Winning the automotive powertrain race

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Winning the automotive powertrain race Powered By Docstoc
					Roland Berger Strategy Consultants – Automotive Competence Center

Winning the automotive
powertrain race
The frontline role of marketing & sales

March 6, 2009

Ralf Landmann
Jan-Philipp Hasenberg
Nicole Steffen
Dr. Antje Lutz
Matthias Wünsche
ExEcutivE summary

> car manufacturers worldwide are in the midst of dramatic change. as they watch sales and profits eroding, they
  have to prepare themselves for the next generation of individual mobility by introducing fundamental innovations
  in powertrain technology

> most automakers have already put considerable effort into developing technologies such as hybrid and electric
  vehicles. However, many focus exclusively on technology, overlooking the frontline role played by marketing and sales.
  these players are missing an opportunity to gain a competitive advantage

> the current situation calls for action. customer demand is shifting in favor of environmental issues, but many compa-
  nies' communication and marketing activities fail to differentiate between brands. as a result, established players risk
  losing their status as technological innovators and many consumers lack orientation in the market

> toyota, plus a few new niche players like tesla and Better Place, stands out from the crowd. they show that it is possi-
  ble to raise public awareness, establish an attractive image and forge effective partnerships. this is putting additional
  pressure on incumbents

> automakers must react now to today's market conditions. they must fully integrate the new powertrain technologies
  into their strategic planning and cycle plans. sound marketing and business strategies for cars with alternative
  powertrain technology are key to unleashing the full potential of automakers and their brands

mOrE tHaN Just a tEcHNOLOGy racE                                 Most automotive players have already taken decisive steps
                                                                 in response. They have prepared themselves for the future
Car manufacturers around the globe are in the midst of           by allocating substantial resources to developing new
dramatic change. As they watch sales and profits eroding,        powertrain technology. However, many OEms are in danger
they have to prepare for alternative powertrain technology,      of viewing this as a technology race only. In fact, it's
the next generation of individual mobility. Observers agree      much more than that. It's also a race for the best business
that the expected innovations leading to more fuel-efficient     model, the best customer insights, the best timing, the
and environmentally friendly technologies represent one          best understanding of global customer segments, the best
way out of the crisis. But making the technological leap         managed expectations and the best network of suppliers
will not be simple. In the words of a well-known automotive      and partners. In brief, it's a race for the best business
chief executive, it means little short of re-inventing the       and marketing strategy.
                                                                 The industry needs to go beyond its usual response
Automakers cannot afford to delay. Growing awareness of          of functional development programs. OEMs must take
climate change plus sustained increases in the price of          broader action. To safeguard current and future competitive
raw materials have led to the introduction of CO2 emission       advantages, automotive manufacturers must gear their
charges and other legislative actions around the globe.          whole organization toward customer demands and the
In an attempt to accelerate the development, support             new factors driving market success.
for new powertrain technologies even found its way into
national stimulus packages in Europe and the US. China,          Well-considered, bold business and marketing decisions
too, has announced special subsidies for research and            are the order of the day. Strong action will make a decisive
development in the area of powertrain technology, a field        difference for automakers. It will open up windows of
where Chinese OEMs stand a good chance of catching               opportunity, shore up sales figures and prepare their
up with established automakers in the West. And there's          organization for future success. strategic action is
pressure from customers and shareholders also, who want          needed now.
to see OEMs enter the market quickly with new technology.

marKEt OutLOOK FOr ELEctriFiED POWErtraiNs                                                                                                   > Hybrid electric vehicles without plug-in functionality will
                                                                                                                                               account for approximately 9% to 12% of global market
Industry experts and automakers agree that future vehicles                                                                                     share in 2020
will drive electric, at least in part. Many companies have
already announced plans to launch vehicles with innovative                                                                                   > PHEVs will be more successful, with a global market
powertrain technology in the near and mid-term future (see                                                                                     share of 15% to 17%
Figure 1). The number of such plans has increased signifi-
cantly over the last two years.                                                                                                              > EVs will make up around 5% of the market

