported that its 1999 earnings had changed little from the previous year (903 million marks) and that restructuring at Rover led to 5% drop in BMW's total output last year (1999), with Rover sales down 25%. Sales o f BMW vehicles rose 7.4%, while those o f its Land Rover arm surged 16 %. BMW said in 1999 it would invest 10 billion marks in Rover over the next five years (Automotive News November 1999). All hopes rest on the new Rover 75, with its traditional chrome strips down the side derived from the P5 (the prime ministers car o f the 7 0 's) This model is hoped to boost customer confidence in the Rover Brand along with the new Mini appearing in 2001 and the R30 replacing the Rover 200 and 400, which could allow Rover the potential to change its image. Analyst Georg Stuerzer said in February 1999, “ we think the worst is over at Rover and we see it as a turnaround story”(Marketing 1999). However since then, further developments have arisen and BMWs plans for investment have come to a halt. For BMW the 36 turnaround story never happened. March 2000, BMW sold Rover, MG, to Alchemy, while land Rover was sold to Ford. BMW sold Rover, MG, and “old mini Brand” to an upstart British venture capital group, called Alchemy, who have no past experience in the automotive industry. They have abandoned previous plans to Rover cars. BMW had entered talks with various venture capitalists over the last few months. The sale has seen the resignation of 3 of the BMW board of management. Alchemy paid out “£50 million for the Rover assets but hi\ve placed a net book value on Rover o f £1 billion on the groups assets and b ra n d s”(A u to m o tiv e 2000). Compared to the DM6 billion which BMW has paid out in the last 6 years, it seems that Alchemy got a good bargain. BMW will continue to make the Rover 75 and the new Mini for Alchemy, in order to cut some of their losses. A BMW executive was recently quoted in saying, “This is a business (Rover) where we saw no prospect o f returning to profit”. Now we can look to fresh horizons”(Automotive March 2000). This is a contrast to the statement made by Georg Steuzer who thought Rover was a turnaround story. BMW's plans to revive Rover are now history. 5.4Case Study Analysis Rover, who have undergone dramatic changes in the last few months, have yet again been taken over by new management. As in the case study on Volkswagen, the author will use the same analysis tools, which include the SWOT analysis, and Porters PEST analysis. Strengths Even though Rover has a history o f takeovers, they have made some adaptations in responding to their competitive environment. Rover are committing themselves to improved customer service, they have installed a new IT system for improved global data exchange, and have designed a new electronic parts catalogue. They have also extended their breakdown services. They have switched their breakdown service from AA to Mondial. Mondial assistance became the new provider o f breakdown and recovery services to Rover, MG, and Mini since 37 January 1999. This new assistance involved a fleet o f Land Rover Discovery’s to attend all Rover Group breakdowns, which focus on real customer assistance. In 1997, development teams and technical departments at Rover joined forces with BMW, at the newly opened research and development centre in Gaydon near Birmingham. This was an excellent step towards coordinating communications and data processing systems used in the development sector of both BMW and Rover. The new Rover 75 is a prime example o f their successful integration. The new research centre is run in coordination with the University of Warwick Advanced Technology Centre. BMW and Rover, primarily BMW have realised the need for a recycling strategy, where there are collection points and recycling facilities. They have also approached their prevailing Quality problem and in turn updated their test facilities, adopted from the BMW ‘"test bible”, which is a BMW designed portable computer, which carries out safety checks. Rover, have introduced new information centres, which are stress free for customers. The centre contains a display of T.V videos presenting Rover adds, photos of production lines and explanations o f how they are operated. There are model engines and suspension systems and an interactive video system that gives detailed information about any Rover. The aim is to catch potential car buyers before they make their decision. Before they enter the centre, they walk into the dealer showroom. This was part o f the “renaissance o f rover”. It was a campaign to build on image of quality and British craftsmanship, hoping to build on growth abroad (Marketing 1991, July). Rover has also developed closer ties with its suppliers, on a system called the RG2000, Rover had set about revolutionising the way it manages projects from initial design through to manufacture. This system allows more dealer manufacturer contact, which speeds up deliveiy processes. The new Rover 75 car is positioned as a premium brand going back to the image o f the original Rover, back to 1956, based on the P5 model it is said to contain the true British values such as stylish interiors, which its previous model had. It has been compared with Jaguars recently launched, but more expensive SType executive car. It even has the traditional chrome strips down the side, derived from the P5 (the Prime Ministers car o f the 7 0 's). Everything about it is 38 classy; it is pitted against the Audi A4, the Alfa Romeo 156 and the Mercedes Benz C - class. It represents the rebirth o f the brand and a lot of Rovers fortunes are riding on it. The Rover 75 with style, quality, character and individual flair. Its features pay greater attention to detail. The design encapsulates fine materials such as chrome in the interior as well as on the exterior, soft leather and wood. Special sealing techniques effectively minimise wind, tyre and engine noise, achieving the objective of creating absolute relaxed motoring for the new Rover 75 driver. With the R75, the new mini in 2001, and the R30 replacing the 200 and 400, Rover has potential to change its image. The key to the Rover 75 is its quality. Rover pledged at the 1998 British Motor Show, “not a single car will leave our factory until we are