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Downstream

Downstream

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Published by Anurag Kumar Jha

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Categories:Types, Reviews, Book
Published by: Anurag Kumar Jha on Oct 22, 2012
Copyright:Attribution Non-commercial

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02/17/2015

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The Auto Industry:“We Make Cars,Everyone Else MakesMoney”
(Or, how the downstream portion of the automotiveindustry spawns value-creating opportunities)
XXIII Encuentro de Empresarios de AutomociónIESE, Universidad de NavarraNovember 12, 2008Glenn Mercer, International Motor Vehicle Programmercer.glenn@gmail.com
 
Contents
The Auto Industry Value Chain:--Value Creation at the OEM Level is Weak--“Downstream” Segment OutperformsWhy Do OEMs Capture So Little of This Value?--The Case of FordSome Examples of Downstream Value Creation--The Niches are Small but Very Rewarding
 
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The Automotive Value Chain: Overview
$1,000Engineering hoursTooling (e.g. dies)Design (styling) ofnew car;development(engineering) of allparts and systems.Market researchBrand analysisPlatform strategyDesign-to-costTechnology usageHigh: BMWLow: HondaTime to market, carcost, program cost,market success
DesignSource
$12,000Purchased partsInternal supplySelection of suppliers(sourcing), negotiation,management of actualdelivery, development.Technology choiceModularizationstrategySourcing strategySupplier developmentMarket testingHigh: ???Low: ToyotaLow cost, high qualityof parts, low warrantycosts
BuildDistributeService
$3,000LaborTooling investmentCollection of allneeded parts;stamping steel,painting it, welding it,assembling all parts.Factory flexibilitySpeedBuild qualityContinuousimprovementProcess controlHigh: LexusLow: Toyota, HondaHours per car of labor,factory flexibilitymeasures, build quality$4,000Dealer marginMarketing costsShipment of cars,retailing of cars, launchof new models, allmarketingChannel managementPricingMarketingSellingLaunchNo consistent stand-outs anywhereVaries, but: Incentivecost per car, dealercoverage, exclusivity~$2,000 to ???Financing revenueParts salesFinancing car sales(lease and loan)Parts sales for repairAny other“downstream”Service penetrationFinancing share andtermsRelationshipmanagementHigh: high-line OEMsLow: none consistentlyFinance margin (ifany); parts revenue;open-ended
Calculated on a per car basis “downstream”
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CostDriversPurposeActivitiesLeadersMetrics

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