Earthquake in Japan and Impact on Automotive Industry

 

Impact of Great Tohoku Earthquake on the Automotive Industry and on Personal Mobility

Comment by Vivek Vaidya, Vice President Automotive & Transportation, Frost & Sullivan Asia Pacific:

“The Great Tohoku Earthquake has a profound impact on the global Automotive Industry. It is a triple disaster of unprecedented levels, and despite good news from the nuclear power plant Fukushima, the problem is far from over.

The Automotive industry is one of the worst hit industries by the earthquake and its consequences and the impact is profound, not only on Japanese OEM’s and suppliers, but on the global Automotive industry as a whole. For Japan the short term effects encompass a production stoppage, a shortage of parts and an overall impact on the financial performance of the country. For the global industry it will mean a production stoppage in the U.S. and Europe, coupled with a stronger emergence of U.S., European and Korean brands.

These short term effects would seriously impact the financial performance of Japanese companies. A stop in production would lead to the loss of revenues and result in the inability to makeup for the shortfall within this financial year that ends on March 31, 2011. The impact on the supply chain remains still unclear. Normal operations may not resume unless the entire supply chain will be back to normal. On top of this, the logistical challenges remain unsolved.

While the impact on the supply chain of Toyota is on a medium level with a production loss of 40,000 to 50,000 units during this period for Honda it is very high with a production loss of 30,000 to 35,000 units and for Nissan, with a production loss of about 25,000 units, at the lower end. It is however, possible for each of these companies to cover up for this shortfall in 2011 if the underlying demand remains strong.

Considering the fact, that a production cut or stoppage in some plants in US and Europe might be due to the fact that components such as batteries are sourced from Japan, this short term impact on the global industry will provide a window of opportunities for Korean component manufacturers.

Ford and Hyundai and other competing brands will have growth opportunities due to the fact that a shortage of certain models would lead to higher sales, since fast moving models, such a Prius, Insight, and Fit are hit by the disaster.

Ford’s line-up of hybrid cars would get a boost, since the company’s dependence on Japanese components is low. The situation is similar for Hyundai, whose dependence is almost non-existent, and the company’s line-up of compact cars could be affected advantageously. GM’s overall gain in market share would be moderate though, since the company’s Shreveport plant stopped production due to the lack of Japanese components.

Looking at the long term effects, the direction of the Japanese market might be affected by two contradictory developments. A rising Yen, which has appreciated by 3.75 % during the last ten days already, might hurt the profitability of Japanese companies. On the other hand, the reconstruction of the country would provide an impetus to the Japanese economy, by creating an economic activity and a demand for the replacement of cars, which might mean a re-conceptualization of the supply chain.

The global long term effect will move the focus on the energy portfolio and proven technologies, like clean diesel technology or natural gas  technologies. Governments might re-asses their energy portfolios in light of this incidence and new safety norms for nuclear and other forms of renewable energies would emerge, accelerating a diversification in relatively safer technology areas. At the same time green technologies based on IC engines would get a boost, while EV plans founded on nuclear energy might experience a slow down.

Based on Frost & Sullivan’s current global research on global urban mobility patterns, commuters currently show a higher preference towards innovative mobility solutions such as carsharing and car pooling than to EV or Hybrid vehicles. Frost & Sullivan believes that this trend will be further strengthened by the Tohoku Earthquake, thus leading to a big boost for alternative forms of mobility in the future.”

This was also covered in a few publications

 

Bloomberg TV

http://www.cnbc.com/id/15840232?video=1851119520&play=17nRguU.asf

BBC

http://www.bbc.co.uk/news/business-12815039http://www.bbc.co.uk/news/business-12802495

Kenya Broadcasting Corporation

 

http://www.kbc.co.ke/news.asp?nid=69442

http://www.bloomberg.co.jp/avp/avp.htm?N=video&T=Frost%26%2339%3Bs+Vaidya+Interview+on+Japan%26%2339%3Bs+Car+Industry%2C+March+16+&clipSRC=mms://media2.bloomberg.com/cache/vCH82K7nRguU.asf

Telegraph

http://www.telegraph.co.uk/finance/economics/8397277/Japan-earthquake-market-jumps-as-car-makers-restart-production.html#

The Financial Times

http://www.ft.com/cms/s/0/4c14cb10-546f-11e0-979a-00144feab49a.html#ixzz1HPep7hgM

 

Detroit Motor Show 2011 and Future of Mobility

The Detroit Motor Show typically kicks off the year and sets the tone for rest of the year. After taking 2 years of bashing and undergoing a turmoil, this show marked the solidarity of automotive industry in general and three American automotive companies – General Motors, Ford and Chrysler in particular. They have removed a few brands but have emerged leaner and healthier.  European automakers  understand the subconscious need of American customers - maintaining the carmaker’s identity yet be seen as American. Volkswagen valued that and presented an all American Passat model. Hyundai stamped their mark by stunning designs and new concepts that are likely to become legends. The show is abuzz with all new models on the showcase trying to wow the customers. It was a  motorshow as usual, unless you notice the small undercurrents that point towards future of mobility.

