The Global Race Heats UpAutomakers, suppliers rush to plant flags

PARIS - Despite concerns over currency flucuations, economic upheavals, local politics and regulations, and disparate local cultures and customs, global automakers are scrambling as never before to plant their flags around the world.

That's the very clear message emanating from a forum at EquipAuto '97 here featuring top-ranking executives from leading automotive and supplier companies.

Among those giving presentations: Francois Castaing, Chrysler Corp. vice president for international operations and powertrain operations; Jeffrey D. Collins, Ford Motor Co. director of advance purchasing and new markets planning, manufacturing and procurement operations; Giuseppe Perlo, vice president-product, Fiat SpA; Louis Schweitzer, president of Renault SA; Noâl Goutard, president of Valeo SA; and M. Jean Fayet, president of Siemens Automotive.

The EquipAuto exposition is staged every other year in Paris, bringing together the original equipment, aftermarket and automotive service and equipment industries. Some 140,000 attended the five-day gathering, featuring 2,400 exhibits.

Although their strategies and tactics vary widely, automakers are lining up like pioneers at the Great Oklahoma Land Rush to establish themselves in emerging markets. They may be drowning in overcapacity in Europe, but they're betting billions on more capacity in regions staked out for future growth.

Fiat's Mr. Perlo puts it succinctly: "Exporting is no longer sufficient; you've got to produce in markets where you sell. So Fiat is going to the highest potential markets in Eastern Europe and outside Europe," he says. "We won't make everything everywhere, so we need to spread components" commonality to areas earmarked for assembly.

Fiat's "new" globalization strategy focuses on producing vehicles "to meet regional needs; it can't be a standard product," he says.

To facilitate its global plan, Fiat has launched "Project 178," which Mr. Perlo describes as a family of five vehicles built off common architecture and developed for markets such as Italy, Argentina, Brazil and Poland, with other European, African and Asian nations coming on stream soon.

Included in Project 178 are hatchbacks, sedans and station wagons. Gasoline engines range from 45 hp to 100-hp-plus diesels, and the mix is designed to meet local needs. A pickup also is being readied for Brazil next year and South Africa in 1999, he says. Fiat will begin assembling in India in 2000, and is using Project 178 to expand production in Russia.

Renault's Mr. Schweitzer asks, "Why are we seeing big investments" in new capacity? Growth and lower labor rates in emerging markets are the two big attractions, he says. Other considerations: To be closer to growing markets, to take advantage of local exchange rates and to avoid pitfalls of protectionism and trade barriers.

"This is the biggest industry, and there's a big political stake," he says. "There's a lot of emotion involved when it comes to cars and local governments."

Looking around the world, the Renault chief underscores that the "Three Big" mature markets - North America, Europe and Japan - still offer economies of scale. But each is different.

Europe is the largest, but it's not a single market. "Europe is the most open market, and why? Simply because it's not united," says Mr. Schweitzer. Carmakers need to push for homogenity and get rid of barriers, he maintains. "We should do away with distortions at home before we go global."

China may be a magnet for many automakers, but not Renault - at least at this stage. "There's no fairness," he maintains. "No one is in a position to make decisions." In contrast, favorable investment incentives are behind the "rush" to build facilities in South America's Mercosur nations, he says.

Although slow off the blocks, Valeo is moving swiftly to capitalize on growth outside Europe, says Mr. Goutard. Some 29% of Valeo's revenues are generated in France, 45% in Europe (less France) and the remaining 26% in other markets.

"A year ago we had 61 production sites," he says. "Now we have 104." Put another way, the French manufacturer established 15 new plants and nine joint ventures during the 1995-'97 period, and also made seven acquisitions.

Siemens' Mr. Fayet says "technical globalization is tough because the markets are so different. Look at the United States vs. Korea. The U.S. needs a methanol sensor for California, so we had to do a specific sensor. In Korea they are still using 1993 European standards. Meantime, Europe has to catch up with the U.S."

The size of markets in automotive electronics also varies widely, and "not everyone does things at the same time," Mr. Fayet emphasizes, "so we have to decide whether to carry over (existing) products or go with all-new products. Do we go with new technology or use obsolete products?"

Adding to the dilemma, some nations simply aren't ready for more sophisticated technology, lack electronic diagnosis capabilities and erect protective measures. "There are all kinds of regulations" and joint-venture minefields to traverse, he says.

Then there's the prospect of overcapacity, even in emerging nations. "Take Brazil, for example. If all of the manufacturers bring in their suppliers, there won't be enough chairs to sit on," he says.

The two American representatives concentrated on supplier and procurement programs.

Chrysler's Mr. Castaing described the company's "target costing" strategy, citing the example of a vehicle stickered at $20,000. Chrysler's cost analysts figure $11,750 of that total is needed for profit, manufacturing, training and warranty reserves and other costs, leaving $8,250 for purchased materials. "None that we've launched since 1993 has been above the maximum," he boasts. "All have been below target."

Mr. Collins detailed Ford's global procurement strategy, and revealed results to date of a benchmarking thrust begun a year ago in each market to identify which regions and/or markets have competitive advantages.

Under the new scheme, Ford is measuring all costs - and that includes transportation and logistics - with emphasis on minimized Ford and supplier investment, currency exposure and import duties.

To win Ford business, Mr. Collins says suppliers must follow Ford around the globe, develop component modules and perhaps look at supplying both Ford and other automakers to reduce costs.