Car manufacturers are outsourcing an ever-increasing proportion of their operations, driven by the need to focus on core competencies, by the rising complexity of today’s automobiles and the growing variety of models, and by severe cost pressures.

So what will remain as the core competency of car manufacturers in the years to come? It is the development of their brands and the creation of related products and services that will define their brand image. Brand management is a core competency of car manufacturers and the key to customer loyalty. At a time when technology has become almost universally available, brands are distinguished through design, image, and customer experience. Managing the brand portfolio across the growing number of customer segments, regions, and vehicle models is critical.

Nearly all car manufacturers today have a portfolio of brands to serve different market segments or regions. This creates multiple growth opportunities but also a number of severe pitfalls. For premium brands, the tradeoff between volume and value growth will require sophisticated market insights, whereas volume brands will need to find the right brand positioning in a broad variety of customer segments and regions around the globe.

One key challenge of the automotive sector is to become truly customer-driven. OEMs and their partners must therefore be intimately familiar with customer preferences and serve customers with the right products at each stage of the lifecycle and at each customer touch point. At stake is an average total lifetime revenue adding up to more than US$300,000 per customer.

Given the variety of customers (e.g., private/commercial, different regions, segments/milieus), the multiple customer touch points (e.g., presales, sales, after sales) and the wide range of possible partners (e.g., dealer, Internet, OEM), customer management can get pretty complex. One size fits all will definitely not work in this context; clients need to be served in customized, yet efficient way.

To ensure the desired brand experience, both physical and virtual process steps need to be defined and implemented in a consistent way. "Follow the car" (through the product life cycle) and "follow the customer" (through the customer life span) will be the brand’s mission, in order to capture the maximum revenue and profit potential. Loyalty, retention, and customer acquisition are the key metrics.

Sales and after sales probably offer the biggest potential for optimization in the automotive value chain. Most brands need to overcome their functional silos and the accompanying friction of their sales systems. An integrated approach will drive volume growth and protect the attractive profit zones in the after sales and financial services sectors, which are under attack from third-party players.

Connecting the automotive downstream businesses in sales, financial services, after sales, and used cars with integrated solutions for customers is a major challenge; financial services can be a key enabler in this area. Another challenge is creating seamless interactions across the sales chain from OEM to wholesale and retail. Only if both integrations work well will the customer receive the desired brand experience at all touch points as the OEM is able to capture the best system profit for the brand.

With unsatisfactory average profitability in automotive retailing, OEMs need to make conscious choices about their channel partners and help them to be more profitable through simpler processes, better sales support, and a lean operating system (i.e., a "soft franchise approach"). This task is made more complex as multiple new channels evolve (brokers, leasing companies, Internet), some supporting the value proposition of the brand and others undermining it. Whatever the channel portfolio, in the end the brand needs to ensure that it does not get cut off from the customer. A fair and open partnering model is the best basis to maintain close customer proximity.

How can OEMs create maximum differentiation and quality within a portfolio of brands while at the same time minimizing their cost and investment requirements? Oliver Wyman pursues an integrated approach across the functional boundaries of product development, procurement, manufacturing, and finance to help clients solve this question. Our methodologies include innovation strategy, optimization of platform usage and modular development, collaborative cost reduction in the product development and series production phases, as well as value sourcing.

With the number of niche vehicles exploding and the complexity of all vehicle modules increasing from generation to generation, focused core competency management is necessary in order to accommodate the increased demand for engineering. Non-strategic competencies are being outsourced to engineering service suppliers or delivered as a system by a new breed of suppliers, the system integrators.

Suppliers need to be careful because new technologies are replacing old ones at a faster rate, with shorter innovation cycles. Customer-driven innovation and a long-term innovation and technology strategy enable suppliers to introduce the right technology to the right customer at the right time. At the same time, suppliers need to tackle product cost reduction with the same vigor as their OEM customers.

Oliver Wyman is a proven partner in helping OEMs and suppliers to define and implement the best strategies in innovation, technology, product development, and sourcing. We assist clients by leveraging our extensive knowledge of the trends, technology, and value drivers affecting all modules of the automobile.

OEMs are investing more "upstream" to improve product creation and "downstream" to better serve their customers and raise profitability. These trends will intensify the already strong pressure to maximize manufacturing efficiency and operational performance. In the future, OEMs will consistently align products and resources with their brand positioning. They are designing vehicles so they can be assembled more efficiently while improving quality. The proliferation of brands and niche vehicles requires that OEMs become more flexible so they can produce multiple models in one standardized process.

Suppliers also will see drastic changes in their value creation structures. They will need to improve operational efficiency to achieve additional cost reductions which are necessary to remain competitive. These trends make it critically important that they develop a sophisticated, long-term manufacturing strategy.