It is widely belived that mobility is on the verge of a great revolution. It is going to change far beyond recognition from what it is today.  At Frost & Sullivan, I am heading a global program called Global Urban Mobility Tracker. In this year long tracking program, we understand the issues and challenges in Urban Mobility by talking to over 26,000 commuters in 23 cities across the globe. The findings are indeed very interesting.
We calculate Journey Experience Index (JEI) based on speed of travel, timeliness, comfort and overall experience. This Index indicates how satisfied the commuters are with their current mode of transportation. The gap between JEI for individual transport (such as Cars) stands at 71 and that of public transport at 42. There is over 30 point gap between both of them. This indicates that car owners are happier with their mode of transport than the public transport commuters. This is in spite of average expenditure on car is significantly higher. Our data suggests that average travel time does not reduce drastically because of car. In fact, car usage introduces further delays and wastage in travel time as significant time is spent on searching for parking, accident, breakdown and repairs. Despite all this, commuters love the comfort and convenience offered by the car, which reflects in the JEI.

Urban Mobility tracker also has some findings about car commuters that set you thinking.

• Globally, average speed of travel within cities is 28 km/hr only


• Close to 60% of the commuters travel alone.


• 8% of the time is wasted to search for parking globally

Travelling by car leads to wastage of time and Journey Experience in Publich transport is below par.  The latent need for a new mobility solution is quite obvious here. Detroit Motorshow 2011, also presented the alternatives. They did not attract the media attention they deserved. But for me they are the first footsteps of revolution in mobility.

• Ford occupied the centerstage with a track for test driving electric vehicles. Ford Focus electric which was displayed in other motorshows was present. The other model being test driven was “Transit connect”. The name itself suggests that Ford has started thinking about multimodal transport and how they can create a product that can dovetail into the new mobility world.

 

• GM displayed working model of EN-V. This is a futuristic concept of a travel capsule which is one fourth of the size of the car and weighing less than 500 kg. It is an intelligent mode of transport. It can sense obstacles and avoid collisions by itself. The maximum speed is about 40 km/hr which is well above the average speed within cities. This mode of transport is expected to provide the last mile connectivity that is required for a sustainable mobility solution.

 

These are some of the notable mobility concepts that were on display in Detroit. Modern Mobility concept are taking baby steps and making their presence felt as a sci-fi to real life. If the trends emerging out of Global Urban Mobility Tracker are to be believed, these concepts would become reality sooner than we think.

More than 100 years ago, the automotive industry in Detroit had revolutionized urban mobility globally, by mass-producing cars, when the conventional mode of transport was horse carriage. Can Detroit do the same trick again by inventing new mobility solution when the conventional mode of transport is a car?

Successful Parenting and Traffic Management by Sameer Joshi

Lately I am thinking that parenting is analogous to US Govt. system of traffic (a.k.a. DMV++ i.e DMV and more) I guess you will be shocked that any govt system can have positive effect. But I truly think that this system is very successful. In spite of tremendous overburdening, this system has managed to keep very low accident rates and absolutely low fatality rates.

Everything begins with education. System emphasizes that early driver study the rule book, understand the traffic conventions, learn the driving and pass "not so simple" tests.
Govt. provides a very nice infrastructure. Roads are wide and neatly marked. Boards properly explain the distances, destinations and directions. Lot of infrastructure is available online on phone, through GPS and through Maps describing where to go, ways of getting to that destination and pros and cons.

If someone wants to go for a trip or a hike or a tourist place, they can get the information and take their own decisions.

The roads have side guards to prevent any accidents. The lanes are defined . Cars have safety regulations and so on. Insurance rules are present.

But there are also rules, laws. The system enables the drivers to reach the destination but also prevents them from driving recklessly ensuring their safety. There are punishments, they are being watched and if they encounter accident they are helped as well.

Parenting should be similar. You emphasize on education/learning. Provide resources and information to enable the kid to take right decision. Provide infrastructure (finances, housing etc.) so that kid can pursue the goal which he or she has set. Ensure that there are certain rules and laws which keep the kids on track. And of course assurance of help in case there is actually any problem like insurance.