sure the quality is right”, (Automotive, January 12th, 2000). As we can see from this quote. Rover are taking their quality seriously. While BMW brought over 70 engineer specialists from Germany to help improve quality standards. The rover 75 goes for the element o f British ness, but at its heart are the exact German standards o f engineering and Build (Automotive, January 12th 2000). They have also stepped up their customer service and introduced the new three-year warranty on the Rover 75. Weaknesses The Rover 75 has achieved high quality standards, but all Rover models need to follow suite, BMW representative hoped that the “Rover brand will become just as strong and powerful as the Rover 75 already is today”(Automotive News January 12, 2000). Quality has been a protruding problem for Rover right from the time of British Leyland Motor Company, when they were ranked at the bottom of the quality tables in Britain and the standard o f British volume built cars was lower than market rivals elsewhere. Quality is said to have declined even further in the 1960's and the 1970's as higher quality Japanese and selected European cars raised the average quality standard in world markets. The causes of low British quality were consistent throughout the post war period and related to the 39 industries other problems such as, assembly errors, inaccurate processes and product designs. Their old-fashioned plant equipment, which could not produce satisfactory products was also a disadvantage. Continuous disruptions to work routines and parts supplies caused chronic industrial action, which reduced production standards. After these strikes, they needed to double output, to meet demand, which resulted in more bad quality products, but this “quality problem” was caused by management dysfunctions. When BLMC management sought increased output, low quality standards were acceptable. They were caught in a quality or quantity dilemma. Rover could handle quality control, as long as annual volumes were low. During the 1970's, BLMC management sales were declining which stemmed in part from low quality, in reaction to the these declining sales BLMC released new models quickly. Rovers, succession of mergers has failed, while they all experienced an element of cultural integration difficulty. In the Honda/Rover alliance, the cultural differences were based in the difference between the Japanese Manufacturing and Management styles and Rovers. It appeared that Honda had kept their projects separate, and when both tried to combine working practices through their famous XX project, they failed miserably, even fitting wrong engine sizes in cars. While in their partnership with BMW, there were also cultural difficulties, where BMW kept Rover management at arms length and evidence o f internal conflict, which were caused by the financial difficulties brought about by Rover. This resulted in the management resignations particularly in the last two years. Dr. Walter Hasselkus was forced to quit Rover having admitted “he got it wrong”. Two months later BMW chairman Bernard Pischetsrieder and Dr. Wolfgang Reitzle, head of marketing and production resigned over group reorganisation. With the recent decision in March 2000, resulted in further resignations. Mr Heinrich Heitmann, BMWs head of sales and marketing, Mr. Wolfgang Ziebart, development director and Mr. Carl Peter Forster, head of production and engineering all resigned following the announcement of the new “re-orientation”. A problem which Rover management are continually faced with is the issue of Branding. Either the Rover brands marketing strategy is inaccurate or the 40 marquee itself is in trouble and its unclear sales position is reflected in its advertising. It appears that since Rover was owned by BLMC is unclear about what its brand stands for. The R75 is an attempt to reaffirm the traditional brand values of Rover cars on features such as “style and substance”. Rover has had a succession of campaigns, which have struggled to find a consistent tone or message. There is always the subtle theme of British ness in their ads, for example the older ones where two police motorcyclists are flanking down a car, or the Englishman in New York. Their more recent ads try to portray the quality, mystique stylish brand, however their advertisements lack innovation and uniqueness. Advertising and Promotion are important competitive advantage factors in today’s competitive motor industry, therefore they should be utilised to the most. There are a lot of car brands in the market, a car is one o f the most expensive fashion items and people need to be convinced. The brand says everything. Rover’s difficulties are not just about branding and marketing. Productivity has always been a problem. Rover’s products have been variable; the metro was originally an Austin, which became the mini metro and the Rover 100. The SD1 was the car of the year in 1976, but that success was never built on. The Rover 800 was an attempt at a British BMW. They did not concentrate enough, they were always racing on to the next stage, instead o f improving on the products they have. Opportunities Rover have the chance to make a name for themselves in the niche market area, and continue to base quality standards on a par with the new Rover 75, and continue this strategy with their other products. They have also the MG and Mini Brand which could keep them in a niche market. Other opportunities although it would not win government approval, would be the possibility of transferring production to a country somewhere like China, or Hungary, where they could achieve economies of scale and avail o f reduced labour costs.. 