2001 Greater Los Angeles Auto Show

Keynote Address by DR. Wolfgang Reitzle

DR. WOLFGANG REITZLE: Welcome to the first media day of the first Auto Show of the 21st Century. And welcome to the media breakfast. I must say, until I received this invitation, I didn't really believe that such a thing like a media breakfast could exist because, you know, in good ol' Europe this is almost an unwritten law - -You never invite journalists before 11:00 in the morning. So I have to say that this is the first media breakfast I have attended in my life.

As we all know, the new millennium has started. And I thought I should talk today a little bit about my personal thoughts on what will change in the auto industry. And when we look back at the last century, we realize that the car companies, even car companies with $10 billion of profits, had a market value last week of around 40 billion and some less.

Dot com companies, on the other hand, were the darlings of the financial communities around the globe. And, I've got the feeling that today many believe the car industry, to a certain extent, belongs to the old economy, smoke stack industry. It's a dinosaur enterprise loaded with heavy assets. Our products are very often seen as old. There's almost no further development as people see. There is only moderate growth, and the business pattern seems to be very cyclical. So financial analysts come to the conclusion that this is something not to invest in. And it comes to this: I think, ridiculous low evaluations of the stocks of car companies.

A few weeks ago, I have to tell you, the chairman and CEO of one of the biggest supplier companies came back from New York where he had a meeting with a financial analyst. He was so depressed. We had dinner together, and he was so depressed. He told me, “Wolfgang, the investors and analysts, I really tell you, after a full day of talking with these analysts, they don't believe in a bright future of our industry anymore.” And that was the exact moment where I personally thought ‘enough is enough.’ I think we should use a new start with a new century to do something about it.

Now, the whole thing finally led to a decision this morning. I put my wonderfully prepared speech aside. And you, the audience, you have to cope with my poor English. As a German who actually speaks Bavarian, works with a Swedish company, who almost daily listens to the very good British English and then comes over to Detroit with the American English… so the mixture is what you get now. So that's now your problem.

But I have to tell you, I've been a car person since I was born, and I'm passionate about cars. To me, they are the most wonderful and emotional products on earth. And I feel it is time to share some of my ideas with you, and the first statement I already made: I think our industry will have an unbelievable bright future ahead because it is based on one of mankind’s biggest dreams and basic needs. That's personal mobility, that's individual mobility.

And despite all the new forms of telecommunications — think about it, people now have video conferences, all of these wonderful mobile phones and the communication technology and internet – that people predicted would reduced traveling. Just the opposite has happened. People travel more than ever, and it is growing, growing, growing. Traveling by plane, by train and, sure, by car. And the advantage cars provide are unbeatable. Why? Because it's the only mode of transport which allows you to have the mobility to reach every corner in the world. You can never do that with rails. You can never do that with anything else. So, however cars might change in the future, and they will change and have to adapt to the new environment, the car will always be there. And my prediction is that even in a thousand years from now, the car industry, it will look different, but it will be one of probably still the most dominating industries in the world. And my prediction also is that most of these wonderful ‘dream dot com’ companies, nobody in a thousand years will even know ever existed.

So, therefore, what I want to say is that our industry is based on a very, very solid, stable overall basic need of mankind and, therefore, it has to be a wonderful business for the future and, therefore, I really don't understand why we don’t put more in the ‘old economy.’ I think we are the future economy. And I think we all together should do something about it to change that wrong perception about the car industry.

And because there is no substitution for the car, it will always grow. And there is always the addition, the fun element, the passion, the emotion in the fulfillment of the dream when it comes to cars. Because, as we all know, it's not only a normal machine or a luxury product. It's something which empowers you and provides new opportunities. So, therefore, I'm a great, great believer in the car industry.

Yes, sure there might be a downturn in the market from time to time. So what? I mean the underlying business structure for our industry is absolutely robust and, therefore, it will grow. I think for the good companies, it's even a new opportunity to show that you are better than the others. So you will not suffer that much. And I think that's quite normal. But that has nothing to do with the long-term stable and sustainable growth we will see there.

