It was the best of times, it was the worst of times." Dickens' words aptly describe the auto business in 1999. While this global economic engine closed its books on a record finish to the millennium, that's not the whole story. Managing for growth, market share, and profitability has never been tougher. The industry's challenge: to resolve conflicting demands of consumers and the environment while leveraging the new, revolutionary business models that the Internet has introduced. At January's Automotive News World Congress, William Clay Ford Jr., chairman of Ford Motor Co., equated the Internet's significance with his grandfather's mass-production innovations. He predicted the Internet similarly will improve productivity, lower costs, and delight customers. But he also said that changes in the vehicles will be equally significant. Together, the process and product innovations will reinvent the industry. Transforming the product will be mass-production alternatives to the internal combustion engine. Ford's initiatives in that direction include the Prodigy, a hybrid-electric concept car that is as large as a Taurus sedan, yet is capable of 80 mpg. Introduction is targeted for the 2003 model year. Ford believes such hybrids could represent 20% of the market in 10 years. (General Motors Corp. recently unveiled a similar concept, while Honda Motor Co. Ltd. and Toyota Motor Corp. have hybrid-electric vehicles in production.) Supporting Ford's strategy is the dedication of a new brand -- Th!nk -- for the development and marketing of alternative-fuel powertrains and vehicles. Th!nk's products are designed to be environmentally friendly in manufacture, operation, and afterlife. North American marketing efforts will begin with three products: a low-speed electric runabout and two electrically assisted bicycles, one a folding type. Supporting Ford's observations on the influence of the Internet is a new survey of automotive executives by the professional services firm KPMG LLP. "We're seeing the transformation of one of the world's most important industries just as it enters a Web-based universe where information is king," says Detroit-based Brian M. Ambrose, KPMG's national industry director for industrial products and automotive practice. "For example, the research emphasizes that the auto giants are shifting their focus from producing cars to marketing them . . . a radical concept for managers who have grown up in this business." The "best of times" certainly applies to the record numbers of vehicles sold in 1999. In the U.S. alone, sales of light vehicles totaled an unprecedented 16.89 million cars and trucks, surpassing the 1986 record by a million. "Last year was the ultimate ride, the roller coaster just kept going up, up, up," says Dick Colliver, executive vice president of sales for American Honda Motor Co., Torrance, Calif. Honda's 1999 sales of nearly 1.08 million represents a 6.7% increase over 1998, an all-time record. Mercedes-Benz USA Inc., Montvale, N.J., also reports record-breaking sales of 189,437 in 1999, an 11.3% increase over 1998. In December, its upscale S-Class recorded the best month on record. Mercedes, followed by Lexus, now leads Cadillac and Lincoln in the U.S. luxury sector. That sales performance even surprised Jrgen Hubbert, managing director of Mercedes-Benz's parent DaimlerChrysler AG, who observed that becoming No. 1 in that sector was not the company's target. GM's sales rose 9% in 1999, with trucks up 12.9% and cars 5.5%. Ford reported a car sales increase of 9.4%, while truck sales rose 10.7%. But behind those increases were slight market-share declines at Ford, DaimlerChrysler, Honda, and Toyota. GM's share climbed slightly -- to 29.45% from the 29.4% reported for 1998 when a strike impacted its sales. Back in 1962 GM had 51% of the U.S. market for cars and trucks. While vehicle sales in the U.S. may be booming, the industry is facing a faster, tougher, and more competitive market. Technology is putting the consumer in charge. Customers are demanding both innovation and high quality at the same or lower cost -- which explains the move to the Dell Computer model. That Internet-enabled scenario is based on make-to-order rather than make-to-stock, a manufacturing model in which information becomes a substitute for inventory. "The new model is going to be about servicing customers rather than just stamping out cars," responded one executive in the KPMG survey. Ambrose says nearly all of the respondents cite Internet technology as the driving force behind this move to a consumer technology model, and point to the following sweeping changes in the automotive marketplace:
- Customer relationships will be enhanced via improved communication, customer service, and innovations in aftermarket services.
- Branding and customization for differentiation will be emphasized.
- Real-time communications with suppliers will mean transaction cost reduction, more efficient design planning, scheduling, and logistics, as well as improved inventory management and cash flow.
- The shortened cycle times will require consolidation into much larger "supersuppliers" that will take over much of the design, engineering, and manufacturing functions.