41 Threats The threats to Rover have been, continuous takeovers, inflexible management structures and increasing competition o f international manufacturers. Due to the pressures of the 1960's and 1970's, BLMC was formed, as new entrants from non-UK producers entered the market, such as the Japanese and the Americans. Inflexible management structures did not allow Rover to adapt to these changes, as they lacked the skills and experience o f dealing with such market entries. Following the failure of BLMC, they were taken over by Bae and then by foreign investors, firstly Honda and then BMW. Under their new owner Alchemy, it appears that they will face more threats than ever. Alchemy who have no experience of operating in the motor industry, will face increased competition in over capacitated markets, they will face tough strategic decisions, and must seek Government approval. For a company who have no experience they are taking on a car company, which has failed to reach profit since 1994. Alchemy has to fight the history of failed take-overs, poor quality image and achieve government satisfaction. Under a PEST analysis, we will see how the different environments affected Rover. Political Environment The Political governance over an industry can play an important role in an industry development. Sometimes government have only their own interests at heart and not of the companies. The British Government, have had a long history of involvement in the British manufacturing industry and in particular the automotive industry. Thatcher’s Labour government was to blame for the downfall o f BLMC; a report said “that incompetent managers and bloody-minded unionists ran it in to the ground”. Under Thatcher’s privatisation plan the government had persuaded Bae to buy Rover for £150m in July 1988. The government were keen to get rid of Rover having pumped some £3 million o f taxpayer’s money into the company. 42 They presented the sale of Rover as a competitive auction, when in fact it was nothing of the kind. They sought a buyer who was not in competition with Honda but yet British, Bae was the perfect solution. It followed months later that Rover had been undervalued and an additional £38m in subsidies had been hidden, which the government slipped to Bae on the quiet. However, in 1996, under EU law, Bae had to return the British Government the £ 38 million sweetener. Throughout the years, BLMC was constrained by the indirect effects of various government’s balance of payments, income and employment policies, which inhibited labour relations and created a climate of uncertainty. Employment policy was the government’s main reason to support British car manufactures in order to sustain employment and economic developments. Whatever the management weaknesses, government policies hindered rather than helped BLMC and the British Motor industry. In a world, which was becoming increasingly dominated by international and multinational manufacturers, international comparisons were central to corporate decisions on which, how and where cars should be produced. BLMC lacked the organization skills to assess their competitive environment and to respond. By contributing to a climate of uncertainty, both government and labour added to the industries problems, one effect o f which was to discourage long term planning. The failure of the British Motor industry to transform itself into an internationally competitive enterprise is explicable therefore mainly by three factors. Firstly, government policies in which political considerations constrained business decisions and assisted the multinationals strength in the domestic market. Second there was a system of industrial relations, which was rooted neither in law nor in trade union power. Third, and fundamentally there were historically rooted weaknesses in corporate structures and management, which for so many years obscured the need for systematic planning and organisational change. When the government finally took command in the late 1970's, the task of rescuing BLMC/BL had become more difficult as a result o f developments in the industry. Neither nationalisation nor privatisation prevented Britain from becoming the first 43 major car-producing country to relinquish a domestically owned independent national champion. Company’s decisions can also affect Governments. The recent pullout of BMW shocked the British Government. With 25,000 jobs in threat, Tony Blair’s euro policy comes under scrutiny. Prof Joachim Milberg said, “that the strength of sterling and uncertainty over the euro had contributed to his decision” to further invest in Rover, (Irish Times, March 18, 2000). These are prime examples of Government regulations, expectations and influences. Mr. Gordon Brown Chancellor of the Exchequer had explained in 1997, what the government economic criteria were for joining the Euro and BMW had agreed a business strategy for Rover, which indicated there would be no question of a break-up until at least 2002. The British Trade and Industry secretary has been meeting to “clarify the companies intentions”. To save the Longbridge factory. Government are afraid of the “potential political backlash in as many as 20 marginal labour seats in the Midlands”, Tony Blair is expected to ask the European Commission for a £152 million aid package, but have so far refused as they see government as a non-profit organisation in the future. Government are relived that BMW will continue to make the Rover 75 and the new mini at Cowley, which safeguards jobs there. Now in turn, Alchemy must show their commitment to the British Government. Economic Environment As each of the pest factors can affect each other, the political objectives also affected the economic environment. The decision not to join the single European Currency has had a substantial impact on sterling since 1997. The high exchange rate of the pound, led to a serious fall in prices on the British market, which affected the competitive position of Rover automobiles, which resulted in an 11% decline in sales to 250,000 units. With the strength o f the pound, exports are falling, as Britain are not part o f the Single European Currency, their foreign exchange is high and so reduces the amount o f countries who are willing to buy their products, which impacts directly on exports. Rover, do not have any foreign 44 production plants, but government decisions in foreign markets can affect them. Italy, which is one of Rovers leading markets in Western Europe, saw sales figures in 1998 reduce, due to an end to government incentive schemes. Sociological Environment The Sociological Environment affected Rover mostly by their Brand image, which had adverse affects on sales. BMW and Rover, primarily BMW have realised the need for a recycling strategy, where there are collection points and recycling facilities. They .have also approached