There are three automotive industry ‘mega-trends’ at the moment, firstly a need to improve economy and reduce emissions, secondly a need to improve safety and finally a need to improve ‘consumer connectivity’ to in car entertainment systems.  The last trend is being driven by consumers who are keen to connect their mobile phones and MP3 music players to a car’s entertainment system.  Out of these three trends, the one that is getting the most coverage in the press at the moment is related to how the car manufacturers are going to improve the economy of their vehicles and how they intend to embrace new hybrid engine technologies. 

In recent months there has been a significant move in the mindset of the leading car manufacturers to embrace new hybrid and electric vehicle technologies.  This has mainly been driven by environmental pressure to reduce green house gas emissions and consumer demand for cheaper to run cars due to the high cost of fuel.  Some of the car manufacturers have decided that they can shift existing car stock by simply offering incentives, one that appeared a few weeks ago was from Chrysler who offered potential customers a new fuel card which effectively fixed the price of their fuel at $2.99 for three years, if the price went above this level which it inevitably will, then Chrysler would pick up the bill.  Naturally this is a knee jerk reaction to one of Chrysler’s more popular brands, Jeep, who saw a 50% drop in some of their vehicle sales in the first quarter of the year.  However what Chrysler seem to forget from a consumer perspective is that this might be helping to shift stock but the consumer will have to absorb the heavy depreciation costs, servicing costs and the negative image that is starting to emerge from running fuel thirsty SUVs.

Over the past few weeks there have been numerous press releases from car companies starting up new joint venture projects with high tech industry companies with a view of developing long life Lithium Ion batteries for use in cars.  Nissan have announced a new partnership with NEC, VW are now working with Sanyo and Toyota have decided to build three new factories in Japan, solely to manufacture Lithium Ion batteries for their next generation hybrid vehicles.  For the High Tech industry sector this increased interest in long life battery technology has proven to be an ‘unexpected’ revenue earner for them and this is a very good example of how two different industry sectors are working more closely together to provide consumers with more fuel efficient, greener cars. 

Electric powered vehicles have been around for many years now,  Ford produced the Think! Electric vehicle in 1999, shown above, and GM developed the EV1 at around the same time.  Both cars suffered the same problem, they weren’t blessed in the looks department !, and their batteries were not able to hold their charge for very long.  In fact GM’s EV1 was so expensive to produce that they ended up leasing their vehicles to consumers as they were prohibitively expensive to buy.  As a result of poor lease sales, GM pulled the plug on their electric vehicle projects and this was probably one of their biggest mistakes in recent years, and as shown by the pic below, their electric vehicle project ended up in the scrap yard. GM are so keen to secure market share in the electric vehicle market that they are determined to bring their new VOLT vehicle to market as soon as possible and they are working with a number of leading high tech business partners to make this happen, no matter what the cost to develop.

One of the leading electric vehicle manufacturers at the moment is TESLA, who build an electric car based on the Lotus Elise.  The car is rumoured to run on 8000 Lithium Ion mobile phone sized batteries, provides similar acceleration to a normal petrol driven car and retains a charge for around 200 miles of driving.  In addition, for an electric car, the TESLA is actually very desirable to own as can be seen below.

The XPRIZE corporation recently setup a competition to see who could develop the world’s first 100MPG car and already 60 teams, including leading car manufacturers, have entered the competition to win the $10Million prize fund.  The aim of the prize is to force industries to look for ways to solve complex problems and turn concept ideas into production reality.  In case you think this is a crazy idea, Richard Branson and his Virgin Galactic company won the last XPRIZE competition for developing a sub-orbital space rocket which is hoped will kick start the space tourism industry.

Which got me thinking, if companies are incentivised to develop fuel efficient and green vehicles by entering a global competition, what would happen if these companies were incentivised, some how, to develop greener supply chains.  What if there was some sort of global competition where companies could implement any form of B2B technology or services and at the same time prove demonstrable returns, either through improved supplier performance or improved exchange of information across a global trading platform.  Perhaps offering prizes to the company that can ramp up the most suppliers in the shortest amount of time, reducing the most number of paper based transactions in one year or which company can achieve the highest percentage of visibility of transactions across their supply chain. 

So I wonder how many companies would be interested in entering the  ‘Global B2B Challenge’ or perhaps more appropriately the ‘B2B Olympics’

Over the weekend I saw an interesting programme on TV about the levels of Broadband adoption amongst small businesses.  This programme focussed on one particular country where small companies felt their business was suffering due to inadequate high speed internet connections and a communications infrastructure that, in places, was heavily dependant on a network of telephone poles to connect remote regions of the country.  In fact the programme even compared the telecommunications infrastructure to one found in some third world countries. 

