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Auto Industry Evolving Into Consumer Technology Business

13 January 2000

Auto Industry Evolving Into Consumer Technology Business, Says Global Research by KPMG

   Manufacturers and Suppliers Must Be More Flexible Even as Consolidation
Continues; Consumer Demands and the Internet Forcing This Shift to Technology
                                Business Model

    NEW YORK, Jan. 13 -- According to a global study of industry
executives released by KPMG LLP, the professional services firm, the
automotive industry is morphing into an entirely different business model that
has serious implications for the large manufacturers, suppliers, dealers, and
consumers.
    "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,"
said Brian M. Ambrose, KPMG's national industry director for
industrial & automotive products.  "For example, the research showed that the
auto giants will shift their focus from producing cars to marketing them,
which is a radical concept for managers who have grown up in this business."
    Why should an industry celebrating record sales of 17 million vehicles
last year and containing three of America's most powerful companies put itself
through this type of wrenching change?  Because technology is putting the
consumer in charge, and consumer is demanding innovation and high quality at
the same or lower cost -- what some respondents called the "Dell Computer
model."  "It's going to be about servicing customers rather than just stamping
out cars," responded one executive in the survey.
    Nearly all of the respondents cited Internet technology as the driving
force behind this move to a consumer technology model, and pointed to the
following sweeping changes in the new automotive marketplace:
    -- Large automotive manufacturers will look to enhance the customer
relationship through improved communication and customer service, and
innovative after-market services.
    -- Study participants also stated that "branding" and customization will
become more important as manufacturers look for ways to differentiate
themselves from competitors.
    -- Most respondents said that real-time communications with suppliers will
mean transaction cost reduction, more efficient design planning, scheduling,
and logistics, and improved inventory management and cash flow.
    -- "The industry would really like to reduce the number of people it has
to talk to," said one respondent, and the shortened cycle times will require
consolidation into much larger "super suppliers" that will take over much of
the design, engineering, and manufacturing functions.

    Regarding the question of how these huge companies and their 50,000
suppliers will make this transition to the dot-com world, auto executives
recognized that they face major leadership, cultural, and skill-set
challenges.  As one respondent said, "The biggest obstacle we face is
tradition."
    "On the other hand," noted Ambrose, "the Internet represents a fantastic
opportunity for the large manufacturers to build strong relationships with
their customers and ultimately to transform themselves into virtual companies
like Cisco Systems.  It's just a question of who will be flexible, determined,
and fast enough to take control of the new marketplace."

    KPMG's qualitative research, conducted by a third party, included 35
interviews with senior-level industry decision-makers, including chief
executive officers, chief financial officers, and senior vice presidents from
auto manufacturers and suppliers in the United States, Europe and Asia, as
well as industry observers, such as financial analysts, journalists and
academic economists.
    KPMG LLP is the U.S. member firm of KPMG International.  In the U.S., KPMG
partners and professionals provide a wide range of accounting, tax and
consulting services.  As a provider of information-based services, KPMG
delivers understandable business advice -- helping clients analyze their
businesses with true clarity, raise their level of performance, achieve growth
and enhance shareholder value.  KPMG International's member firms have more
than 100,000 professionals, including 6,800 partners, in 160 countries.
KPMG's Web site is http://www.us.kpmg.com.