Oliver Wyman helps OEMs and suppliers to address these challenges by offering a broad range of services in the area of lean manufacturing and operational excellence. This expertise was strengthened by the acquisition of Harbour Consulting, a leading consulting firm dedicated to productivity improvement in the automotive industry. In addition, Oliver Wyman provides manufacturing due diligence assessments for private equity investors, hedge funds and manufacturers considering acquisitions.

The consolidation process within the automotive supplier industry will continue. By the year 2015, the number of suppliers will decrease to 2,800, which translates to a 50% reduction over about ten years. This trend is being driven by unrelenting cost pressure in practically all vehicle modules, accompanied by increasingly more demanding requirements (e.g. vehicle electronics), the intense pressure on the industry to innovate, and the growing need for capital to finance expansion strategies, R&D, and modernization.

Oliver Wyman helps large-scale financial investors develop an automotive investment strategy, identify suitable investment segments, select and evaluate the right target companies, and evaluate their future value potential. In addition, Oliver Wyman assesses the target company's ability to change its business model and manage the "buy and build" process. Oliver Wyman Transaction Services provides Broker-Dealer support, as required.

Backed by its years of experience, Oliver Wyman acts as a trusted adviser to companies and investors as they take on the challenges of strategic, operational and financial restructuring. In the process, we place a particularly high priority on developing sustainable restructuring concepts that address both the market and competitive environment as well as specific factors for success. Oliver Wyman acts as a coordinator for restructuring processes, as an objective expert and a neutral third party who provides quantitatively supported advice to address the interests of management, shareholders, lenders and other stakeholders. With more than three decades of experience in strategic, operational, and financial restructuring, Oliver Wyman offers a complete management solution and "one-stop-shop" approach to turning around companies.

Oliver Wyman's contribution to restructuring projects

Independent business reviews (IBR)

When an outside-in assessment of a company in distress is required, Oliver Wyman can leverage its deep industry expertise and extensive restructuring experience to identify risks and opportunities for a company, which are then used to assess business plan revenues, profits and cash flows. Special attention is paid to the viability of the business design and the ability of the company to win against its competitors.

Using benchmarks and best practices from industry peers and building upon our toolbox of methods to achieve operational excellence, we also give concrete recommendations on how to improve profitability and liquidity—often even beyond what was planned in the original business plan.

Hence, our IBRs are not only formal reviews but create real value for the company going forward.

Development of restructuring concepts

In devising its sustainably successful restructuring approaches to a client situation, Oliver Wyman draws on its deep base of knowledge about market trends and specific success factors, its far-reaching expertise about operational excellence methodologies as well as its solid grasp of the needs and options of various financial sponsors (i.e., equity/borrowed capital). We take an integrated approach in this work. Our restructuring concepts are based on four pillars:

• Strategic repositioning: The focus is placed on core markets and potentially profitable business fields. Business operations that destroy value will be closed or divested.
• Value-focused business model: Using our approach called value-driven business design, we optimize such business drivers as a company's customer, product and technology portfolio, define core skills and bring the organization into alignment with the strategy.
• Operational excellence: The focus here is placed on lean organizations and processes. In particular, this work is aimed at simplifying production networks and increasing efficiency and effectiveness by applying such methodologies as LEAN and Six Sigma. In addition, purchasing and the entire supply chain are optimized.
• Financial restructuring: On the basis of the strategic repositioning work, the value-focused business model and operational-excellence programs, we determine liquidity needs and the requirements for a sound capital structure through the use of integrated financial planning. This creates the foundation for a financing concept that optimally weighs the interests and decision-making freedom of all participating parties.

Methodological and professional assistance with implementation

Oliver Wyman has a broad base of knowledge about industries and methodologies that it uses to help carry out restructuring projects in a quantitatively-based and methodical manner. This includes:

• Strategy & Growth
• Sales Efficiency
• R&D Productivity
• Production Optimization
• Lean Management
• Procurement & Supply Chain
• IT & Operations
• Organization & Processes
• Mergers & Acquisitions

Program management and communication

Careful monitoring of the project's implementation is the key to its success. Another vital step is to keep all stakeholders up to date about the status of implementation and to transparently report potential problems. This enables barriers to implementation to be identified at an early stage and then removed. Oliver Wyman assists with the implementation of restructuring programs in a number of ways, including:

• Monitoring of the implementation and the achievement of planned improvements—using a web-based program-management tool if necessary.
• Regular reports to management, owners and financial stakeholders about the latest business performance (sales, earnings, liquidity) as well as the implementation status of the project, potential problems and necessary responses.
• Ongoing liquidity management (including rolling liquidity projections, liquidity-bolstering steps and potential problems).
• Support of communications activities about the restructuring program within the company and to external stakeholders.