Iundustrie Pininfarina: The New Customer Decision

2437 words - 10 pages

Competitive EnvironmentIn the near term, the environment in the European automobile market appears bleak and may result in a shakeout that increases pressure for change on European manufacturers. Many of the changed environmental factors are the direct or indirect result of the superior manufacturing capabilities of Japanese and other non-European firms.Competitive Environment Bleak1. The market has grown only slowly in the past two years and is more than 10 per cent below the 1991 high sales. (Exhibit 3).2. Profit levels are at cyclical lows.3. Manufacturing capacity utilization is low - around 75 per cent.European Manufacturer under Pressure1. Asian competitors have been gaining share at the expense of European producers (Exhibit 3).2. Japanese "voluntary" export restraints are scheduled to expire soon. In European markets without restraints, Japanese producers have significantly higher share than in markets with restraints.3. Customer satisfaction levels are generally lower for European manufacturers (Exhibit 4).4. European producers appear to seriously lag Japanese and American quality and labour efficiency levels (Exhibit 5).Impact of Manufacturing Capability1. Improved manufacturing techniques have been responsible for the simultaneously superior quality (internal and external) and superior manufacturing efficiency and costs of non-European producers.2. ;Increased plant productivity made possible by improved manufacturing contributes to over-capacity problems by getting more production from fewer inputs.Pininfarina and Niche Producer PositionNiche Producer Advantages1. Lower fixed costs provide lower overall costs, when volumes are low.2. Niche producers can respond more effectively to volume fluctuations.3. Niche producers often bring product and design skills and superior reputations.Potential Threats to Niche ProducersThe spread of more efficient production and producers has raised at least two potentially serious problems for niche producers.1. Traditional niche manufacturer customers (e.g., Peugeot & Fiat for Pininfarina), who themselves are experiencing considerable erosion of sales, may have less business to offer.2. Since with the improvement in operational efficiency without major incremental capital investment implies volume production is feasible at lower volumes, the niche business may shrink.Potential Opportunities for Niche ProducersIf niche producers can improve their operational efficiencies more rapidly than European and other volume producers, they can become an increasingly attractive option of lower volumes and might greatly expand their market share. In that sense Pininfarina's improvement in operations to date, as detailed in Exhibit 6, is a step in the right direction.Potentially, there are still other opportunities created by the changes underway in the European auto industry. Japanese producers have considerably shorter model lives in addition to lower production costs. This suggests that the trend in future...

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