Now this particular country’s communications infrastructure is not as unreliable as those in some emerging markets such as India, as depicted in the image below, but the telecommunications infrastructure in the country highlighted in the programme is very outdated and leading experts estimated that it would cost £15Billion to provide a new fibre optic based communications network in this country.

This particular country does tend to suffer from one or two significant storms each year and internet users in remote locations have to hold their breath to see if their internet connection is still live after the storms have passed.  The main telecommunications provider for this country claims to have 98% coverage of the country. However the actual speed of the connection varies considerably and in many cases companies are having to relocate to major towns or cities in order to improve the speed of their internet connection and more importantly the speed of how these companies can respond to customer orders or queries. 

So where is this country I hear you ask, well it is the UK!

According to a recent article in Business Week, Northern European countries have one of the highest broadband penetrations in the World. For example, Denmark, Finland, Sweden and the Netherlands all saw broadband penetration rates over 30% at the end of 2007.  The UK, Belgium, Luxembourg and France are hot on the heels of the top four and these have penetration rates above those of the U.S or Japan.  The global Boradband penetration is shown below with leading broadband adoption countries shown in dark green.

According to a recent press release from Forrester, they estimate that the top four North European countries today will see penetration levels increase to 85% by 2013. In the UK, the broadband market is dominated by BT and due to the EU imposing new regulations on the telco providers, they are having to open up their networks to other companies wishing to provide Broadband connections.  There are two key factors limiting the speed of the UK broadband network, firstly the copper wires used for the point to point connection and secondly the distance from the telephone exchange.  At the moment you can only get a reliable broadband connection in the UK if you are within a 5 mile radius of a telephone exchange. 

Now in the rural parts of the UK many smaller businesses are starting to suffer due to the fact that their businesses are more than five miles from a telephone exchange.  This is a major concern to smaller UK businesses in rural areas who can see the benefits of being able to conduct business across the internet but they are limited to using the much slower dial up connections.  In a broadband speed experiment conducted on the TV programme, it took nearly 40 minutes to download a video from the BBC website, this business was just over 5 miles from his nearest telephone exchange.  Meanwhile a colleague of his who was about 1 mile from the exchange was able to sit in her garden and wirelessly review the video in real time.  So a simple example, but for other companies or indeed the growing home working community in the UK, the infrastructure needs to be significantly improved. 

Now the mobile network operators have spotted a gap in the market and they can now provide USB based wireless modem connections however again the mobile phone coverage across the UK, especially in rural areas is not very fast.  However for other people these USB based broadband connections will change the way in which people work, provider greater freedom and less reliance on having a fixed line broadband connection.

Another example given on the programme was of a computer animation company who were working on a new series for Disney.  In order to get a better quality of life the owners of the company decided to relocate their design studios to Truro in the South West of the UK.  They have now found that their business is being hindered by the slow internet connections available in this part of the UK.  They are currently having to send completed episodes of their animations on DVD to another office in London,  by courier, so that they can then be uploaded to a server and then sent across the pond to Disney Studios. 

So the adoption of eCommerce amongst smaller companies is in part being hindered by poor or unreliable internet connection speeds here in the UK and the only way this can be improved is by continued investment in the communications infrastructure.  BT are currently investing millions in the development of their new 21C communications infrastructure , lets hope they do not forget the thousands of smaller businesses located in rural parts of the UK and their desire to be connected to what will become one of the world’s leading IT infrastructures when it is completed.

I am of course referring to the global economy. The banks here in the UK are predicting that we are on the verge of a recession, interest rates are likely to remain at the same level until 2010 and the price of petrol has reached £5 a gallon!

Now if you are a relatively small company, comprising of perhaps a couple of manufacturing plants or a chain of ten retail stores, how do you remain competitive in this tough economic climate and how do you survive any impending recession that may be knocking on your door?. You can just imagine that there are board rooms all over the world full of executives trying to work out their strategies for riding the recession rollercoaster, looking for ways to reduce costs, restructure their businesses and at the same time try and remain competitive in order to make that all important and often elusive operational profit.

Normally when recessions come knocking on the door,  the larger global companies will delay implementing large scale IT projects, they will look to reduce costs by outsourcing key business processes and make their creaking IT infrastructures last until the economy picks up again.  But who knows when this will happen and in the meantime how are the smaller companies suppose to restructure their own IT infrastructures in order to reduce costs and keep their businesses above water.  Again, outsourcing is an efficient way to reduce IT related costs and streamline supply chain strategies, however outsourcing, especially from a B2B perspective, has traditionally been the preserve of the much larger companies. 

Until now that is, GXS has recently introduced a Managed Services offering called MX which allows companies of any size to outsource their B2B infrastructures.  But what are the business drivers for the smaller companies wanting to outsource their B2B infrastructures. Well, let us take a quick look at some of the more important business drivers and areas of a business where B2B outsourcing can help the smaller company.