Now, I think, yes, when some or most of these dot com companies in a thousand years from now will be disappeared, maybe also a few car companies will disappear. Maybe. But those which will understand trends, have a passion for the product and define themselves no more only as sheet metal box producers, but as mobility enterprises, I think those will have a bright future. And when it comes to mobility enterprise, I don't think about only producing cars. It's all about mobility, individual mobility, and I will touch on a few of these points later.

Now, by the way, what most of the people also forget when they evaluate the car industry today is that the car is the most complex consumer product on earth. There is no other consumer product, which is so complex and which integrates so many different technologies and materials. I mean, what other product consists of sheet metal, steel, precious metals, glass, textile, foam… I mean, endless. Almost every material you see there, even wood, think about Jaguar. So what this means to me is -- and that's something we should also think about. Whenever there is a new technology, a new invention, something new in another industry where we use the materials or the processes, then we benefit. We, the car industry benefit more than any other industry by inventions and new research results generated somewhere in the world. And people normally don't think about it.

What it means is that not only our own developments and research labs are creating new technologies inside the car industry, but we also benefit a lot from what's happening in other industries. And there is no other business, which benefits so much from what's done in other businesses. And what that means is that there will be an ongoing improvement in the car industry, I predict forever. And when you think that something is now at the very highest level of technology and mature, forget it. There will be some new invention in 10, in 50, in 100 years from now. And, therefore, I'm a great believer in that the car industry by definition because it is integrating so much other technologies. E-business.

This is exactly where you may know that Jac Nasser is totally obsessed to make Ford Motor Company a leading E-business company in the car industry, the company which uses E-business earlier and in a more consistent way. And I only want to give you one example. Covisint, which was developed by Ford and is now the purchasing platform for Ford Motor Company, General Motors, DaimlerChrysler and so on. Well, we all use it. Now, what it does is, the whole purchasing volume which when you add it up for these car companies, is more than $200 billion per year, will be handled now by a new Internet purchasing system. This will handle all the purchasing activities from the suppliers to these car companies, and it's one single system. It's an industry standard.

Who would have thought about that competitors like DaimlerChrysler, Ford and GM would use the same, competitive tool. It's possible today. And what it does, I mean think about it... only if we could to reduce our purchasing price not only by having auctions on it, no, but by streamlining the processes. Take out one percent out of this as an efficiency gain. It's already two billion dollars, but I think it's by far not ambitious enough. What it means is, again, here you see we the car industry have probably a much bigger advantage out of the E-business than anybody else. Think about Amazon.com which I really think is one the most fabulous dot com companies. That's really a super idea, and I like that. But still they struggle to make profits today.

But, you know, which business had the highest profit out of it? It's UPS and FedEx, because they now ship all these books to the customers. So Amazon.com created growth and profits for UPS and FedEx and it's the same what's happening in other industries. It's we, the car industry, who benefit most. And, therefore, I'm a great believer that we can't belong to the ‘old economy.’ I think there is no such thing as differentiation between old and new economy.

I think you see, on the example I tried to make, there can't be something like the separation between an old economy and a new economy because whatever is created new, the traditional industry which is based on a solid ground will have the biggest advantage out of it. So that's from where I come.

And, by the way, you know what's great for us at Premier Automotive Group, what we realized last year, we sold more than 1000 Aston Martins. And I tell you a few hundred went to these new dot com millionaires, so even in this way, we have an advantage. So whatever they do and I mean if they -- if these companies die, I mean somebody else will go up and buy an Aston Martin. So I think that shows you there are a lot of possibilities that we have an advantage out of what's happening out in the world and because we are built on such a solid ground, we have a bright future.

It's not been all about adopting new technologies very fast, which will be important to be more successful than others in the car industry. But I think you also have to be very open, open for trends in society and pay attention to how the consumer behavior is changing. And there is a huge opportunity out where, frankly, the car industry until today didn't do a lot.

