INSIGHTS
C ONSUMER

AND

E NGINEERED P RODUCTS

Challenges Facing the Global
Automotive Industry
T

he automotive industry today is in the middle of a dramatic and largely unprecedented transformation.
The heart of this transformation is not about how the auto company does its work but rather how it defines itself. The model of the car company that Henry Ford created and Alfred Sloan perfected—integrated, scale-driven, “product-push”oriented—prevailed for decades. It drove the consolidation of the U.S. industry from dozens of manufacturers to four to three to two-and-ahalf (which then, with a little push from a visible hand, recovered to three). It governed the development of the post-war European industry, albeit with fits and starts engendered by that region’s distinctive social and cultural politics. And it was the model upon which the Japanese manufacturers relied as they shot up the global league tables having made timely and effective adaptations that were overlooked, for a while, by the once-dominant U.S. industry.
Today the traditional model of the auto company is under direct attack. Alternative visions and con-

cepts have emerged for every piece of value that the traditional car company adds—designing cars, engineering them, manufacturing them (at least the important bits), assembling them, and marketing them. These visions and concepts are not just being tested on paper but through experiments that are getting ever bolder and more daring.
Some industry commentators have speculated about the possibility of creating a “virtual” car company along the lines of a Gateway or a
Dell. Last summer, the trade press was full of breathless reports that the largest independent auto retailer,
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V OL . 1 I SSUE 1

Overview
The global automotive industry today is delivering unprecedented levels of customer value. Vehicles today are vastly superior to and more reliable than those produced just a decade ago in terms of economy, safety, comfort, functionality, and performance. Fierce global competition for consumers is the prime mover behind this increase in customer value.
But the automotive industry structure that has endured for eighty years may be reaching the limit of its potential.
Delivering the next significant increment of value to automotive consumers while remaining profitable will require dramatic increases in productivity across the value chain. This INSIGHTS captures Booz Allen’s perspective on the five common challenges facing the world’s automakers and their implications for the structure and dynamics of the auto industry.
Future INSIGHTS will address in more detail the functional and strategic implications of these challenges. •

Challenges Facing the Global Automotive Industry
(continued from page 1)

VALUATION OF GLOBAL VEHICLE MANUFACTURERS, YEAR-END 1998 (EXHIBIT 1)

1.20

Toyota

Market Capitalization to Sales Ratio

1.00

0.80
Honda
0.60
Ford

DCX
0.40
BMW

GM

Volvo
0.20

Fiat
Renault
PSA

2.00

4.00

Volkswagen

Nissan

6.00

8.00

10.00

12.00

14.00

16.00

1998 Global Market Share (%)
Note: Toyota and Nissan sales from fiscal 1998 ended March 1998; all others, calendar 1998.

Sources: Morgan Stanley Dean Witter; Booz·Allen & Hamilton analysis

AutoNation, might one day have sufficient market power to command private-brand cars, ordering them like shoes or dresses from some
Pacific Rim sweatshop. Whatever one thinks about the reasonableness or practicality of these ideas, that they are given voice at all is representative of the scale and scope of change. It is also possible, if perhaps more contrarian, to imagine a conjunction of technological, market, and economic forces that can overcome the relentless gravitational pull of scale.
The conventional wisdom is economic pressures will force the auto industry to collapse to perhaps six major players, two in each of the three legs of the “triad” (North
America, Western Europe, Japan).
However, there is little if any correlation between