Automotive Management by Jens Diehlmann Ernst & Young Europe Prof. Dr. Dr. Joachim Hacker German Institute of Corporate Finance 2nd edition Translation by Prof. Dr. Mathias Moersch Oldenbourg Verlag Miinchen
Table of Contents 1 The Automotive Value Chain 1 2 The Brand as a Central Value Component in the Automotive Industry 5 2.1 Executive Summary 5 2.2 Definition of Terms and Framework 6 2.2.1 Definition of Terms: Brand and Brand Value 6 2.2.2 Aim of the Chapter 7 2.2.3 Structure and Approach 7 2.3 Functions and Uses of a Brand 7 2.3.1 Functions of a Brand in the Automotive Sector 7 2.3.2 Importance of a Brand in the Automotive Sector 9 2.4 Brand Perception 10 2.4.1 Brand Perception in the Automotive Sector 10 2.4.2 Brand from the Customer Perspective 12 2.4.3 Brand from the Employee Perspective 14 2.5 Brand Value and Brand Valuation 16 2.5.1 Introduction to Brand Valuation 16 2.5.2 Methods of Brand Valuation 17 2.5.2.1 Different Methods to Calculate a Brand Value - An Overview 17 2.5.2.2 Brand Census 18 2.5.2.3 Interbrand Method 23 2.5.3 Advantages and Disadvantages of the Valuation Methods Presented 29 2.5.3.1 Advantages 29 2.5.3.2 Disadvantages 29 2.5.4 Comparison of Market Capitalization and Brand Value 30 2.5.5 Development of Brand Values in the Automotive Sector 33 3 Strategic Alliances in the Automotive Sector 35 3.1 Executive Summary 35 3.2 Definition of Terms 35 3.2.1 Strategic Alliances or M&A 35 3.2.2 Proposition 37 3.3 Why Strategic Alliances and not M&A will Dominate the Automotive Industry in the Future 37 3.3.1 Volkswagen and Suzuki 38 3.3.2 BMW and SGL Carbon 39
VIII Table of Contents 3.3.3 Daimler and Renault/Nissan 40 3.3.4 BMW and MyCityWay 40 3.3.5 BMW and Sixt 41 3.3.6 Assessment of the Joint Approaches 41 4 Strategic Development Potential of the Automotive Industry - The Example of Electric Vehicles 43 4.1 Executive Summary 43 4.2 Definition of Terms and Scope 44 4.3 Drivers of Future Developments in the Automotive Industry 44 4.3.1 Environmental Drivers 44 4.3.2 Competition 48 4.3.3 Challenges 52 4.4 Electric Vehicles 53 4.4.1 Technological Developments 53 4.4.1.1 Alternative Drive Technologies 53 4.4.1.2 Technology of the Electric Vehicle 54 4.4.1.3 Competing Products and Developments 56 4.4.1.4 Strengths and Weaknesses of Electric Vehicles 60 4.4.2 Sales Markets and their Future Development 66 4.4.2.1 Criteria for Selection and Analysis 66 4.4.2.2 USA 67 4.4.2.3 Europe 70 4.4.2.4 Japan 76 4.4.3 China 79 4.4.3.1 India 82 5 Product Policies in the BRIC Countries 87 5.1 Executive Summary 87 5.2 Scope of the Analysis 87 5.2.1 Status Quo of Automobile Distribution in the BRIC Countries 87 5.2.2 The Four P's - Product as the Crucial Success Factor 90 5.2.3 Standardization or Integration and Adaptation or Differentiation 91 5.2.4 Importance of Product Adaptation for Automobile Manufacturers 92 5.3 Relevance of the BRIC Countries for the Automotive Industry 92 5.3.1 Brazil 92 5.3.2 Russia 93 5.3.3 India 95 5.3.4 China 96 5.4 Customer Demands and Requirements in the BRIC Countries 97 5.4.1 Brazil 97 5.4.2 Russia 99