the road so far                                                                                                                              Factors in market diffusion
> Hybrid electric vehicles (HEV) represent the first techno-                                                                                 A number of issues are as yet unresolved for PHEVs and
  logical milestone on the road to fully electrified pow-                                                                                    EVs. They include battery technology, the supply and cost
  ertrains. They incorporate both an electric and                                                                                            of electric motors and the availability of appropriate infra-
  a conventional combustion engine                                                                                                           structure. How the oil price develops will also have a major
                                                                                                                                             impact on the spread of electric drive technology.
> New generation vehicles include plug-in hybrid electric
  vehicles (PHEV), whose batteries can be recharged by                                                                                       A number of solutions are in sight. By 2020, we expect
  plugging the car into the normal power grid. Hybrid                                                                                        to see the following developments:
  vehicles with range extenders go one step further, their
  combustion engine serving only as a generator rechar-                                                                                      > Lithium-ion batteries will improve performance and
  ging the batteries                                                                                                                           provide acceptable driving ranges at much lower costs
                                                                                                                                               and weights
> Fully electric vehicles (EV) represent the last step in the
  evolutionary chain. They do without the internal combus-                                                                                   > OEMs and suppliers will have secured battery technology
  tion engine entirely                                                                                                                         and production capacity by means of joint ventures or by
                                                                                                                                               developing their own assembly capabilities
                2008             2009                           2010                          2011                    2012

A and B
                Think City     Subaru         Mitsubishi     Nissan         Smart EV                    Mercedes      Toyota       VW
                               R1e            iMiEV          Cube                                       A/B-class
                                                                                                                      IQ, EV?      UP, EV?   > Similar approaches will be used for e-motors, allowing
                Qingyuan       Nice Cars      Tata           'Tata                                                    Renault                  economies of scale for all major components
                Happy          Zero           Indica         Nano                                                     City EV
C and D                        XS 500         Wanxiang       BYD            BYD             Renault     Renault       Tesla        Ford
                                              WXEV7050       F6DM           F3e; F3DM       Megane EV   Kangoo EV     Whitestar?   Mondeo
                                                                                                                                             > A charging infrastructure will be in place in key regions of
                                                               y            GM Volt         BYD         Ford (2) 1)
                                                                                                             ( )
                                                                                                                                               the US, Europe and Asia, focusing initially on urban areas
                                                             Prius          Opel            e6          Connect EV
                                                             Plug-in        Ampera
G and SUV       Tesla                         Wanxiang       Fisker
segments        Roadster                      ZN5490EV       Auto-
                                                                                                                                             > Local governments will introduce significant subsidies for
                                                                                                                                               low or zero-emission vehicles, making them even more
1) Ford has announced the introduction of an EV in the C segment and the Transit Connect EV for 2011
? = Not officially announced yet                                                                                                               attractive
Source: Company announcements, press clippings, Roland Berger research

Figure 1: Plug-in hybrid electric vehicles (PHEV) and electric vehicles (EV)                                                                 The much heralded electrification of the powertrain is not
planned up to 2012
                                                                                                                                             just hype. But it won't be a big bang either. A gentle transi-
                                                                                                                                             tion to the new technology will take place over a period of
market outlook                                                                                                                               decades, ultimately reshaping the industry as we know it.
> Despite high public expectations of alternative drive
  technology, the conventional combustion engine will still                                                                                  For a more detailed discussion of the technological and
  dominate the automotive market over the next decade.                                                                                       strategic implications for OEMs and suppliers, please refer
  Even in 2020, conventional engines are expected to                                                                                         to our study "Powertrain 2020".
  account for up to 70% of the market

marKEtiNG is KEy – a caLL FOr actiON                            2. "and the first round goes to … toyota!"
                                                                   When it comes to clean drive technologies, consumers
the evidence could not be clearer: consumer prefe-                 think they know who's ahead: Toyota (see Figure 2).
rences and the factors driving market success have                 Toyota's strength in customer perceptions is no doubt as
changed. Customer demand is shifting away from SUVs to             pleasing for Toyota as it is alarming for its competitors.
smaller, more efficient vehicles. Consumers increasingly           The first runner-up in terms of consumer perceptions
base their brand perception on environmental issues. Pre-          is Honda. Both Toyota and Honda stand to benefit from
mium OEMs are in danger of losing their status as the key          early launches of hybrid vehicles. BMW and VW have
technological innovators in the eyes of many auto buyers.          been catching up since they started their EfficientDyna-
With the industry on the verge of a new technology lifecycle,      mics and BlueMotion programs. Clearly, communication
new players may well enter the market and weaken the pole          is golden.
position of incumbent OEMs. the key battlefields in the
coming years – alongside research and development –                In your opinion, which automobile companies are really striving to develop
                                                                   clean drive technologies? Name up to three brands1)
                                                                                        g           p
are business strategy and sales & marketing.
                                                                   [Top 5 in %]