Company Restructuring – each industry sector is experiencing company divestitures, merger & acquisition activities or more general company restructuring.  Often through a potential acquisition for example there will be a period of consolidation, rationalisation of departmental infrastructures.  In a similar way, IT and B2B infrastructures will have to be reviewed to see if cost savings can be made by for example having a common infrastructure or outsource B2B services to a single trusted vendor rather than having to deal with several vendors.  B2B outsourcing offers a means of managing your B2B trading platform during a period of change.

ERP Projects – many companies today, no matter what their size, will have a wealth of information locked away in back office systems such as ERP and CRM solutions.  As described by my colleague Steve Keifer in a couple of recent ERP related posts, ERP information will normally stay within the confines of an enterprise and yet a company is expected to work seamlessly with perhaps hundreds of different trading partners who may find this ERP information helpful, if only they could get access to it.  B2B outsourcing offers a way of unlocking ERP information and allows the relevant pieces of information to flow uninterrupted up and down the supply chain.  Many companies will not have the internal resources to undertake this kind of integration project, B2B outsourcing, especially through GXS Managed Services MX allows seamless ERP to B2B supply chain integration to take place.

Manual Process Improvement – in today’s ‘green’ culture, removing waste, especially paper from a supply chain is one of the key goals of B2B automation.  Implementing an e-Invoicing solution for example helps alleviate the need to send paper copies of invoices across a supply chain, which ultimately helps companies to get paid much more quickly.  Hosted web based form environments allow your suppliers, no matter what their technical capability, to complete order forms etc in a very short time, reducing the need to re-key in form related data and ensure that all transactions can be accurately traced across all trading partners.

Improve Global Connectivity – many automotive companies for example are being asked to support their customers in new emerging markets where a multitude of different communication standards or document formats could be in use.  GXS Managed Services MX is built on GXS Trading Grid, so companies will have access to a B2B platform that can connect to any trading partner around the world, no matter where they may be located. GXS has operations in over 18 countries around the world.  As a result, GXS can support your supply chain operations in Asia Pacific, Europe, North and South America.

Trading Partner On-boarding – B2B outsourcing can help to improve the way in which you work with new trading partners and it can help reduce the time it takes to get new partners up to speed with new B2B technology and integrated within a company’s B2B infrastructure.  For new customers projects, adopting an outsourced B2B strategy will allow your trading partners to engage in projects much more quickly, this improving the efficiency of your supply chain.

Legacy System Upgrade – B2B Outsourcing also allows a company to upgrade legacy and outdated IT infrastructures with a state of the art B2B platform. The outsourced environment shields users from learning about how to manage new connectivity options or document translation standards. GXS provides the ideal opportunity to employ new Software as a Service (SaaS) or Service Oriented Architecture (SOA) based B2B environments. These are easy to deploy  to trading partners as there is minimal implementation required and a company can be rest assured that every trading partner is using an identical ‘version’ of the B2B platform.

If you feel that your company, irrespective of size, could benefit from outsourcing your B2B environment then please feel free to visit our website for further information, click here to visit the GXS Managed Services MX specific page.  In further blogs we will take a more in depth look at how some other recession related business issues could be addressed through the adoption of leading edge B2B services & technology.

Now this blog entry is not suppose to be a maths lesson!, I thought it was an opportune moment to review the performance of the North American automotive companies during Q1 and take a quick look at the external influencers that are impacting their recently released quarterly results.  So let’s take a look at the vehicle manufacturers first. 

The surprise of the last three months is Ford, they have somehow turned around their business to produce a $100 million profit last quarter.  Considering all the problems that Ford were experiencing just last year, this is dramatic turnaround for their business and has now set them on a path of continued growth and new business expansion.  However Ford are still likely to make an overall loss in 2008 and probably won’t reach true profitability until 2010 when new car models start to hit the market. This profit has not come about simply by selling off Jaguar and Land Rover, that deal won’t go through until next month so what have Ford done?, how have they seemingly achieved the impossible in what is a very tough economic climate? Put simply, Ford have been following an aggressive cost cutting exercise, developing global car platforms, rationalising key suppliers, establishing manufacturing plants in low cost regions around the world and most importantly starting to develop consumer ‘friendly’ cars once again.  Ford sales were boosted by a strong performance in Europe with a pre-tax profit of $739 million, up from $219 million a year ago, the results in Europe helped to counteract the relatively poor performance in North America. 