their prevailing Quality problem and in turn updated their test facilities, adopted from the BMW “test bible”. These are attempts to boost their social image, but Rover are dominated by a History of failed takeovers, continuous industrial relations disputes throughout the 1970's and early 1980's, poor quality rumours also from the 1970's under BLMC have in total clouded peoples opinions and along with high prices have left rovers social impact on many buyers a poor one. In more recent years they have began to control the quality issue and the industrial relations, but it may be to late when customers can find a reliable product elsewhere. The issue o f present day continuing failed mergers by top companies like Honda and BMW who have been unable to revive Rover, reflects badly on Rovers image. These sociological factors do influence people’s decisions. Technological Environment Technology is shaping the industry requirements and has played a large role in today’s motor industry. In light o f these changes they have developed an updated Manufacturing plant and advanced ’ IT integration system, plus the advances of the new test bible. Like Volkswagen they are also concentrating on the reduced platform strategy. Electromagnetic interference is also an area they have concentrated on. In coordination with BMW, they have designed an EMC Testing Procedure, which is the awareness o f electromagnetic interference. A team at the University of Warwick’s Advanced Technology Centre have devised a system level EMC, which is a susceptibility test for use by Rover and Rovers 45 Suppliers. This Bulk Current Injection-based test allows testing o f automotive systems to be brought forward in the vehicle development cycle, avoiding redesigns and modifications close to the vehicle launch. Thus improving quality and successful vehicle production. 46 Chapter 6 6.1 Findings Now we have had a detailed look at the transactions o f both Volkswagen and Rover. The two companies different in size but none the less compete in the same changing environment. Throughout the case studies we have looked at their competitive advantages, their weaknesses, threats and opportunities, also the author has examined their external environments as we have seen can greatly influence an organisations decisions. By comparing the two we can see how both need to seek continuously innovations in technology, quality, customer satisfaction, and innovation to attract their future buyers. The market forces for both are threatening with consolidation becoming increasingly popular. Rover the smaller of the two are struggling in this highly competitive arena, while Volkswagen are market leaders in Europe, they face strong global competition, from Japanese and American competitors. The analysis has underlined the importance of quality to maintain customer loyalty, also touching on other attributes such as brand image, advances in technology, reduced build time, and marketing. We have seen that Rover need to improve their quality image and apply what they have achieved with the Rover 75 to their other brands. There branding strategy is uncertain and they seem unsure o f their objectives as regards market position, premium brand or medium market brand. Their manufacturing Plants are all home based when statistics show that it is four times dearer to produce in Europe, than Eastern Countries. Their cars are 30% dearer than other manufacturers in the same class, which is something that will certainly deter a punters decision to buy. They have had a proven history o f industrial relations problems during the 1970's and 1980's which in recent years have improved. A history o f failed takeovers has distorted their image and questioned their ability to produce quality cars, when 47 their turnover shows continual loss. Rovers problems lie at the hands of poor management skills, poor factories which have had to be revamped and up dated by first of all, huge injections of cash from the British government, then Honda, and last of all BMW. Strong government interest has been a huge problem in achieving objectives for Rover. As the case study indicates, the British government have had their own interests at heart, which were more important than the competitiveness of Rover. VW on the other hand, have been more successful, along the lines of Quality, Branding and low cost manufacturing. They are in tune with these fundamental factors, which are necessary for success. Volkswagens major problem is the dominance of their workforce and the bigger worry that profits for 1999, changed little from the previous year and the fact that their competitiveness in Global markets maybe slipping. Ford and other competitors are putting on the pressure by increasing growth size, thus market share. Both Companies face Internal Management disputes, which in my opinion seems to be a result of consolidation and issues concerning consolidation. Other issues causing conflict are government regulations and strict environmental laws, which affect all sizes of players. Opportunities for both seem tight in the competitive motor industry of today. As we have seen Political influences can play a huge part in both manufacturers role be it in national markets or international. Economic recessions can result in near market existing and perceptions from person to person and country to country can vary tremendously. Advances in technology and particularly the introduction o f direct sales can play advantages and disadvantages. Internet sales are driving competition. Perhaps companies can achieve economies o f scale in this regard. Both Volkswagen and Rover have adapted to this Ecommerce environment, which is the way to the future. 