When you now look especially here in California you can see a very robust, global trend. It's individualization. People go more and more for individual products, for customized, personalized stuff. Watch the kids today. First, they never have been more label-oriented and aware. I mean they all have this sloppy stuff, trousers and so on, but it’s to them very important which label is on. Think about Levi’s. Looking at the fashion industry very often is extremely interesting because there, things are going on much faster than in our industry. And when you look at Levi’s, when you visit their flagship store in San Francisco, I mean you get the perfect, perfect jeans, whatever size you need. They have all kind of different sizes, but within 10, 15 minutes, you can individualize your personal jeans with patterns and with all the stuff. They do it in the shop. And that showed me that there is something going on with the kids. They want to have that - they want to have their individual Levi’s jeans.

This overall trend of individualization is a robust one, and we, the car industry, have to pay much more attention to these things. What it means, we will have many more variances in the future. It will be difficult to handle these complexities in the plants, but my prediction is that it will also go so far that finally, the end step, the last step of personalization, will take place in the big dealerships. So, in the future, the big, strong dealers really will not only have a service shop. They will also have a shop for personalization where you can have and we can design the cars in the way the dealer can without any quality problems, change parts, make the interior a personalized interior so you can change the colors, you can plug it in, you can change it after a year. There is so much we can do in order to really personalize our cars and make that a competitive advantage. And the other thing I already mentioned with the kids, what we see today -- and I'm a great believer in this -- it's the differentiation by brand. And both go hand and hand, individualization and the brand game. Because in a way, technology becomes more and more difficult being used as a main differentiator because we all use as car companies today the same big supply groups. And by this, there is an automatic process which synchronizes technology. Years before you could have a competitive advantage using a new technology maybe for two years. But now it may be six months and then it's gone and the competitor also has that. That doesn't mean the technology is not very important for us. Just the opposite. But it means that it's not sufficient enough to differentiate your products through technology. The big differentiator is the brand. And so the name of the game is brand mastering, and when we talk about brand, you have to pay attention that you are consistent in what you do, that the brand profile fits exactly to the product and the product fits the brand, that you have continuity and stability and don't jump around. Then you will be hurt in the marketplace because customers are sensitive to these breaks. And so, the whole game will be a very holistic game, and I think that's a unique opportunity for those companies who understand the game between marketing, branding, positioning, product and execution so that the whole thing becomes a very holistic, fine-tuned system.

In principal there are two ways now for luxury companies or premium companies to play that brand game. One way is the way Mercedes-Benz is playing it. They have these unbelievable strong and robust brands so they can do an A-Class and an S-Class. They can do a mini van and a sports utility. They can do a truck, they can do almost everything, and they have a premium. But this is only one brand I think in the world which is that robust that you can cover all the segments and get a premium and don't dilute the brand.

But there is another way to do it, and that's the way we have chosen with the Premier Automotive Group. So, our approach is different because we have in principal more sensitive brands. Look at Jaguar.

I think you quickly see that brands like Jaguar are much more sensitive, so their natural brand potential is not that big volume-wise. But, on the other hand, there can be a charming element in that we can now do exactly very special things which you can only do with a very highly focused brand with a very, very clear profile. And that's exactly what we want to do. When you look now a little bit more carefully on our Premier Automotive Group brands, then you will see that they are really set up in a complimentary way. There is almost no overlap. So the charming and unique thing nobody else in the world has is that our brands can address different market segments in a very, very convincing and focused way. So we must not stretch one brand in order to grow and go into segments which don't really fit to this brand. So that's our approach. And this approach goes hand-in-hand with the distribution strategy which is that wherever we have a chance to do it, wherever the local situation allows it, we want to go for so-called common ownership PAG dealers. What that means is that one dealer has then five showrooms for our five brands all-exclusive, with exclusive sales people, so that you really have a consistent brand representation. But backstage, all the processes in common so that you then have the same cost efficiencies like a brand like Mercedes has because they reach in principal the same volume with one brand.