action is required now. the window of opportunity is               Toyota                                                                   55
closing. Companies must develop effective marketing and
                                                                   Honda                               20
business strategies early: broad-based programs must be-
gin 18 to 24 months before the first innovations – whether         BMW                              19
developed by the companies themselves or their competi-            Renault                          19
tors – hit the market. Many OEMs have already announced            Peugeot                        17
plans for the period 2010 to 2012. action is therefore
                                                                   1) Total number of brands named: 240
needed now, long before the new technologies become                Source: Roland Berger customer survey, carried out by TNS Infratest 02/2009
a reality.
                                                                   Figure 2: Customer perceptions of companies striving toward clean
marketing executives must carve out a competitive edge             drive technology
for their companies. They need to find the answers to
some pressing questions in the area of product differenti-      3. Western premium brands risk losing one of their key
ation, brand positioning, price premiums and (after) sales         differentiators – their technological edge
networks. They must provide customers with orientation in a        Asked which brands would be least suited to hybrid or
changing industry. Simply re-painting corporate brands blue        electric drive technologies, most respondents named,
or green to demonstrate environmental friendliness is not          among others, well-known Western premium brands
enough. What is needed are well thought-out strategic              first. This is very worrying indeed. After all, hybrid and
marketing actions.                                                 electric drive technologies are synonyms for cutting-edge
                                                                   innovation. Daimler and BMW, for example, are enga-
                                                                   ged in major field tests of electric vehicles in London,
BraNDiNG aND PrOmOtiON: PrOviDE custOmErs                          Berlin, New York and other major cities around the world.
(aND yOur EmPLOyEEs) WitH OriENtatiON                              Do the public actually realize that the smart and MINI
                                                                   brands belong to these automakers? Are they suppo-
The situation: Customer perceptions have changed and               sed to? What could have been done to generate more
OEM responses are currently inadequate                             public awareness for these product innovations? Where
                                                                   is the potential spillover effect on sister brands? Could
1. customers are really interested in alternative drive            earlier projects such as the BMW Hydrogen 7 and the
   technologies                                                    Mercedes-Benz F-Cell A-Class have created a stronger
   Alternative drive technologies are not just exciting for        impact? The customers' response seems clear: For
   engineers. Our research shows that 68% of auto buyers           innovations to boost the corporate image, OEMs require
   are also interested. The figures were even higher in            real, buyable products that are available on the market
   France (77%) and Germany (76%).                                 now – supported, as ever, with the right level of targeted

4. Eco-labels fail to create differentiation                                                                                               The guidelines: Be honest, distinctive and focused
   In response to growing environmental awareness among
   consumers, most car manufacturers have introduced                                                                                       Three guidelines can help OEMs regain their edge over
   labels signaling fuel and emission efficiency in their                                                                                  competitors in terms of branding and promotion:
   existing models. The prefixes "blue" and "eco" are
   popular in such labels at the moment (see Figure 3).                                                                                    (a) Draw up a technological roadmap and communi-
   However, a recent study in Germany1) revealed that many                                                                                     cate it to your customers, partners and employees.
   of these pro-environment programs are interchangeable                                                                                       Use your communication to align expectations, create
   in the customer's mind. More often than not, customers                                                                                      guidance and focus the creative power of your organi-
   fail to link them to brands correctly. Thus many OEMs                                                                                       zation.
   appear to be failing to create differentiation, and are in
   danger of wasting their respective marketing investment.                                                                                (b) re-establish distinctiveness in your communication.
                                                                                                                                               Identify areas where you are unique and which give
    "Bl " labels
    "Blue" l b l                                    "E " l b l
                                                    "Eco" labels                              Others
                                                                                              Oth                                              you true differentiation potential. Make these areas
             Blue Motion – Volkswagen
             Group's trade name for fuel-
                                                              ECOnetic – Ford's brand for
                                                              their cleanest models was
                                                                                                       BMW EfficientDynamics –
                                                                                                       BMW's brand name across all
                                                                                                                                               the core of your communication activities. Respond
             efficient models since 2006                      created in 2007/2008                     models (since 2007)
                                                                                                                                               to increased customer interest in fuel and emission
             BlueEFFICIENCY – Mercedes-
             Benz launched its low emission
                                                              ecoFLEX – Opel/Vauxhall
                                                              unveiled their ecoFLEX models
                                                                                                       Toyota Optimal Drive –
                                                                                                                      BMW s
                                                                                                       Comparable to BMW's                     efficiency.
             range in 2008                                    in 2007                                  EfficientDynamics (launch 2009)

