7. the German suppliers on the fronts

7. Automotive Industry Structure

 

In Automotive
industry, carmakers concentrate primarily on designing, assembling and selling
the vehicle with only a few core components manufactured by them, leaving the
rest outsourced from suppliers who are developed and trained to deliver the
needs of the maker. Suppliers produce the majority parts for the car including
making important sub assemblies such as cluster, steering and other major parts
of the car. The suppliers are classified based on the level of importance into
different tiers such as tier 1, tier 2 and tier 3 suppliers. Suppliers such as
Bosch, Continental, Denso act as tier 1 suppliers making the critical and
essential parts of the product, hence making their importance almost equivalent
to that of OEMs.

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Figure 9: Auto Industry Structure Source: Own illustration

 

German automotive supplier industry contains a number of
large and medium-sized privately owned manufacturers forming the tier 2 and 3 segments
of the industry.  The supplier’s value
addition to the automotive products has increased form 56% in 1985 to 82% in
2015 58. The current change in trend from traditional to electro mobility not
only changes the technical configuration of the product but also brings forward
the potential to change the eco system of the automotive industry. With electro
mobility platform, the products are planned to undergo intensive digitalization
to accommodate new features such as autonomous driving, advanced connected
infotainment along with car to car digital communication that can potentially
open up newer business models, This change challenges the German suppliers on
the fronts of innovation, change and flexibility to change its current
structure of part manufacturing to become a supplier of hardware, software and
also a service provider for the new business models of mobility. 59

 

Figure 10: New Eco System 59

 

The international suppliers are attracted to Germany to
make their business due to the market opportunity and advantages of cluster
intelligence to fine-tune their technological expertise. 21 companies of the
top 100 automotive OEM suppliers in the world are from Germany. German based
companies strive to sustain the leadership position of the market in transformation.

This explains the massive Research and Development expenditure of 34 Billion
euros in 2014 accounting to one third of the global research and development
expenditure in automotive sector. 60 The successes enjoyed by German automakers are to be
credited to the skilled team of workers of the German automotive industry.

 

The suppliers
collaborate with each other guided by the manufacturer; aim to minimize the
environmental impact of the product. The result very much depends on the
sustainable character of the product as much as it depends on the suppliers.

Apart from the concerns such as materials used or production methodologies, the
life cycle assessments of the product are a key factor to device and
incorporate changes. The importance of impact of product usage to the
environment is more than the production impact to the environment. The
framework of current automotive production from tier 3 suppliers to
manufacturers has to be considered from base raw materials to the finished
product for implementing environmental innovations to the car. Development of
new network structure is strategically essential for the supply chain
management. As in our case of radical change with technological uncertainty, it
is necessary to explore new suppliers as existing suppliers will not be
sufficient to transform and change their supply to cater tailor made needs. The
battery technology for example, has been innovated strongly outside the
automotive industry and the industry is adapting to the higher standards
established by them. 61

 

To understand the
impact of the change caused on to the German suppliers, we first have to
consider the future plans of the 3 German automakers Volkswagen, Daimler and
BMW with the perspective of how they plan to source the new range of vehicles. With
the changing eco-system, the OEM’s have to add significant value to the core
elements of the product to retain their leverage. Our second step would be to
identify the German suppliers from the list of over 600 companies present as
members of the German Association of the Automotive Industry that has a
potential to be impacted by the change.

 

8. German automakers

 

The Automakers
govern the direction for the future of the suppliers. For German suppliers who
cater the German automakers, the direction taken by the makers is the bible to
be followed. They have to enhance their competency and be inline with the
makers plan and sustain their businesses in the future.

 

Volkswagen,
Daimler and BMW the base pillars of German automotive industry are planning
their steady transformation; in acceptance of the threats to the climate change
and the ill effects of pollution from the combustion engine cars. They are keen
about the overall lifecycle of the product pollution including the
manufacturing methods. The companies are working on the transformation from traditional
to electric cars in their portfolio, while preparing various models and
platforms on large scale. However they are also skeptical about the rapidness
of the change, as a complete transformation requires a massive improvement in
infrastructure that could possibly take a longer time. 

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