So, this is our approach, and I think if I'm right with a trend towards individualization, with a trend towards being more brand aware, to differentiate yourself in whatever fashion in luxury goods, watches, whatever. And when you see what's going on there, then I think it can be a very smart strategy to cover all the market segments and finally have, hopefully, the same volume but you do it with a complimentary brand portfolio approach. You can fill the garages of your customers because most of them, especially in this country, do own more than one car. They have a sports utility and they have a sports car and maybe a sedan.

Now, that's a new opportunity for the good dealers because the dealer now builds up with new customer relationship marketing tools a very close relationship with his customer. So why should this customer buy another sports utility from another brand when we have a very attractive portfolio so that we can have for every need and for every customer requirement, we have the right product? And we will have in the future. So that's also from this side an ideal and new approach, and, therefore, we are quite happy that we now step-by-step find more and more courageous entrepreneurs who really invest a lot of money into these new dealership concepts.

But there is another charming aspect, and I mentioned that we define ourselves more as mobility enterprises and no more as car companies. What I mean with this is that in the future, it must not only be that we sell cars. You can buy mobility from us.

Ford Motor Company has the best prerequisites of all car companies in the world for that. Why? Because it has not only the biggest car financing company with Ford Credit. It has Hertz, the biggest rental car company in the world. So nobody has more service spots and spots where we have cars sitting there, waiting for you.

So, if you are a consultant or a journalist running around the world, I mean, you need a car everywhere. So you could, for example, in future purchase for $50,000, let's say, a mobility package from us. And what you then get is if you give us 24-hours’ notice, we will provide you wherever you go in the world a car, a car out of a certain selection of your choice. That can only be done if you have an infrastructure worldwide with thousands of dealers, with 10,000 of spots, of service spots. There is no airport where we can't provide you with a car.

And we go even further. In the future we want to offer you holidays. We organize special holidays for you. We could do Land Rover adventure trips. So you quickly see there are additional new profit opportunities and interesting service opportunities which go far beyond being only a car company selling a car and then, okay, for servicing, the car comes back sometimes.

So really, this is for me the name of the game. Play the brand game, play it consistently without any break, and offer a lot of services around the car and see yourself and define yourself as a mobility company. And then you will see what happens. Because, as I mentioned before, no other industry is based on such a solid ground like the car industry with the basic need for individual mobility.

And the more individualization goes on, the more opportunities for us in offering you an intelligent combination of products and services. And that's exactly where we have a huge potential.

When you then go into a fashion shop and you see what kind of super perfect, wonderful brand and lifestyle display they have, it's really fun to go there. And I think we, the car industry, are not really professional retailers. We traditionally focus on producing these sheet metal boxes and then we sell them.

And I think, there again, it's a huge opportunity for us in changing what the dealerships look like, unbundling them, come closer to where you live and display your brand in a wonderful way, and you will see a few interesting, new things we with the PAG group will do here because we want to revolutionize this. It can't be the future of how a car dealership looks today. And I think there is a huge opportunity out there, and we can learn a lot from the fashion industry, we can learn a lot from Wal-Marts and from people who really are professional retailers. We are until now not, and I see that as an additional, huge opportunity. But, finally, everything comes down to the product. We have to do all that, what I tried to explain, but the car will always be and the car for the success of the future will always be a non-compromised product. This is what I want to create within PAG especially, but we will do that also in Ford Motor Company on a broader way. We want to create as many icon products as possible. And when I say icon products, I mean it's not the normal stuff you sell by rebates. And, frankly, when I'm watching, especially in this country, a local TV channel or when I read a local newspaper, I mean you get the impression that the car industry, it's not a competition of product. It's a competition of rebates, and I think this is a certain disease in our country, in our industry. And I think we should change that. And this comes from over-capacity. We all know that, creating unattractive products which nobody wants, which could only be sold by rebates.