             Blue Drive – Hyundai's eco-                      eco² – Renault reasserted its            DRIVe – Volvo Cars'
             friendly vehicles are branded
             "Blue Drive" (launched 2008)
                                                              commitment to ecological
                                                              vehicles in 2007
                                                                                                       environmental program was
                                                                                                       launched in 2009
                                                                                                                                           (c) re-adjust your brand architecture to new customer
             Blue Lion – Peugeot has used                     ecomotive – Seat's brand for
                                                                           Seat s                      PUR O2 – Fiat is one of the few
                                                                                                                                               needs and target groups. Assess how well target
             this label for its most ecol.
             models since 2007
                                                              its most ecol. models was
                                                              launched in 2007
                                                                                                       that does not use "eco" or "blue"
                                                                                                       (from 2008)                             groups and technological features fit your current
    Source: Company information; press clippings; Roland Berger research                                                                       brand portfolio. Decide how to adjust your current
                                                                                                                                               brand, or introduce a new trademark if the spread is
   Figure 3: Examples of eco-labels                                                                                                            too large. Develop a long-term development plan for
                                                                                                                                               your complete brand portfolio.
5. customers have false expectations, leading to
   dissatisfaction with manufacturers and lower sales
   The auto industry leads customers to believe that                                                                                       PrODuct POrtFOLiO: DarE tO BE DiFFErENt
   radical new technologies will be available at affordable
   prices any day now. Auto fairs increasingly style themsel-                                                                              The situation: Too much me-too, too little differentiation,
   ves as green. OEMs announce a new hybrid or electric                                                                                    and new players
   vehicle almost every month. At the recent World Mobility
   Forum in Stuttgart, a former senior auto executive called                                                                               1. current recipes are monotonous – me-too rather than
   on the industry to "communicate honestly when techno-                                                                                      passionate differentiation
   logies will be available, and at what price."
   Customers' expectations that inexpensive new techno-                                                                                       Current product designs and launch patterns for hybrid
   logy is just around the corner is stopping them from                                                                                       models are very similar across OEMs. Around 30 models
   buying new cars now, he argued. As customers realize                                                                                       in total are available in the EU, US and Asia. With few
   that OEMs can't live up to their expectations, they lose                                                                                   exceptions – the Toyota Prius and Honda Insight being
   faith in them. Auto companies must therefore take                                                                                          good examples – OEMs introduce their hybrid techno-
   action quickly to manage customer expectations.                                                                                            logy as a variant on the conventional model. Often the
                                                                                                                                              new technology appears in the upper part of the port-
                                                                                                                                              folio (e.g. the Mercedes S400) and SUVs (e.g. the Ford
                                                                                                                                              Escape Hybrid). Apart from the hybrid powertrain, these
                                                                                                                                              models do not differ from their regular counterparts in
                                                                                                                                              the customer's mind.

1) DAT GmbH in collaboration with AUTOStraßenverkehr (01/2009)

