Western OEMs under dramatic cost-pressure in automotive production

By Sebastian Gundermann, Michael W. Rüger and Rolf Janssen

A new publication by Roland Berger paints a sobering picture of automotive OEMs in the Western world – a picture that contrasts sharply with the astonishing success story of their Chinese counterparts. With consumers feeling much less positive towards electric vehicles (EVs) than both politicians and regulators had hoped, many Western OEMs are still seeking a promising way forward. Meanwhile, Chinese OEMs are producing EVs at low cost, exporting in huge numbers and delivering impressive quality at the same time. “Made in Germany” is no longer the sales argument it once was, and Chinese players are entering the market with innovative products with significantly better cost structures.

The Roland Berger study stresses that Western players have by no means lost the race: The report clearly outlines weaknesses and white spots of incumbent OEMs and shows why the success of Chinese OEMs is based on more ambitious approaches, especially in the arena of electric vehicles. It also reveals poor productivity and extraordinary production complexity as some of the main root causes, insisting that incumbent OEMs will need to slash factory costs and radically rethink their approach to every aspect of production in order to get back in the fast lane.

Message understood?

Some Western players have optimized their cost structures over the past years and are now in a more competitive position than incumbent OEMs. The study encourages a more radical approach that will help OEMs realize short-term efficiency gains – by addressing production flow and control, the manufacturing concept and the issues of leadership and collaboration – as well as making the structural alterations that will be necessary to stay competitive over the longer term. Structural measures include aligning vertical integration with each company’s strategic priorities, taking various steps to make production less complex and being more pragmatic about what production technologies are really necessary. A detailed account is provided of each step, complete with concrete ways to put these critical strategies into practice.

Timing is crucial

Having outlined six dimensions, the study goes on to explore approaches for efficiency programs, emphasizing that this is no longer about “tinkering and fine-tuning”: On the contrary, profound and far-reaching changes are needed across every aspect of automotive production and the entire supply chain. With this in mind, the report concludes by pointing out the urgent need to cultivate a mentality that can unleash “swift, strategic and systematic action,” enabling the West’s incumbent OEMs to shift into a higher gear and once again pose a serious challenge to China’s seemingly unstoppable rising stars.

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