Table of Contents IX 5.4.3 India 101 5.4.4 China 103 5.5 Recommendations for Action 105 6 The Changing Business Field of the Automotive Financial Service Providers 109 6.1 Executive Summary 109 6.2 Basic Terms and Scope 109 6.3 Classification of the Market for Automobile Financial Services 110 6.3.1 Captive and Independent Financial Service Providers 110 6.3.2 Financing of the Own Brand Versus Financing of Other Brands by the CFCs Ill 6.3.3 Corporate Affiliation and Legal Separation of the CFCs 112 6.3.4 The Classical Product Areas of the CFCs 113 6.3.4.1 Retail Leasing 113 6.3.4.2 Retail Finance 114 6.3.4.3 Wholesale Finance 114 6.3.4.4 Fleet Business 114 6.3.5 Strategic Relevance of the CFCs 115 6.4 Leasing and Financing Today - An Overview of the Market for Leasing and Financing 117 6.5 What are the Current Business Approaches of the CFCs? 119 6.5.1 The Classical Captive Finance Approach 119 6.5.2 Advanced Automotive Banking Approach 119 6.5.2.1 Services Related to Mobility 120 6.5.2.2 Services Unrelated to Mobility 121 6.5.3 Cross-selling and Crossover in the Automobile Financial Services Sector 122 6.6 CFC - Quo Vadis? 124 6.6.1 The Strategic Options of the CFCs 124 6.6.2 The Fields of Action for the Developed Automobile Markets in the Triad 125 6.6.2.1 Accelerate Financing of Used Vehicles 125 6.6.2.2 Develop or Expand the Business with Fleet Customers 125 6.6.2.3 Introduce or Expand the Offering of Products with Risk Adjusted Pricing 126 6.6.2.4 Establish Bank Branches 126 6.6.2.5 Convert to a Bank Holding Company 128 6.6.2.6 Rework Governance Structures and Operating Concepts 129 6.6.2.7 Optimize the Areas Refinancing, Liquidity Management and Risk Management Jointly with the Automobile Manufacturers 130 6.6.3 Recommendations for Action in the New Growth Markets 131 6.6.3.1 Establish Financing Companies in Brazil, Russia, India and China 131 6.6.3.2 New Operating Strategies for the Growth Markets 131 6.6.4 Promising Answers to New Mobility Trends 132 6.6.4.1 User-based Mobility via Car Sharing 132 6.6.4.2 Location Based Services - Participation in Mobility Services that are Not Linked to the Vehicle 134
X Table of Contents 6.6.4.3 The Expansion of Fleet Management - Corporate Car Sharing: The Model of Siemens 135 6.6.5 New Leasing Models in the Area of Electronic Vehicles 136 6.6.5.1 Splitting Battery and Vehicle Leasing 136 6.6.5.2 Chances and Risks in the Area of Electromobility 138 7 Mobility Needs and Mobility Concepts 141 7.1 Executive Summary 141 7.2 Definition of Terms 142 7.3 Determinants of Future Mobility Needs 143 7.3.1 Societal Developments 143 7.3.2 Moral Developments 144 7.3.3 Economic Developments 146 7.3.4 Demographic Developments 148 7.3.5 Urban Developments 152 7.3.6 Ecological Developments 154 7.3.7 Technological Developments 155 7.4 Concepts in the Mobility Area 157 7.4.1 Mobility Concept - Mu by Peugeot 157 7.4.2 Mobility Concept -"Better Place" 159 7.4.3 Mobility Concept - PRT 2getthere 160 7.5 Outlook - Novel Mobility Concepts 162 7.5:1 "Car Packaging and Pooling" - a Mobile Usage Concept 162 7.5.2 Combination of "Better Place" & "PRT"- anovel Mobility Concept 165 7.5.3 Future Potential Competitors of the Automobile Manufacturers 169 8 Strategic Currency Management for Automotive Manufacturers 171 8.1 Executive Summary 171 8.2 Fundamentals 172 8.2.1 Definition of Terms 172 8.2.1.1 Currency 172 8.2.1.2 Currency Management 172 8.2.2 Chapter Focus 173 8.3 Currency Management: Reasons and Current Challenges 174 8.3.1 Uses of Currency Management 174 8.3.2 Current Challenges in Currency Management of Automobile Manufacturers 175 8.4 Setup and Execution of Currency Management 176 8.4.1 Setup of Currency Management at an Automobile Manufacturer 176 8.4.2 Operational Structure of Currency Management at an Automobile Manufacturer 177 8.4.3 Banking Policy 179 8.5 Instruments Used in Currency Management by Automobile Manufacturers 179 8.5.1 Overview of Available Financial Instruments 179