 Following this (beaten) path creates a gap between custo-                                                                      entering the market, especially in the area of electric
 mers' enthusiasm for new technology and OEMs' imple-                                                                           vehicles. These new players often enjoy significant com-
 mentation of it. Automakers seem to fail to fully use the                                                                      petitive advantages, such as low-cost structures (e.g.
 opportunity of creating differentiation, not only within their                                                                 BYD, Tata). They are able to apply a greenfield approach
 portfolio but also from their competitors. The industry's                                                                      in their business model and focus on alternative drive
 key triggers for market success in other areas – passion,                                                                      technologies. Incumbent OEMs need bold product stra-
 emotion and identification – are left to gather dust on                                                                        tegies that underline their competitive advantages
 a back shelf. When it comes to hybrids, OEMs seem to                                                                           to take on these new competitors.
 mistakenly focus on rationality.
                                                                                                                             4. Electric vehicles are changing the rules of the game
2. Good behavior must be visible – specific design                                                                              New players such as Th!nk and Better Place are giving
   features needed for eco-models                                                                                               their products a completely different edge. Jan-Olaf
   The majority of respondents in our survey – including a                                                                      Willums, former CEO of Th!nk, puts it in a nutshell: "We
   massive 72% in France – said that if they drove a clean                                                                      sell mobility, not a car!" The vision of these newcomers
   vehicle with low emissions and fuel consumption, they                                                                        is to sell mobility as a service, bypassing the purchase
   would like other people to be able to see it. OEMs can                                                                       of the vehicle and necessary supplies.
   make this possible by providing new vehicles with a
   distinctive design, for example. Many vehicles currently                                                                     Many incumbent OEMs have understood this. They have
   produced by OEMs do not meet this criterion, and so                                                                          launched field tests of infrastructure solutions in large
   fail to address a large swathe of their customers. OEMs                                                                      urban areas around the globe. The parallels with the
   could gain a distinct competitive advantage by meeting                                                                       mobile communication industry are clear. What is as
   customer demands in this regard.                                                                                             yet unknown is the role that OEMs will play in future.
                                                                                                                                Equipment manufacturer or service provider? Nokia or
   "If I drove a clean vehicle with low emissions and low fuel consumption, I would like other people
   to be able to see it (e.g. through the logo or design)"                                                                      Vodafone? Or both (such as Apple in music)?
   Respondents [%]
                                                                                                                             The guidelines: Customer focus, product differentiation
                                                                                > The majority of European1) customers       and long-term strategy
                                             23                                   (59%) would like other people to be able
          18                                                   18                 to see that they had chosen to drive a
                                                                                  clean vehicle
                                                                                > The highest figure was in France (70%).
                                                                                                                   (70%)     The key elements in defining a product strategy are a
                                                                                  But even in Germany, around half of
                                                                                  customers wanted their choice to be
                                                                                  obvious to others
                                                                                                                             product mix oriented to the target segment, good product
                         Tend to
                                          Tend not
                                          to agree
                                                          Don't agree
                                                            at all
                                                                                                                             differentiation and a consistent long-term portfolio strategy.
   1) Germany, UK and France
   Source: Roland Berger customer survey carried out by TNS Infratest 02/2009
                                                                                                                             (a) Focus on target segments and customer require-
   Figure 4: Customer demand for distinctive designs in low-emission                                                             ments. Analyze your target segments thoroughly for
   vehicles                                                                                                                      different powertrain technologies, identify differences
                                                                                                                                 and address them clearly in product design and portfo-
   The first really attractive new customer segment for elec-                                                                    lio composition.
   tric vehicles is also likely to have specific characteristics
   and requirements. They may well be "lifestyle greens".                                                                    (b) Be eye-catching. Make the powertrain visible through
   For this segment, a distinctive design will be a make-or-                                                                     the design, e.g. with retractable exhaust pipes or other
   break criterion in the purchase decision. This segment                                                                        gadgets. Activate purchase triggers and increase public
   will also no doubt function as an opinion leader when                                                                         awareness of your technological edge.
   it comes to the public image of the vehicles. So OEMs
   need a clear customer focus and accurate market                                                                           (c) include powertrain technologies in the long-term
   insights (e.g. from product clinics).                                                                                         product strategy. Give due attention to new techno-
                                                                                                                                 logies, shifting customer demands and the potential
3. New players are entering the market, weakening                                                                                need for partners (e.g. utilities). Define your compe-
   the position of incumbent Western OEms                                                                                        titive advantage and distinctiveness clearly in your
   The emergence of electric vehicles marks a radical                                                                            product portfolio now.
   change in the automotive industry. New players are

PriciNG: PrEmiums, PLaNNiNG issuEs aND                                                                                                           In the longer term, they will need to identify the "sweet
GOvErNmENtaL suPPOrt                                                                                                                             spot" on the price-volume curve. Here, the willingness
                                                                                                                                                 of customers to pay for vehicles that actively contribute
The situation: Profits are at risk – Governments play a key                                                                                      to reducing emissions – a willingness that has grown
role                                                                                                                                             in major European markets over the last two years (see
                                                                                                                                                 Figure 6) – will no doubt make a welcome contribution.
1. Economic issues remain the main driver in purchase
   decisions                                                                                                                                     How much extra would you be willing to spend on a new car in order to make an active contribution
                                                                                                                                                 to cutting carbon emissions?
   Protecting the environment is an important factor in                                                                                          Germany [%]                                          France [%]                                                  UK [%]