48 6.2 Conclusion Throughout the thesis the author has discussed the difficulties incorporated with operating in the changing, uncertain, turbulent environments of the Automotive Industry today. Chapter one gave an overview o f the industry from the post war era to present and also looked at the theoretical background necessary to understand a company’s external environment. Chapter two looked at the analysis tools necessary to conduct the analysis o f the case studies. Chapter three, examined foreign influences on Europe mainly dominated by the Japanese with some influences from American manufacturers. Chapter four outlined how the Research Methodology was conducted. Chapter five contained the most substantial evidence of the industiy developments and how the two chosen companies were affected by their external environments, through the compilation of two case studies and then the analysis procedure. An interview based on a preset questionnaire was conducted with industiy representatives confirming the uncertainty of the future of the industry, and confirming that there will be five to seven global players and the rest will be partnered with one o f them. Findings showed that firstly a company must get the quality, branding, and production of the product right, but that is not all that is needed, as the case studies have portrayed, Volkswagen achieved these factors, but still have to seek out new competitive edges in order to survive. The market is becoming overcrowded. From research the author has formed a picture, that the European Automotive Industry represents a pond of fish, and all manufacturers are all trapped inside, and there is strong competition in order to create more space (market share), while the smaller fish get squashed or get eaten by the bigger ones (acquisitions). The overview o f the industry sees Ford performing such actions, who has acquired two new firms in the last six months, Fiat and Land Rover. These changes are evident with such turmoil and desire to be competitive. Influences from foreign competitors are the driving forces for this rush, due to economic crisis in their home markets (example Japan) 49 and thirst to gain competitive advantage through expansion into European markets as was shown in Chapter three. In order to gain increased competitive advantage, manufacturers are setting up production plants in Eastern Europe and South East Asia. Hungary is the biggest growth market at present and allows low cost production labour and is allowing such manufacturers the opportunity to expand their markets in to Eastern Europe, along with Russia, Ukraine and Romania. It also works vice versa, being an attractive location for American and Asian manufacturers to invest in, as it provides them with a cost advantageous gateway to Western Europe. With automotive business declining on a global scale, economies of scale need to be increased. The future of the European Automotive Industry looks dismal for all manufacturers. Issues such as increased safety regulations, environmental standards, advances in technology, e-business, and the increasingly high number o f recalls are confronting the manufacturers o f today making it difficult to cut costs in the changing environment o f the European Motor Industry. What ever chance the large industry players have o f surviving, the European Motor industry is rapidly heading towards increased consolidation and the chance o f survival for small manufacturers is no longer existing, unless,they are teamed up with some of the industry giants, they can not survive alone. Predictions from Industry annalists are varied on how many global players there will be, but they are all agreed on the fact that there will be somewhere between five and seven main manufacturers with all other manufacturers tucked under their wing. With the increasingly strict environemental factors affecting manufacturers today, they have no choice, but to take this protection offered in the Changing Environment of the European Motor Industry of today. 50 Bibliography John M. Thomas and Warren, G. Bennis, 1972, Management o f Change and Conflict,Macmillian PP 7-147 Susan Segal Horn, The Cranfield Management Research Series, The Challenge o f International Business, pp 25-32 David Needle 1994 2nd Edition, Business in Context, An introduction to business and its environment. Richard L.Daft, Dorothy Marcic, 1996 Understanding Mangement Peter F. Drucker, 1994 Managing in a time o f great change Kotler,1993, Kotler in Marketing Derek E. Taylor and Edwin J. Singer, 1990 1st Edition New organisations from Old. How to survive and prosper in a changing environment, Macmillian Nick Oliver and Barry Wilikinson 1998 1st Edition, The Japanization o f the British Motor Industry, PP 7-12, 78, 79. Philip Garrahan and Paul Stewart 1992 1st Edition, The Nissan Enigma, flexibility at work in a local economy. Daniel Roos and Alan Altshuler 1979, 1st Edition The Future o f the Automobile 51 Tinothy R. 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Baker 1991, Research for Marketing, Sage Publications Anselm Strauss, Juliet Corbin 1990, Basics o f Qualitative Research, grounded Theory Procedures and Techniques, Sage Publications PP20 Nelson, Walter Henry 1967, 1st Edition, The Small Wonder o f the Volkswagen, Macmillian Gerry Johnson and Kevan Scholes 1999, 5th Edition, Exploring .Corporate Strategy, Prentice Hall Europe Denzin 1998, Publications Collecting and Interpreting Qualitative Materials, Sage The Economist 1996, March 2nd. The Economist 1996, November 30th Automotive News November 1999 Motor Industry Management December 1998 Motor Industry Management October 1992 Motor Industry Management February 2000 SI.M.I (Society of the Irish Motor Industry), Directory and Yearbook 1999, Dublin S1M1 Annual Conference 1995, Coping With Change, The Evolution o f the Irish Motor Industry. Business and Finance Magazine Business Week, November 22, 1999 The European, October 19, 1998 The Birmingham Post, July 24 1999 The Times, July 16 1999 The Irish Times Volkswagen Annual Reports 1990-1998 British Aero Space Annual Reports 1989-1993 BMW Group Annual Reports 1993-1998 54 Appendices Appendix 1 Questionnaire 1. In the Future, who do you see as the top five Global Manufacturers? 2. In your opinion, can you see small manufacturers continuing to survive in the competitive Motor Industry of Today and if so how? 3. The European Market is becoming more and more saturated, where do you see this market headed in the future? 4. Eastern Europe and South East Asia have become popular manufacturing bases. In your opinion, what advantages do they hold? 5. In what regions, do you see new growth for vehicle sales? 6. In your opinion, what advances in manufacturing have the Japanese brought to Europe? 7. How do you believe issues such as Environmental, Quality and Safety Regulations have affected manufacturers? 