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Competitive Environment

Competitive Environment. Overall Industry Slowdown (see Ex. 3) Low Capacity Utilization (75%) Slow growing consumer base Entry of global competitors Low RONA (5%). European Manufacturers Under Pressure. Non-European competitors gaining market share (Ex. 3)

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Competitive Environment

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  1. Competitive Environment • Overall Industry Slowdown (see Ex. 3) • Low Capacity Utilization (75%) • Slow growing consumer base • Entry of global competitors • Low RONA (5%)

  2. European Manufacturers Under Pressure • Non-European competitors gaining market share (Ex. 3) • Japanese “voluntary restraints” may end soon • Customer satisfaction is lower for European cars (Ex. 4) • Europeans lag behind Japanese and Americans on quality and labor efficiency levels (Ex. 5) • Productivity gains from new manufacturing techniques exacerbate over-capacity

  3. Competitive Position of Pininfarina • Heavy dependence on two models (Ex. 7) • Shrinking operating margins (Ex. 7) • Manufacturing performance has improved, but still lags U.S. (Ex. 5 and 6) • Design and manufacturing appear decoupled

  4. Challenges for Pininfarina • Two big customers (Peugeot and Fiat) have lost market share, probably to lean competitors • Volume producers have 2X FC than niche producers , but have been lowering VC significantly recently • Lean lessons were applied elsewhere under very different conditions • Customers are in a very powerful bargaining position • Pininfarina in weak bargaining position with suppliers

  5. Niche Versus Volume Producer Costs 20M 18M 15 M 12 M 10M 80M 6M 4M 2M PF Total Labor Hours JVP 0 50K 100K 150K 200K 250K Cumulative volume of vehicles produced (five years)

  6. Opportunities • Productivity improvement provides opportunities (Ex. 6) • What if you keep fixed costs low and improve variable cost|productivity significantly? • Higher margins for final assembly versus bodies only • Increase revenue from design contracts • What if PLCs become shorter due to frequent product discontinuation, finer market segments, more seasonal demand?

  7. Accept Mitsubishi Business? • Financial calculation: • Assume revenue is Ł900B per year • 1.5 % margin = Ł13.5B per year • If PF needs to spend 10% of Ł300B for general purpose equipment, then payback is Ł30B/13.5B or 2.2 years. • If PF needs to spend 30%, the payback Ł90B/13.5 is 6.7 years or more than the length of the 5 year contract

  8. Fit With Current Manufacturing Strategy • Doubles capacity and increase fixed costs • More specialized equipment, paint • Sub-optimal work flow (paint shop) • Add 150 new suppliers (overhead expense) • Longer supply-chain (from Japan and Holland) • 600 new workers (200 to 240 indirect workers) • Underutilization of design and production skills

  9. Short-term and Long-term Risks • Short ramp-up (three months) • Have to pay overages if do not meet target cost • Hire new workers (up to 840) • Can PF still add a third niche customer for low volume car? • They may transfer skills by learning from Mitsubishi.

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