   deciding to buy a vehicle with an alternative powertrain.                                                                                                     33       2007: x>2000= 14%                               27           2007: x>2000= 10%                         27       2007: x>1500= 15%
                                                                                                                                                                          2009: x>2000= 20%                                            2009: x>2000= 16%                                  2009: x>1500= 17%
   However, consumers still require a positive business                                                                                                         28

   case for the new technology (see Figure 5). There is no                                                                                               22                                            19                                                              19                23
                                                                                                                                                                         21                                          21           22
                                                                                                                                                                                                       17                                                           17 17
   such thing as environmental friendliness "whatever it                                                                                                                                                                                      13                                                  14
                                                                                                                                                  12     13
   costs".                                                                                                                                        9
                                                                                                                                                                                                                                               7                                                   7

                                                                                                                                                                                              4                                                            3                                                   3

   Why would you consider buying                                                          Why would you not consider                             Less    EUR    EUR     EUR      EUR      More than   Less      EUR       EUR      EUR       EUR      More than   Less
                                                                                                                                                                                                                                                                                                         More than
                                                                                                                                                 than    100-   500-    1,000-   2,000-   EUR         than      100-      500-     1,000-    2,000-   EUR
   a hybrid vehicle? [%]                                                                  buying a hybrid vehicle? [%]                           EUR 100 500    1,000   2,000    3,000    3,000       EUR 100   500       1,000    2,000     3,000    3,000       GBP 100 350    750    1,500   2,000    2,000

                                                                                                                                                       2009         2007
                                                                                                                                                 Source: Roland Berger customer survey, carried out by TNS Infratest 02/2009
   Less fuel consumption in
                                                                         80               Higher purchase price                          55
   city driving, so lower costs
   Actively cuts emissions and                                           79               Few models on the market
   helps the environment                                                                                                             49
   Expected vehicle tax relief                                    55                      Limited battery life before
                                                                                                                                                 Figure 6: Willingness to pay for vehicles with reduced emission values
   Less noise pollution                                     34
                                                                                          Lack of trust in new technologies    23
   Latest technology                                        33
                                                                                          Too much technology –
                                                                                          likely to break down
                                                                                                                               23                Planning for long-term profit is complex. Complicating
   Starts quietly                                          29
   Accelerates faster than vehicles
                                                                                          Other                                19                matters still further is the fact that a number of other fi-
   with gasoline or diesel engines1)
        g                    g
  Trendy image                                      4
                                                                                          Handling d i l l h
                                                                                          H dli g and noise levels when
                                                                                          driving on the highway              11                 nancial effects also have to be taken into account – the
   1) With the same performance

   Source: Roland Berger customer survey, carried out by TNS Infratest 12/2007
                                                                                                                                                 erosion of residual value for financed or leased vehicles,
                                                                                                                                                 for example. Another real risk to the corporate bottom
    Figure 5: Purchase drivers for vehicles with reduced emission values                                                                         line is how service and retail profits on electric vehicles
                                                                                                                                                 will develop over time. After all, the electric vehicles are
2. New technologies put profits at risk                                                                                                          in theory largely maintenance-free, so there will be little
   One of the key challenges in introducing hybrid techno-                                                                                       room for making money from servicing them.
   logy is minimizing the amount of "trunk money" automa-
   kers have to pay for the first generation of each vehicle.                                                                                 3. subsidies by national or local governments can coun-
   In the US, which currently has the highest number of                                                                                          ter profit hurdles
   hybrid models on the market, the average price premium                                                                                        Many governments have understood that they need to
   for hybrids lies between USD 5,000 and USD 7,500.                                                                                             subsidize new technologies in order for them to be wi-
   This is thought to be slightly less than the additional                                                                                       dely adopted. Under discussion are tax reliefs and other
   costs incurred by OEMs.                                                                                                                       incentives worth several thousand euros. Governments
                                                                                                                                                 around the world play a crucial role in the diffusion of
    The profit issue will be even more pressing when the                                                                                         new technology. Significant long-term government com-
    first plug-in enabled hybrid models are introduced. Their                                                                                    mitments to subsidies will be a key determinant of how
    more powerful drive train modules will likely involve                                                                                        the market develops.
    additional costs of EUR 10,000 to EUR 15,000 per
    vehicle. Experts think this figure will fall only slowly over                                                                             The guidelines: Address premiums, solve planning issues
    time, to around EUR 8,000 per vehicle in five years' time                                                                                 and clarify the situation with regard to governmental
    and EUR 4,000 ten years down the road.                                                                                                    support