8. In recent times, recalls have become increasingly high, despite high tech quality control systems. Do you see this as significantly affecting a manufacturers image? Questionnaire Responses Interviewee, Martin Conlon Marketing Manager, Volkswagen Ireland 2000, interviewed by Phil Cooley 22/03/00. In response to the questionnaire, Martin saw the top five manufacturers o f the future being General Motors, Mercedes, Chrysler, Toyota and Volkswagen. He saw no future for small manufacturers, predicting that low volume brands to be built by Multi brand car companies. He believes the future o f the European Market would become more consolidated, with large manufactures taking over the construction of small car manufacturers, he saw this as the only option for brands with significant differentiation to continue. In the future he expects to see very few car companies, apart from the five afore mentioned. The principal advantages he associates with Eastern Europe is the low cost manufacturing and supply of labour. He sees very little possibility o f growth in the West, predicting most growth in Asia and Eastern Europe. He believes that Japanese manufacturing systems have brought better quality engineering to Europe, along with improved electronics options and a bigger variety o f model ranges. He saw environmental quality and safety factors as being important issues for manufacturers and he believes that they are increasing the costs of manufacturing and can only be met through increased economies of scale. With the issue of recalls, he said that “quality demands are being raised all the time, mainly due to the litigious society we live in recalls will probably always be a part of the Motor Industry. They do certainly impact negatively on a Brand Image”, and he used the example o f the Audi TT recall, saying it was so big it was not a recall. Questionnaire Responses Interviewee Keith Butler, Industry Analysist, the Society of the Irish Motor Industry 2000, interviewed by Phil Cooley 20/03/00. Keith talked about the occurrence of increased growth o f strategic alliances in the Motor Industry and sees it to continue over the next few years as companies seek to reduce development costs, improve economies of scale and exploit new markets. When asked who he saw as the top five producers Keith responded Ford, General Motors, Toyota, Nissan and Volkswagen Group. He saw no place for small manufacturers on their own, only through forming strategic and intellectual alliances. Reasons for this being that costs to launch a new model are increasing, while lead times, design and development times need to be reduced, which is hard to achieve with small scale manufacturing. Keith sees the industry as heading more and more in the direction of customised cars, allowing customers to actually design their own cars, with added features specialised to customer needs, which some manufacturers have already implemented. In relation to Internet sales, although Keith sees the personal sale remaining a fundamental part of the process but people will have done all their research before hand and be more certain of what they want before entering the showroom. He sees Eastern Europe and South Asia as having two major advantages, which are cost and location, along with low set­ up costs, less stringent health, safety and environmental requirements, also they have the advantages of being close to the main markets o f Western Europe and Japan. Keith saw new growth being limited in Central European markets, but developing in Asia and Eastern Europe. He added that Japanese production systems have been in some w ay'of another adapted by European manufacturers, they have also introduced reduced set-up times, reduced bottleneck situations and introduced better working practices. Environmental, Quality and safety have added cost to manufacturers, which are be constantly improved on, such as improving vehicle fuel efficiency and improving tailpipe emission standards. He believes Recalls affect manufactures image, which requires them step up safety checks, one o f the first things a customer requires is safety. Questionnaire Responses Interviewee John Fitzsimons, Marketing Manager, Rover Group Ireland 2000, interviewed by Phil Cooley 24/03/00. John saw the industry as being in turmoil. He predicts market leaders o f the future will be Ford, Volkswagen, Nissan, General Motors and Toyota. He could only see small manufacturers surviving through alliances with larger companies. He saw the main markets concentrating on the Atlantic Coast to Ukraine to Russia, he also believes growth will continue in the present regions o f economic growth and he uses Ireland, and Eastern Europe as examples, as buyers are becoming more affluent. The future he sees as being made up o f eight to ten major players. In his opinion the main advantages of Europe and South East Asia as offering a cheap labour force and tax incentives. He saw the Japanese as having opened the eyes o f European Manufacturing Practices and stating that their manufacturing practices have always been a step a head of the rest. As early as 1970's, they introduced “factory ships5’, where cars were actually produced on ships, while in transit, really underlining the Just in Time issue. Environmental factors, such as emissions testing, quality standards such as the IS09000 standards and the continuous crash test developments, he stresses their importance which is he believes is a combination o f quality and safety, both factors being reliant on each other. He does not see recalls affecting manufacturing images as all manufacturers across the board are affected by it, it is a sign of the higher test, quality standards and manufactures are being extra careful. Appendix (2) T he V o l k s w a g e n g r o u p in F igures S a in (million DM] 1989 1990 1991 1992 1993 65,352 68,061 76,315 85,403 76,586 10 4 12 12 -1 0 Domestic 23,682 26,929 36,360 39,508 34,326 Abroad 41,670 41432 39,955 45,895 42,260 Export of domestic Group companies 27,601 28,323 28,093 33,884 26,797 Net contribution of foreign Group companies 18.256 1 8 ^4 2 18,809 15,412 23,104 2,941 3,030 3,237 3,433 2,962 3 3 7 6 - 14 849 945 1.264 1,211 914 Abroad 2,092 2,085 1,973 2,222 2.048 Production [thousand units)11 2,948 3.056 3,238 3,S00 3,019 Chong* on previous year in % 4 4 6 8 - 14 Domestic 1,783 1,816 1,814 1,929 1,411 Abroad U65 1,242 1,424 1,571 1,608 Change on previous year in % Vehicle Sales (thousand unhs)u Change on previous year in % Domestic Co ft of Materials (million DM) 37,533 40,469 47,039 54,817 47,530 Change on previous year in % 14 8 16 17 - 13 A* % of sole* 57 59 62 64 62 253 Workforce (thousand employees)lia 251 261 277 273 Change on previous year in % - 1 4 6 - 1 -7 Domestic 161 166 167 164 150 90 95 110 109 103 16,107 17,056 18,872 20,753 18.887 6 6 11 10 -9 25 25 25 24 25 5,606 5,372 9,910 9,254 4,840 Abroad Labour Cost (million DM) Change on previous year in % As % of soles Capital Investments (million DM )11 Change an previous year in % 32 -4 84 -7 -4 8 Domestic 4,477 3,016 6,311 4.8S3 2,675 Abroad 1,129 2.356 3,599 4,401 2 46 5 4,069 4,419 4,961 6,139 5,438 18 9 12 24 -1 1 A dditions to Leasing and Rental Assets (million DM) Change on previous year in % Cosh Flow (million DM) 9,362 9.864 11,510 12,079 9,073 Change on previous year in % 18 5 17 5 -2 5 Result after Taxes (million DM) 1,038 1,086 1,114 147 - 1,940 Dividend of V O LK S W A G EN A G (million DM) 336 369 369 66 67 Ordinary shares (million DM) 264 297 297 54 54 Preferred shores (million DM) 72 72 72 12 13 1 The volum e d a te of the not futly consolidated vehicle-producing holdings A U T O E U R O P A , Shanghai-Volk sw og sn . fA W -V o lk swag r n a n d Chinchun M o tor have been included tn from 1 9 9 5 . Woflilortr (excluding apprentice*) at average over year; 01 from 1 9 9 5 inducting apprentices Of overage o w y»Gr. 3 ln v »it m «r m in tm ongible a r iv ti, tangible fixed aisets a n d finonrial a li e n . 1994 1995 1996 1997 1998 BO,041 8fi,l 19 100,123 113,245 134,243 5 10 14 13 19 32,907 34,504 36,419 39,191 46,744 Domestic 47,134 53,615 63.704 74,054 87,499 Abroad 27,090 32,038 37.624 43,5BO 58,286 Export of domestic G rx ip companies Nat contribution of foreign Group (n m x in lti Soles (tnlflion DM) Chang* on pravivui year in % 26,944 30,311 36,199 42,377 44.956 3,108 3,607 3.994 4,250 4,748 5 * 11 6 12 901 937 958 993 1,153 Domestic 2.207 2,670 3.036 3,257 3,595 Abroad 3,042 3,595 3,977 4.291 4,823 Production (thousond units}11 1 * 11 8 12 Chong* on prrviom yeor in % 1,425 1,526 1,591 1,619 1.983 Domestic 1,617 2.069 2,386 2,672 2.840 Abroad 48,230 52466 61,536 68,184 84,327 Cost of Materials (million DM) 2 8 18 11 24 Change on previous yeor in % 60 59 6i 60 63 As % of sales 238 257 261 275 294 -6 X 1 5 7 141 143 139 144 153 Domestic 97 114 122 131 141 Abroad 18,364 19,005 20.708 20,686 22,457 3 9 23 22 21 18 17 5,651 6.863 8,742 9,843 13,913 17 21 27 13 41 -3 -0 9 Vehicle Sales (thousand unit*)11 Change on previouj year in % Workforce (thousand ^mpl»yees)IW, Change on previous year in % labour Cost (million PM) Change on previous yeor In % As % of sales Capita) Investment* ( ™IIion Change on previous year in % 3.899 4,053 6,098 7,048 8,778 Domestic 1.752 2.810 2,644 2.79S 5,135 Abroad 5.781 7.278 7,639 7,734 10,391 6 26 5 1 34 11.797 10,400 11,088 12,181 16,804 7 10 38 2J243 Additions to Leasing and ftcntoi Assets (million DM) Change on prrvioui year in % r 30 -1 2 Cash Flow (million DM) Change on previous y a r in % 150 336 678 1.361 Result after Toxe* (mi lion DM) 107 207 315 483 619 Dividend of VOLKSW AGEN A G (million DM) 81 162 250 369 463 Ordinary shares (milli mi DM) 26 45 65 114 156 Preferred shorn (milttin DM) THE VOLKSWAGEN GROUP IN FIGURES 1989 1990 1991 1992 1993 1994 B o la n c * -5 h e «t Structure (million D M ) Dec. 31 Assail 134 261 372 631 .6 4 6 101 15,493 16,826 21,126 24,050 23,067 20,429 financial asset? 1,621 1,418 2,655 2,747 1,823 2,608 Leasing and rental assets 5,561 5,834 6.293 7,393 7,517 8,234 22.609 24,339 30.446 34,821 33,053 31,372 7,301 8,703 9,049 9,736 11,026 9,246 24,554 Intangibly assets Tangible assets Fixed Assets Inventories Receivable* and other assets 14,472 15,065 19,011 21,394 22.943 Securities 2,360 2,764 2,329 1,497 1,119 2,595 Liquid fundi 9,929 11,842 9,255 7,836 11.157 13,317 Currant Asset* 34,062 38,374 39,644 40,463 46,245 49,712 Total Asset* 56,871 62,713 70.090 75,284 79,298 81,084 Stockholder*' Equity and Liabilities Subscribed capital 1,500 1,650 1,656 1,664 1,671 1,674 Reserves of the Group 9,667 11,491 12,098 11,800 9,521 9,202 Minority interest 439 145 164 859 905 733 Net earning} ovoiioble for distribution 339 374 373 71 71 111 Minority interest in result after taxes 54 33 12 68 98 1 Special items with an equity portion 2,925 2,882 3,823 3,659 3,191 2,498 Other special item*2- 12 13 19 18 23 20 Stockholders' Equity 14,936 16,588 18,145 18,139 15.480 14,239 10,160 Provisions for pensions 6,652 7,283 8,089 9,113 9,553 Provisions for taxes 2,001 1,828 2,032 1,773 1,784 1,762 Other provisions 10.454 10.6BO 10.161 11,323 14,575 16.476 Provisions 19,107 19,791 20,282 22,209 25,912 28,398 4,426 Liabilities payable within more than S years 1,934 1,840 3,813 4,557 4,289 1 to S yean 3,289 3,339 3,900 6,222 8,707 9,271 up to 1 year 17,605 21,155 23,950 24,157 24,910 24,750 Liabilities 22,828 26,334 31,663 34.936 37,906 38,447 Outside Capital 41,935 46425 51,945 57,145 63.818 66,845 Total Capitol 56,871 62,713 70,090 7S,284 79,298 81.084 Statement of Earning* (million 0M> (Condensed) January-December Sales 65,352 68,061 76,315 85,403 76.5A6 00,041 Cast of sales 56,196 61,890 69,472 79.155 71,117 72,720 7,599 7,977 8,278 8,786 Selling and general administration exponies 7.151 7,308 Other operating income less other operating expenses 209 2,615 1,302 1.612 782 1,315 Financial results 773 914 1,239 719 391 611 Results from ordinary business octivities 2,987 2,392 1,785 602 - 1,636 461 Taxes on ir*tome 1,949 1,306 671 455 304 311 Results after toxes 1.038 1,086 1,114 147 - 1,940 150 ; 1997 re d u c * d b y urw olle d o utsta n d in g capital con tribu lioo i fatolling 112.5 million DM. 5 A i from 1998 including fund for general banking riikt o» wall at special item* fof investment subsidies. Source; Annual Report 1998 Change in % 1995 1996 1997 1998 1998/97 Balance-Sheet Structure (million D M ) Dec. 31 A lM f l 91 120 111 190 71.8 Intangible assets 19271 20,631 22,594 25,270 n.a Tangible assets 3,198 3.274 4,006 6,611 65.0 Financial assets 