Table of Contents XI 8.5.2 Forwards and Futures 180 8.5.3 Options 181 8.5.3.1 An Overview of Options 181 8.5.3.2 Range Options 182 8.5.4 Swaps 182 8.6 International Strategies for Automobile Manufacturers 182 8.6.1 Natural Hedging 183 8.6.2 International Cash Management 184 8.6.2.1 Techniques to Optimize Cash Flows 185 8.6.2.2 Investing Excessive Cash Levels 185 8.6.3 International Investment Planning of Automobile Manufacturers 187 8.6.3.1 Investment Planning from Different Perspectives 187 8.6.3.2 Parameters for the Investment Planning of Automobile Manufacturers 188 8.6.4 Financial Hedging 189 8.6.4.1 Exchange Rate Forecasting 189 8.6.4.2 Calculating the Exposure 189 8.6.4.3 Exposure Management 190 9 Maximizing Shareholder Value in the Automotive Sector 193 9.1 Executive Summary 193 9.2 Definition of Terms 193 9.2.1 Shareholder Value and Stakeholder Value 193 9.2.2 Automobile Manufacturers and Automotive Industry 194 9.2.3 Strategic Financial Management 195 9.2.4 Sustainability and Sustainable Development 195 9.2.5 Expectations 197 9.3 Maximizing Shareholder Value in the Automotive Industry to Date 197 9.3.1 Capital Markets 198 9.3.1.1 Stock Market Listing 198 9.3.1.2 Availability of Information 200 9.3.1.3 Securities Transactions 201 9.3.2 Accounting Standards 202 9.3.2.1 National Accounting Standards - The Example HGB 203 9.3.2.2 International Accounting Standards - The Example IFRS 203 9.3.3 Company Strategy 204 9.3.3.1 Company Goals 204 9.3.3.2 Growth Strategy 206 9.3.3.3 Management Remuneration 207 9.3.3.4 Corporate Social Responsibility 208 9.4 Maximizing Shareholder Value in the Automotive Industry in the Year 2020 209 9.4.1 Capital Markets 209 9.4.1.1 Stock Market Listing 210 9.4.1.2 Information Management 210 9.4.1.3 Securities Transactions 211 9.4.2 Accounting Standards 211
XII Table of Contents 9.4.3 Company Strategy 211 9.4.3.1 Company Targets 211 9.4.3.2 Growth Strategy 214 9.4.3.3 Management Remuneration 215 9.4.3.4 Corporate Social Responsibility 216 10 Automotive Industry or Mobility Industry in the Year 2020 217 10.1 Traditional Brands will Disappear - Local Brands will be Established 218 10.2 Regulations in Support of Ecology and Sustainability Provide the Framework Conditions 218 10.3 New Mobility Demands of the Customers Gain in Importance 218 10.4 New Mobility Providers are Successful on the Market 219 10.5 The Networked Vehicle will Become an Information and Communication Instrument 219 10.6 Strategic Alliances are Key to Obtaining a Competitive Advantage 219 10.7 Triad was Yesterday, BRIC is Today and Emerging Markets will be Tomorrow...220 10.8 Tier-2 and Tier-3 Automotive Suppliers will Look for a New Orientation 220 10.9 Electromobility - There is More than One Way Forward 220 10.10 The Automobile Manufacturers Create a Global Brand Image 221 11 Bibliography 223