    OEMs find themselves in a trade-off situation. They must                                                                                  Marketing executives should focus on the triggers for price
    balance high volumes and progress along the learning                                                                                      premiums. They must also balance monetary and non-
    curve with their losses from vehicles sold below cost.                                                                                    monetary effects in their portfolio planning and achieve
    The challenge for automakers will be to find ways to                                                                                      clarity regarding government actions in different countries
    increase their premiums better than their competitors.                                                                                    around the globe.

(a) address price premiums. OEMs need to learn how               ries that are capital heavy. OEMs must consider these
    to raise the price premiums for their new powertrain         implications properly when planning their global rollout
    vehicles. They should assess all possible levers – from      strategy. Often, a gradual approach that focuses first on
    branding to product design – and take the necessary          urban areas will be appropriate.
    action to secure market success.
                                                              3. For electric vehicles, infrastructure is key –
(b) achieve a price/volume optimum in planning.                  First partnerships are evolving
    Automakers must optimize their vehicle and powertrain        EVs call for completely new infrastructure solutions.
    planning in a way that minimizes losses from early           Many automakers have already formed partnerships and
    market introduction and maximizes the learning curve         alliances with energy providers: Daimler with RWE and
    effect and public awareness of technological leader-         VW with e.on, for example (see Figure 7). Some OEMs
    ship. The key will be an integrated approach incorpora-      have yet to find partners. Such alliances, whether verti-
    ting all powertrain technologies.                            cally with utility providers and suppliers or horizontally
                                                                 with other OEMs (with the aim of establishing standards
(c) clarify governmental subsidies. Planning requires            and decreasing costs), will be vital for any automaker
    long-term clarity regarding governmental subsidies for       planning to be active on the market for EVs.
    new technologies. The automotive industry needs to
    bundle its interests to achieve transparency and com-                                           Subaru   Daimler   VW   Mitsubishi
                                                                                                                                         Toyota   Nissan   GM, Ford,

    mitment as early as possible.                               RWE                                            

                                                                eDF                                                                       

saLEs aND sErvicE: traiN yOur saLEs aND sErvicE                 e on
                                                                SOUTHERN CALIFORNIA
                                                                                                                                                  

                                                                                                                                                           
OrGaNizatiON aND FiND PartNErs                                  EDISON
                                                                TVA                                                                                

                                                                DTE Energy                                                                                   
The situation: Infrastructure and the sales and service         TEPCO                                                                            

network are key                                                 Source: Press clippings, Roland Berger

1. Expert dealers can help OEms differentiate                     Figure 7: Examples of partnerships between OEMs and elctricity
   themselves                                                     providers
   In our survey, respondents said that dealers' understan-
   ding of issues such as fuel efficiency, emission values    The guidelines: Train your dealers, find adequate partners
   and making the right choices when it comes to clean
   drive technology were only satisfactory. Just 32% think    (a) improve your sales and service network. Seize
   that their dealers are able to offer good professional         the opportunity to build a competitive advantage by
   advice on clean drive technology. With the introduction        making your sales force experts in alternative drive
   of new technology, customers' buying decisions will grow       technologies. Include them in your communication
   even more complex. OEMs can make themselves stand              activities.
   out from the competition by having expert, well-trained
   dealers.                                                   (b) Prepare a local rollout strategy. Work out what the
                                                                  implications of new technologies are for your global
2. the service requirements for new technologies are              rollout.
   challenging the industry
   New technologies have a number of implications for         (c) Find partners. Identify potential partners – suppliers,
   OEMs' service networks. High-voltage electricians are          utilities and other OEMs – who can provide access to
   needed to work on electric powertrain modules. New             specific knowledge and resources, help define stan-
   logistics concepts are needed for parts such as batte-         dards and reduce costs.