10,297 12,119 22,804 13,824 6.0 31,857 3 6J4 3 39,515 45,895 16.1 Rued A tM h 9,392 10,368 10,627 13,078 20.8 Inventories 27,493 31,47s 34,801 43,448 24.9 Receivables and other assets - 16.4 Securities - Liquid fundi 2,156 3,499 3,880 3,244 13,174 13,080 12,613 11,668 7.5 Leasing and rental auefs 52,220 58,425 62421 71,458 15.0 Current Assets 84,077 94,566 701,636 117,353 15.5 Total A t i r f i 1,714 1.8 25 2,086 S.7 8,595 9,324 10,421 15,135 45.2 490 449 301 326 8,0 209 318 487 625 2B.5 Net earnings ovoilabl* for distribution - 18 19 22 24 11.2 Minority interest in result after 1,649 1,374 1,161 492 - 57.6 15 11 9 57 Stockholder*' Equity and Liabilities 1,9 19» K Subscribed capital Reserve! of the Group Mmority interest Special items with an equity portion Other special items7 12,654 13,320 14.320 18,745 30.9 11,531 13,651 14,578 15,559 6.7 Stockholder*' Equity 1,902 2,166 2,619 3,344 27.7 18,309 20,187 20,226 21,532 6.5 31,742 36.026 37,423 40,435 8.0 Provision* Liabilities payable within more than 5 years Provisions for pensions Provisions for taxes Other provision! 2,293 1,939 2.035 2,044 0.4 11,782 11,991 12,108 13,867 14.5 25,606 31,292 35,750 42,262 18.2 up to 1 year 39.681 45,222 49.893 58,173 16.5 Liabilities 71,423 81.248 87.316 98,608 12.9 Outside Capitol 84.077 94,568 101,636 117,353 15.5 Total Capital 1 to 5 years Statement of Earnings (million DM) ^Conden^e■^)) Jon uory-December 88,119 100,123 113,245 134,243 18.5 Sales 30,699 90,504 100,926 117,568 16.5 Cost of sales 9,457 10,961 11.809 13,894 17.7 Selling and general administration expenses 2,152 1,727 1,250 1,650 32.0 Other operating income (ess other operating expenses Financial results 990 1,587 2,086 1,856 -1 1 .0 1,113 1,972 3,846 6,287 63.4 Results from ordinary business activities 777 1,294 2,485 4,044 62.7 Taxes on income 336 678 1,361 2.243 64.8 Results after taxes □ units/million BMW Group in figures 1969 1990 DM milfion % 26,515 + 8.4 27,178 + 2.5 Production - automobiles Group BMW Automobiles Rover Automobites units units units 511,476 511,476 519,660 519,660 Deliveries to customers - automobiles Group BMW Automobiles Rover Automobiles units units units 526,462 526.462 Production - motorcycles 4> Deliveries to customers - motorcycles units units 25.761 28,134 31.589 31.310 66,267 70,948 Sales Change Workforce at end of year - - - 514,705 514.705 - investment as % of sales Depreciation Cash flow as % of investment DM million % DM million DM million % 1,820 6.9 1,549 2,263 124.3 2,066 7.6 1,778 2,780 134.6 Fixed assets Assets from sales financing Other current assets and prepaid expenses DM million DM million DM million 6.369 5,294 9,026 6,707 6,306 9,488 Subscribed capital DM million 791 794 Reserves Capital reserve Revenue reserves DM million DM million DM million 4,343 749 3,594 4.812 775 4,037 Shareholders* equity as % of fixed assets DM million % 5,371 84.3 5,860 87.4 % % 30.0 14.1 31.2 12.7 Long-term borrowings Lonq-term capital as % of fixed assets Liabilities from sales financing DM million DM million % DM million 4,413 9.784 153.6 4,550 4,524 10,384 154.8 5,502 Balance sheet total DM million 20,689 22,501 Personnel costs per employee DM million DM 4.700 75.266 5,313 80.754 Result from ordinary business activities Taxes Net income Net income of BMW A G available for distribution DM million DM million DM million DM million 1,561 1,003 558 193 1,664 968 696 199 Dept/equitv ratio Industrial business Financial services incl. Rover Automobiles from March 181994 * whole Of 1994: 487.298 a whole of 1994; 466.661 *>incl. F 650 assembly at Aprifia S.p.A. from 1993 1991 1992 1993 29,839 + 9.8 31,241 + 4.7 29,016 - 7.1 42,125 + 45.2 553,230 553,230 - 598,145 598,145 532,960 532,960 552,103 552,103 588,657 588,657 - - - - 534,397 534,397 - 1994 *) 1995 1996 1997 1998 46,144 + 9.5 52,265 + 13.3 60,137 + 15.1 63,134 + 5.0 948,683 573,083 375,6002) 1 098,582 595,056 503,526 1,143,558 639,433 504,125 1,194.704 672,238 522,466 1,204,000 706,426 497,574 931,883 573,953 357,9303) 1,073,161 590,072 483.089 1,151,361 644,107 507,254 1,196,096 675,076 521,020 1,187,115 699,378 487,737 33,980 32.092 35,910 34,800 36,990 35,150 44,435 46.667 52,653 50.246 48,950 50.465 54,933 54.014 60,152 60.308 74,385 73.562 71.034 109,362 115,763 116,112 117,624 119,913 2.123 7.1 1.805 2,831 133.3 1.975 6.3 1.827 2,880 145.8 2,214 7.6 1,836 2,567 115.9 3,543 8.4 2,567 3,569 100.7 3,477 7.5 2,877 3,755 108.0 3,830 7.3 3,002 4,092 106.8 4,520 7.5 3.543 4,925 109.0 4,262 6.8 3,635 4,849 113.8 6.748 8,077 10.580 6.834 9,764 10.906 7,151 11.766 11,378 11,748 13,300 13,645 11,905 15,008 13,934 13,429 16.798 15,115 15.234 21.245 16,801 15,274 24.574 20,076 896 899 902 985 987 989 990 1,287 5,174 796 4,378 5.502 817 4.685 5,787 834 4,953 6,538 1,574 4.964 6,820 1,593 5,227 7,657 1,614 6,043 8,732 1,635 7,097 10.733 3,670 7,063 6,392 94.7 6.718 98.3 7,025 9B.2 7,922 67.4 8,200 68.9 9.067 67.5 10,248 67.3 12,606 82.5 30.9 12.8 30.7 13.0 30.3 12.0 24.8 12.2 25.1 11.4 25.0 11.5 25.3 10.0 28.7 10.0 5,563 11,955 177.2 7,042 6,672 13,390 195.9 8.497 7,956 14,981 209.5 10,353 9,012 16,934 144.1 11,672 10,780 18,980 159,4 13,299 11,764 20,831 155.1 14,871 15,201 25,449 187.1 19,116 13,767 26,373 172.7 22,108 25,405 27,504 30,295 38,693 40.847 45,342 53,280 59,924 5,823 85,231 6.387 92,423 6.245 94,334 8.425 83,462 8,846 82,716 9,844 90,206 10,825 98,755 11,532 99,476 1,752 969 783 225 1,477 751 726 226 832 316 516 226 1,357 660 697 277 1,367 675 692 267 1,660 840 820 297 2,528 1,282 1.246 397 2,076 1.173 903 457 Segm ent Information by business 1998 1997 1998 1997 B M W Autom obiles 3,807 3 ,0 44 110 103 R o ver Autom obiles -1 .4 7 6 88 395 3 48 B M W M otorcycles 31 23 415 625 - 847 747 - 13 16 D M million A ero Engines Financial Services M iscellaneous, consolidated com panies - BM W Group________________2.807_______ 3.203 ’ >Interest expense from the financing of leasing business Result from ordinary business activities Financial result (loss) S e gm e n t result (loss) - - - ■ 37 1997 3 .9 17 3 ,1 4 7 -1 .8 7 1 - 31 - 43 1998 - 4 58 2 60 23 - 662 6 7 2 1> 6 07 D 175 140 269 124 282 140 781 - 768 2.076_______ 2.528 Rover Group Sales 1986-1998 600 , 0 0 0 -. 500 , 0 0 0 ­ 400,000 300.000 El u n its/tho usand 200.000 100,000 0 1986 1989 1991 1993 1995 1997