“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
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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