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Published: January 14, 2011

 
 

Five Industries Hit the Reset Button

To navigate the course ahead, automakers and suppliers must build on their recent progress. They will watch expenses closely, guarding against excess cost creeping back in as volumes recover, and they will work particularly hard to further reduce labor cost and boost productivity. The pressure for superior QRD will also remain high; gaining share in the U.S. market requires consistently convincing consumers that a car will stay out of the shop, last years on the road, and maintain its resale value.

Sustained product excellence will also continue to be a requirement for long-term success. Toyota, Nissan, and Honda have a rich legacy to draw on but cannot rest on their laurels. For the Detroit Three, significant gains can be realized by reconnecting customers to iconic brands and, in the process, earning the sale by offering real improvements in overall and relative value. The winning combination will involve great-looking vehicles, innovative technology, good fuel economy, and high QRD — all rolled up into one difficult-to-achieve combination.

One major change will be new requirements that every vehicle “pay its share of the rent.” Historically, many automakers have not demanded that each vehicle model earn its true cost of capital or have a clear strategic justification in the portfolio. Now, they will be more disciplined, with a predetermined return on investment for all products. They will also be forced to better align supply with market demand. Too many cars are still chasing too few consumers. That will change as automakers become more sophisticated in setting capacity levels and in manufacturing flexibility.

Pricing discipline will also take on more importance. Automakers have too often pursued unit sales and market share at the expense of life-cycle profitability, although the Detroit Three, historically the worst offenders, have shown much more discipline recently. Making the right pricing and promotion decisions requires advanced modeling to understand price–volume trade-offs and to estimate residual value effects, as well as a willingness to prioritize medium- and long-term profitability over immediate market share.

In the U.S., GM and Chrysler will also have to rebuild their finance capabilities; the recent acquisition of AmeriCredit by GM is a good example. They must also heal the wounds in their dealer networks caused by bankruptcy-driven closures. Finally, incumbent automakers everywhere will need to get ready for new international competitors with inherently lower cost structures. Most of these will come from countries with exploding markets, notably Korea, China, and India. Competing successfully in this industry will require continuous improvement in products, technologies, costs, investment economics, and business models.

— Scott Corwin, John Loehr, and Evan Hirsh,
with Michael Beck and Kasturi Rangan

Click here for the full 2011 Automotive Industry Perspective (PDF)


5. Financial Services: A New Long-Term Agenda

The worst of the financial crisis may be behind us, but financial firms still confront a raft of challenges, including negative public sentiment, vocal investors unhappy with their returns, and stricter regulation in four key areas: capital requirements, liquidity management, consumer protection, and trading. For large, diversified financial-services firms, these regulations will permanently boost the cost of doing business and reduce profitability. Additionally, as investors demand that financial firms diversify their funding sources, competition is becoming fierce for liquidity-rich clients who can provide stable sources of funding. Finally, risk is being repriced across the board, by providers and buyers of financial services, investors, and even employees, who now prefer cash to stock and other forms of deferred compensation.

In response, many financial-services executive teams are now charting new long-term strategic agendas in four key areas: risk and capital, growth, capabilities, and operating model. The risk and capital agenda is mainly about surviving in a new regulatory environment and better management of risks. The remaining three are about thriving in this new environment and will vary widely by markets, businesses, and individual companies.

 
 
 
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