act NOW: GEttiNG startED                                           9. Does your product portfolio roadmap consistently reflect
                                                                      the different powertrain technologies and their implica-
Automakers need to act now to gain a competitive edge.                tions? Is it flexible enough to react to breakthroughs in
New technology, customer demands and the factors driving              technology or unexpected moves by your competitors?
market success have all changed. Marketing and sales are
often neglected – yet they form the key to success.                Pricing
                                                                   10. Have you identified key triggers for higher price premi-
Here are 16 questions to help you assess whether your                   ums for your new technologies and taken appropriate
organization is properly prepared for the changes ahead.                action?
You should be able to answer "yes" to each of the ques-            11. Is your product portfolio roadmap geared toward
tions. If you answer "no" to any of them, you'll know where             achieving a long-term price/volume optimum? In other
to take action.                                                         words, does it find a balance between pre-empting
                                                                        markets and minimizing relevant investments?
corporate strategy                                                 12. Have you prepared a clear plan for screening (and
1. Is developing sustainable solutions for individual mobi-             supporting) governmental decisions about subsidies
   lity an integral part of your corporate strategy? Is it truly        for new technologies?
   understood and shared by your organization?
2. Are all current and future powertrain technologies syste-       sales and service
   matically integrated into your portfolio strategy and cycle     13. Is your sales and service network already an integral
   plan? By segment and by region?                                     part of your market launch strategy? Does it exploit the
3. Do your corporate efforts strive unwaveringly toward buil-          full potential to market cars with alternative powertrain
   ding market-oriented competitive advantages through                 technology to end customers, small businesses and
   alternative powertrain technology?                                  large fleets?
                                                                   14. Are you actively working toward partnerships with sup-
Branding and promotion                                                  pliers, utilities and potentially even competitors?
4. Have you assessed your brand's fit with your current and
   future customers' environmental requirements and taken          Organization and implementation
   any necessary action?                                           15. Are the implications of new powertrain technologies
5. Have your engineers, product managers and commu-                    and customer requirements reflected in the scorecards
   nication specialists defined your key differentiators in            of all executives – not just those working in R&D?
   terms of environmental issues? Are their actions geared         16. Have you allocated responsibility for everything to do
   toward these differentiators?                                       with new powertrain technologies, so that cross-func-
6. Does your internal and external communication ensure                tional activities can be properly coordinated?
   that your organization, suppliers and partners are pro-
   perly aligned with your technological roadmap? Do they          Obviously, there are more questions. However, one remains:
   have shared expectations and motivation? Did you plan           Does your organization put as much emphasis on marketing
   your marketing spend accordingly?                               your technological competence as it does on developing it?
                                                                   In many cases today we doubt this.
Product strategy
7. Do you continuously analyze your global target segments         As the result of public pressure, political action and deve-
   to determine their powertrain technology preferences?           lopments in technology, the automotive industry is under-
   Are these insights systematically reflected in your pro-        going radical change. Singling out just one of these areas –
   duct design and portfolio decisions?                            technology – for response is not enough. The industry needs
8. Has your design team identified differentiators that            to come up with answers on all fronts. Marketing managers
   make your technological advances visible to customers           play a frontline role. But they need to act now, before the
   and the public in general? Are their findings reflected         window of opportunity closes.
   fully in the design of your future models?


This discussion paper was produced by the Automotive Competence Center of Roland Berger Strategy Consultants.

Roland Berger Strategy Consultants, founded in 1967, is one of the world's leading strategy consultancies. With 36 offices
in 25 countries, the company has successful operations in all major international markets. In 2008, it generated approxi-
mately EUR 600 million in revenues with 2,000 employees. The strategy consultancy is an independent partnership
exclusively owned by about 180 Partners.

As one of Roland Berger's largest Industry Competence Centers, the ACC Team supports the leading manufacturers and
suppliers of the automotive industry around the world. In close cooperation with our clients, we solve a wide range of strategic
issues and operational problems at every stage of the automotive industry value chain. Our 200
 consultants worldwide draw on extensive experience in the automotive and consulting industry to generate tangible value for
our clients.


The authors welcome your questions and feedback.

ralf Landmann                                                       Jan-Philipp Hasenberg
Partner                                                             Senior Consultant
Roland Berger Strategy Consultants                                  Roland Berger Strategy Consultants
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Nicole steffen                                                      Dr. antje Lutz
Senior Consultant                                                   Consultant
Roland Berger Strategy Consultants                                  Roland Berger Strategy Consultants
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matthias Wünsche
Senior Consultant
Roland Berger Strategy Consultants
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80807 Munich
Tel.: +49 (89) 9230-8106