Turning to GM, they revealed a significant $3.25 billion loss in the first quarter compared to a relatively small $45 million loss during the same period last year. Slow U.S vehicle sales, high fuel prices and a continued housing slump prompted GM to revise their sales projections.  In addition GM is being affected by continued financial troubles at two of their former companies GMAC Financial Services who needed $1.45 billion and Delphi who needed $731 million to help with restructuring charges.  GM are continuing to provide financial support to both of these companies as part of ongoing restructuring efforts. (I will discuss Delphi a bit later). GM also revealed that they lost nearly $800 million due to UAW’s strike action at one of their key suppliers American Axle and Manufacturing Holdings Inc.  GM had to cease production at some of their plants due to the strike action at American Axle.  One of a few positives that came out of this quarter was that there was a sharp decline in GM’s inventories which dropped about 100,000 units because of the American Axle strike, with most of this drop being in full-sized SUVs and trucks.  Even though this was a significant inventory reduction for GM, they still carry too much inventory, ending the quarter with nearly 840,000 units on its books.  Part of this problem has been caused by the tough economic conditions in North America, particularly the higher fuel prices that has made the SUV and truck market a difficult one to compete in.  GM will have to address their product strategy in North America to meet the growing demand from consumers for more fuel efficient cars and continued investments in hybrid and electric vehicles will play an important part in GM’s future product strategy. 

Over at Chrysler, their sales dropped 23.5% for April and down 17.6% for the year to date, the company blaming the decline on the industry’s slow truck and SUV sales and its own decision to reduce sales to rental fleets which for many companies has traditionally helped to significantly boost sales figures.  Some of Chrysler’s key models such as the Jeep Commander, Cherokee and Dodge Ram pickups saw sales drops of 49%, 31% and 23% respectively. To try and counteract these losses Chrysler LLC are undertaking a complete platform review, taking significant costs out of their business and looking for key partners that they can jointly develop new vehicles with. 

Overall, including the other car manufacturers around the world, global car sales fell by 8.6% in the first four months of this year. 

From a supplier perspective the performance of some of the industry’s key suppliers was equally uninspiring.  In a similar situation to Ford, many of the Tier 1 suppliers saw a drop in North American sales but they reached profitability due to stronger sales performances in Europe.   Delphi for example was due to exit Chapter 11 in early April, until a $2.5 billion restructuring package provided by Appaloosa Management LP was pulled at the last minute.  This meant that Delphi have had to rewrite its financing package once again and seek support from former owner GM.  As mentioned before, the situation at Delphi partly contributed to the profitability of GM for the last quarter.  So it will be a while longer before Delphi exit Chapter 11 bankruptcy protection and they will have to continue taking costs out of their business to help boost profitability and improve opportunities for growth.  Since Delphi was spun out of GM in 1999, GM has seen their Delphi related charges grow to $8.3 billion. 

Visteon, formerly part of Ford, also saw a Q1 loss of $105 million on revenue of $2.86 billion, these figures were as a result of plant closures and lower production levels by North American based automakers.  Visteon still generates a third of its sales from Ford but has made significant steps to expand into new markets such as China which has helped reduce their overall losses.  Despite the market conditions Visteon expects to either make a loss of $25 million or a profit of $25 million in 2008. 

American Axle, a key supplier to GM and following recent strike action managed to seriously affect production at a number of GM’s North American plants.  American Axle is currently in an 8 week strike however they confidently told their own suppliers to be ready to begin production shortly.  Now it is OK for American Axle to say that their suppliers should be prepared to start production, but how does a supplier fund such production if they are not sure when the parts will be shipped and hence payment received?, at the other end of the supply chain how much inventory should GM hold to avoid any potential out of stock situations and hence avoid production stoppages?  Managing inventory in today’s economy is on a knife edge, get it wrong and it will have a serious financial impact on the customer, get it right and it will bring improved supply chain performance, reduced costs and hopefully increased sales.  The strike at American Axle centres around different plants receiving different benefits packages, their workers want to see a single and consistent package applied across the whole business.  American Axle have invested in new low cost, high quality manufacturing plants in China, India and Poland so hopefully, once the strike action is resolved, they will be able to continue along a path of continued growth. 

Finally let’s take a look at a shining light in the automotive supplier community.  Borg Warner saw their quarterly profit jump by 52%, again partly due to improved sales in Europe and Asia.  Borg Warner are seeing an increased demand for their product technologies especially those which help improve fuel economy, lower emissions and provide better vehicle performance.  Given the industry’s demand for better fuel economy and lower emissions, Borg Warner is in an excellent position to see significant growth in their business in the next few years.  In fact any company producing fuel cells, batteries, electronic control systems and electric motors stands to benefit from these new market demands. 

So, interesting times for many automotive companies, the general themes emerging from many of the first quarter company results is that of decreased sales in North America, increased sales in Europe, reducing costs by establishing new plants in low cost regions around the world and improving supply chain efficiencies.  I will take a closer look at the performance of European and ASPAC based automotive companies in future blog posts.

Until then have a good weekend