And when I say create icons, then I mean create attractive products that also can be products in the mass market. And when I say an icon, I only give you an example what of I mean with that. The original Volkswagen Beetle really was an icon. I think they sold more than 30 million in Europe. And it was in principle never rebated, but it had also a heavy premium but it had a super life cycle curve that's also very charming and nice on an icon product that it doesn't go up and then quickly down and then you have an investment sitting there. An icon product is an attractive product leading or sometimes creating but very often dominating a segment. And to create an icon product, you have to have a certain feeling for what people want. And it has to do with proportions, it has to do with a good execution, it has to be really consistent, and it must not be a very expensive car. I mean a Ford Explorer is also a certain icon and the F-Series trucks, and a super icon always was the Jaguar E-Type, for example. These are the sort of cars I have in mind, and it's difficult when you say you want to create icon cars, because very often only the past can tell you whether you succeed in it.

But if you never go for it and watch it, analyze it carefully, what makes the difference between an icon car and a normal mass car, which goes away and nobody knows about it in a few years from now.

An icon car should always be, you should be able to put it into a museum in a few years. And what does it take to create an icon? And I think what we want to do, we want to create a lot of icon cars. You will then see whether we succeed, but that's our ambition and that's where we go.

So overall, I think we in the car industry, we should take more risks and we should go for defining ourselves as mobility companies and to really overall look at it in a very, very positive, attractive way.

PAG will be very agile with this approach. We moved our headquarters, you mentioned it already, to Irvine, California because we think that's the future for trends. We have to jump out of the traditional capital of the car industry. We will add design studios there. We will have new design studios in London where we will design merchandise articles because also merchandising is something which should support the brand and not dilute it in putting your brand name on cheap stuff. So we are doing a lot. And, as I mentioned, we want to go progressively ahead with new dealership concepts so I'm proud to state that Greg Penske, who is here somewhere, Greg, thanks for your decision to establish one of these super PAG dealerships in north Phoenix, and you will see in future that's also brand new. It will include a test track, on-road and off-road. So, we will provide a totally new retail experience, and we don't want to talk too much about it now. We want to have a chance to show it to you in a certain period of time from now.

I have to make another announcement, and I want to do that today.

Some of you probably saw our concept car, the F-TYPE Jaguar in -- last year in the Detroit Motor Show, and we made now the decision to go ahead to put this car into serious production. So the F-TYPE will be produced in 2004, and three years from now you can have the car and I promise you, it will be an icon. And it will be the opening of a new era for Jaguar's future in doing really emotional engineering, in doing outstanding cars. It has nothing to do with retro design. Its heritage design so it's really something brand new and our ambition is it has to be a no-compromise roadster which will be unbelievable attractive, and when I say no-compromise, then it definitely will not be a platform approach we use. It will be a unique product with an incredible emotional appeal.

Well, I can also mention that this is now the 40th anniversary of that seminal Jaguar sports car E-Type, and I think to a certain extent, this will be the successor of this icon E-Type and of some other wonderful Jaguar roadsters like the XK 120 and others Jaguar had in its past.

We are very glad to announce today to the world the news that we will go ahead with the Jaguar F-TYPE and put it into production. And when you think about from where Jaguar came -- a car company with only two models -- we now will have five. We will grow that brand sensitively so that we do not dilute the brand. But there is much room and Jaguar is now the fastest growing car company in the world. In 1998, the last year before PAG was founded, we had about 50,000 cars and in 2000 we sold 90,000. This year we will sell much more than 100,000. So Jaguar is on a good path, and this car will help a lot to change Jaguar's design. This will be a new design language, which will then also be contributing to the design elements for other Jaguars in the future.

So, ladies and gentlemen, I just wanted to say that I'm really a great believer in the bright future of the car industry. And if there is any more time left for questions and answers...

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