With "chinese style" govt will have to tow everybody's car to desired destination

Tiger Mom and Lion Dad - By Roopali Paranjpe

Two interesting characters.. A Tiger Mom, celebrity of the week Amy Chua. A Yale professor and mother of two girls, Amy expects nothing less than A on her kids' report cards. She does not allow playdates and sleepovers, ruthlessly punishes her 7 year old for not mastering a piano tune, calls her kids 'garbage' or something like if they don't meet her expectations, and justifies all this as her way of preparing her kids for the challenges of the future..yada yada yada

And then there's a Lion Dad, from a very obscure movie 'Udaan'. A drunkard father of two boys who runs a small factory, beats his kids with a belt for getting complaints from school, calls them disgraceful if they can't be what he wants them to be etc, etc, etc.. (watch movie for more, very well made indeed !)

What is the difference between the two? IMO, Nothing !

Beijing’s New Car Quantitative Restrictions: A step in the right direction

In Jan 2011, Beijing’s Municipal authorities announced a restriction on number of license plates to 240,000 for the entire year. This represents close to 80% drop in sales over 2010. The dealer fraternity in Beijing is under threat of going bust. There are dooms day predictions about the entire Chinese Automotive Industry being devastated by this move. In year 2009, China became the largest automotive market in the world surpassing United States where the markets had declined by over 30%. As a response to global slowdown China unleashed a slew of incentives to boost the urban and rural markets. And they did. The trend continued in 2010. Despite recovery, United States still remains a close second biggest market in the world. So the question is whether why did Beijing Municipal authorities took these steps now?

The simple answer is :  Beijing municipal authorities did not really have any choice. A move on easing traffic was only a question of time. At Frost & Sullivan, I am heading a global program called Global Urban Mobility Tracker. In this year long tracker we understand the issues and challenges in Urban Mobility by talking to over 26,000 commuters in 23 cities across the globe. In my analysis, Beijing stands out as a city which has severe challenges in Urban Mobility. 45% of total journeys in Beijing are in private transportation such as cars, 24% of the journeys happen in public transport and rest in walking or cycling. Average commuter in Beijing travels over 55 kms per day which significantly below global average of 71kms per day. However, the travel time per day is marginally higher at 2:29 min (Global average 2:27 min) This indicates that average speed of travel in Beijing is mere 22 km/hr way below global average of 28 km/hr. Interestingly, the only city which had lower average speed of travel lower than Beijing was Jakarta. The quality of journey is also quite poor in Beijing. Frost & Sullivan’s Journey Experience Index (JEI) which is calculated based on average speed, cost of travel, overall experience and comfort is way below average 57 against global average of 61. 64% of the waiting time is accounted by traffic jams, which is one of the highest in the world. This is not surprising considering that there are estimated 4.8 million vehicles on road in Beijing which has increased by 85% from 2005. It is quite obvious that the city infrastructure needs a respite.

The question is whether the restrictions are good enough to solve the traffic woes of Beijing. The answer unfortunately is No. More needs to be done for improving the JEI for Beijing.

The number of journeys in public transport are still limited to 24% and what is even more worrying is the JEI for public transportation (Beijing : 24) is one of the lowest globally. (Global average : 42) Over 80% of the public transport commuters complain that public transport is crowded and slow. Lower proportion journeys in public transport combined with complains that public transportation is crowded indicates that Beijing needs to further bolster the public transport availability by enhancing the network.

Globally there are 2 peaks in average traffic flow; morning peak between 7:30~9:00 and evening peak between 5:30~6:30. For Beijing both morning and evening peaks are quite sharp. One of the low investment options would be to work on reducing the peak traffic during these hours. This can be done by staggering the office hours, offering flexi-time facilities in major corporate and even encouraging video conferencing / remote working in offices. The available infrastructure would be better utilized if the peaks are not so sharp.

Last few years have seen furious growth rates in Chinese automotive market. It has outstripped the growth rate of infrastructure in many cases. Policies such as this would provide a welcome respite in furious growth rates and allow the infrastructure to catch up with number of cars on road. The resultant growth after that would be more sustainable, solid and real.

Automotive market size in China is about 18 million by end of 2010. Loss of three to four hundred thousand units in Beijing is not going to change the fortune of the industry. But the message coming out of this move is very strong. World’s largest automotive market is choosing sustainable, structured but slower growth over indiscriminate, fast paced growth, which we believe is the right way forward. Current volume restrictions is a good beginning, more needs to be done to improve Beijing Journey Experience Index (JEI).