Fighting on two fronts
As I write this, I am returning from the Automotive News Europe Congress in Brussels, as usual a high-quality event with a stellar list of senior industry speakers and panellists (and me). I was involved in getting the ANE Congress started in the 1990s which shows my age, but also the loyalty of the great people at Crain Communications who bring me back on occasions. I committed to my ICDP colleagues that I would write my blog based on the impressions I had after the Congress, and frankly struggled a bit until the Eurostar cruised out of Brussels station past the now closed Audi factory on the outskirts of Brussels (shown in the illustration with this blog), which has it’s roots in a plant built by D’Ieteren (now the VW Group importer for Belgium) to assemble Studebakers at a time when Belgium had high tariffs, but Belgian customers were up for a bit of US razzle dazzle.
As someone who has worked in the industry most of my life, starting in manufacturing, there are few sights that I find sadder than a closed car plant. Normally noisy, bustling hubs of activity become desolate, vast, empty spaces with the odd lonely pallet that missed the clean-up operation and the loudest sound is that of a bird settling on a lighting tower. (True story, at the Longbridge plant after the failure of MG Rover). A few get a second chance, but mostly they remain deserted until a developer takes the site on and converts it for other use, often warehousing for products made far away. There is a good reason why these plants were selected for closure, some specific to the previous occupant (like falling demand leading to over-capacity), but others related to the location. I don’t know the specifics of Audi Brussels but having done a multi-country analysis for a Chinese brand looking for a European manufacturing location, Belgium is one of the highest cost locations to manufacture in Europe.
That takes us to the two themes that came out of many of the fireside chats with top OEM executives at the ANE Congress (and the passing thought that it is surely inappropriate to have a ‘fireside’ chat when we are all supposed to be focused on decarbonisation?) The Congress is now based on members of their excellent editorial team interviewing the executives on the topics that they believe the audience want answers to, rather than multiple slides of PR waffle which tell you nothing. And as such the two topics that were probed in every interview were how was the OEM responding to the intense competition in an unpredictable world and what did they think of the EU response to this embodied in the Industrial Accelerator Act (IAA). This was published three months ago but includes many grey areas, and has not yet been debated in the European Parliament. Two of the most significant grey areas are what constitutes ‘Europe’ (Morocco, Turkey and UK being the key omissions) and at what point you define local – the assembly or the component parts, particularly with respect to BEV batteries.
Unsurprisingly all the executives were confident that they had a plan in place to deal with the competitive pressure from the Chinese new entrants, but some were more convincing than others, and all need to be tested in the marketplace as the answers are mainly about delivering better products faster. I felt that Renault (François Provost) was most convincing, but that Volvo (Erik Severinson) also came over well. They obviously have some advantages as Geely is the majority shareholder, but that does not mean that anyone has looked and learned. (Check out the story of the GM-Toyota JV – NUMMI – in the US, described in an HBR case study, but where I would argue the lessons were not transferred into the broader GM organisation, and the site was ultimately closed and sold to Tesla). It sounded to me as if Volvo has retained its Swedish identity but is applying multiple lessons from Geely and China more broadly to different parts of its business.
The OEM response to the IAA was very consistent, and I am sure shared by the OE Supplier community who were not represented today in the speaker list. Europe needs a joined-up industrial strategy and this is absent – at EU level, but also at national level within and outside the EU. The Chinese have been successful because for the last fifteen years they have openly been demonstrating a joined-up strategy that covers everything from raw material suppliers, through transportation, processing, supplier development, manufacturing incentives and end-market stimulation that has taken us in clear sight to the current position. The IAA is a belated and limited attempt to respond to that, but the debates appear to have been so intense that the draft legislation includes some conflicting clauses on key questions like what constitutes ‘Europe’.
As our industry has developed in a globalised world, the manufacturing footprint is ill-suited to a world which seems to be retreating to protectionism. Plants intended to supply European markets (defined broadly, not ‘EU’) are now at risk, and nobody will invest in them until the questions are resolved. Whilst efforts continue to develop battery cell production in Europe, many OEMs depend on the assembly in Europe of cells sourced from China or South Korea. The universal demand from the OEMs today was for urgent answers that recognise the reality of the industrial footprint and manufacturing capabilities now, not take some principled and totally unrealistic position that ticks some political boxes. This needs action in weeks and months, not next year or worse.
In all, a great event as always. Nothing said was perhaps totally new, but when you have the same messages coming out speaker after speaker, it has an impact. The only thing we can hope for is that the message also gets through to Brussels, and that those OEMs who still don’t quite grasp the scale of the challenge go back to base and double down on their efforts. The fewer plants that end up abandoned like Audi Brussels, the happier we should all be as participants in the industry and as European citizens.
Image: Audi Media Center