The gap between success and failure in the automotive logistics market is widening, with the difference often lying in serving emerging consumers
Although the outlook for automotive logistics is mixed (awful in some markets) there are simultaneously a host of improving financials from some logistics providers. Meanwhile, global car sales and production are close to 2007 peaks, even if down in the US or Europe. But this is not a balanced recovery, and many providers are still suffering.
Not every provider can be global, clearly, but why are some so behind? One reason, perhaps, is that many carmakers and providers misread the consequences–and benefits–of the developments in China or India over the past decade.
Before the crisis, automotive logistics in a global economy was often discussed in the context of ever-lengthening supply chains, particularly the sourcing of parts in ‘low-cost countries’ (LCCs) to serve production regions like Japan, Germany and the US. Just three years ago, when private-equity firm Cerberus owned Chrysler, expanding ‘LCC’ suppliers was central to its plan for saving the carmaker. Purchasing executives at General Motors, too, knew that announcing plans to increase such sourcing would send its share price higher.
The attention paid to outbound logistics was similar. Analysts speculated about how eventually Western carmakers would become like Apple or Dell, acting as marketing and design companies with production based in southeast China and cheap logistics in between. Simultaneously, there was anxious speculation over when regional carmakers in India or China would export cars to Europe or North America.
Some of these more radical outsourcing shifts may come to pass, but such speculation not only ignored the prospect of a real rise in logistics cost, it did not focus enough on the real big bang occurring. Not the rise of cheap manufacturing– that has always existed, whether on the backs of slavery, imperialism or free trade–but the rise of new customers. Despite its obvious importance, the great factory does not drive production; put simply, consumption does.
So the same for automotive logistics. Cheap parts imported from China to Germany rarely make sense if they sail back to China in a finished vehicle. The success of Chrysler will come less from Asian parts and more from the ability to produce and sell globally with Fiat. And while GM might sell a few Chinese-built cars to Americans, it stands to gain more selling cars designed and built in China to the Chinese.
The consumption revolution
The role of logistics and supply chain management in taking advantage of these shifts in consumption is an ongoing opportunity. But it is one that will be missed not only by those who lack the financing or the expertise to enter other markets, but also by businesses who do not position growth strategies in these regions around local consumption. LCC sourcing won’t disappear, of course; but while global platforms create global supply bases, the whole idea of a global platform is partly to allow more regionalised production. The opportunity then is tremendous for setting up efficient infrastructure for getting critical parts to new supplier plants inside Asia, for example, as manufacturers need suppliers to relocate their plants closer to them.
Likewise, a ro-ro shipping line or port operator in Europe might have expected a wave of Tata Nanos already, but even the cheapest car wouldn’t find a huge welcome where consumption is weak. Comparing the Chinese or Indians to earlier waves of Japanese or Korean brands has its limits–for those manufacturers, Western economies still offered the biggest opportunity. Today that is often found in Southeast Asia, or indeed in other developing markets increasingly under the Chinese rather than Western sphere of influence (Africa, the Middle East, certain Latin American countries). Service needs to increase in those directions.
We talk constantly about globalisation in the West, but it is difficult not to put our history at the centre. The rise of China or India is compared to the Industrial Revolution, conjuring images of the black plumes of coal smoke rising from factories in 19th century Manchester or Birmingham. But it could be argued the West gets even its own industrial history wrong, which may have been less about mechanised labour and more about the exploding populations those factories grew up to serve. In truth, except in the case of direct state influence and trade barriers–at play certainly in China, but also the US–it is consumption that has the final say.
Providers anxious to grow will have to follow consumption, particularly as efforts to match production and demand have rocked the boat of the traditional trade lanes, such as Japanese exports to the US or Europe, or inbound parts to Michigan. That is not to say that 700m wealthy consumers in Europe or North America won’t continue to be immensely important; they will, and their factories may be even more important, acting as efficient centres to serve global markets. Although a China bubble could burst, providers should look beyond the monoliths of Europe and America to understand what their new customers, much further away, really need from them.