Forster: People believe less in technology today
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What are the most important changes to the European auto industry during the last 10 years?
No. 1 is the increased use of electronics in the vehicle in everything from engine management and chassis management to infotainment and communication in and out of the vehicle. No. 2 is the re-emergence of the diesel. When it comes to the increase in electronics, it was absolutely clear that this would happen. I was at BMW when the company made a big gamble and hired 200 software and electronics engineers. It was a good bet. That decision is one reason why BMW has a solid engineering base in electronics and why BMW is doing a better job integrating electronic systems.
How have your views on the auto industry evolved in the last 10 years?
I certainly rated the importance of technology higher 10 years ago than I do today. We were in a technology age during the ’90s but now people believe less in technology than they did in 1996. That [trend] will continue. I also underestimated the value of a strong brand and how difficult it is and how long it takes to restore a damaged brand to its past strength.
How has the European market changed since 1996?
We have gone from having a 1 percent to 2 percent net price increase per year, to 1 percent to 2 percent net price erosion each year. There are a couple reasons for this. One is the increased onslaught from Asian manufacturers such as the Japanese and, in particular, the Koreans. The other is that the market basically has been stagnant for the past five years. This net price erosion has dramatically changed the dynamics of the whole industry.
You knew the Asian manufactures would arrive sooner or later. But what no one foresaw at the end of the ’90s – when GDP and share prices were rising and the sky was the limit – was that Europe’s economies would stagnate after 2000. When I joined GM in 2001 we all still believed this was only temporary. But it turned out to be five years of sideways development, with very little growth.
How will western Europe deal with its cost issues in the next 10 years?
There is only one way: be super productive in all areas. You can create your own in-house benchmarks or you can buy them. Harbour [Consulting, a specialist in assessing plant productivity] can tell you exactly how many hours you should spend building a car, so [benchmark data] is available. How to get there is a little bit more difficult, but it is not rocket science, it is hard work.
Cost management is a necessity in order to be close to manufacturing benchmarks for labor productivity in Europe. Sooner or later everybody has to [reach those benchmarks], but to be very honest very few are there. From my perspective, we will see a lot of pressure on OEM headcount in Europe in the future. There is no growth, but we still have to drive productivity. The differentiator is not how you manage your costs, it is how you manage your brands, your product portfolio and your way to market.
How has the relationship between automakers and suppliers changed since 1996?
The fact is that a strong supplier can make more money than a strong manufacturer, especially in terms of return on sales. I am not saying that the pressure to reduce prices by manufacturers on certain suppliers is good. It is ruthless. I am not debating that. What is not well understood is how the ability of certain players in the vertical suppliers chain to make money can shift overnight. Let me give an example from another industry. Airline companies have difficulty making money unless they are living in some sort of regulated environment. The airplane manufacturers are making some money and the aviation engine manufacturers are making good money. Why? They have captive technology and limited competition. So, you would expect that if the customer is not making money then the suppliers also won’t make money? But they are. It is a fact that if you have control of unique technologies, you can make more money than others. You see more suppliers making more money than most manufacturers. For example, Bosch in certain areas, Brose and Continental. So there is a shift in who is making money in this industry.
What role will eastern Europe and China play in the next 10 years?
Eastern Europe is our growth market. It also is the region where we will see all the increases in manufacturing capacity for both suppliers and OEMs. Ultimately, China will export cheap cars to Europe. They will get a strong foothold in the next decade. How long will it take for them to create premium vehicles? Typically, that takes much longer.
What share of the European market will the Chinese have in 2016?
I think their share will be 2 percent to 4 percent – definitively half a million.
Will Saab and Vauxhall still be producing cars in 2016?
Absolutely. Vauxhall is our local UK brand. Sure, we have debates every couple of years whether this makes sense. There might be some synergies if you switch Vauxhall to Opel, but you would lose a lot of volume so making this change is not an issue. Saab is an amazingly attractive and strong brand despite being under managed on the product side.
If General Motors cannot overcome its financial problems could Opel be spun off?
In every industry you can create scenarios in which smaller units might survive. But in our industry, where you tend to consolidate because of economies of scale, going in that direction is neither an interesting nor an attractive option. It is unlikely that GM will file for Chapter 11 [US bankruptcy protection] despite the fact that the [financial] markets put a certain probability on it. But we believe that there are a lot of synergies still to be exploited with General Motors. So this deconsolidation scenario does not make a lot of sense. And to spin off Opel as a brand and a company in Germany does not make any sense either.
How would you describe GM Europe in 1996, 2006 and 2016?
In 1996, Saab was not even a colleague of Opel. GM Europe was basically one brand, Opel. And the decline in quality, new products introductions, design reach and technology had just begun, but it wasn’t noticed yet.
In 2006, GM Europe is a multibrand company that has bottomed out and is improving again. But we are still in the lower-middle part of this ramp up in terms of overall improvement.
In 2016? That is always difficult to predict, but we will continue to implement our plan. If we do it well, we will be one of the major players in Europe, well positioned with four brands that complement each other and do not overlap.
When did you realize that GM Europe was headed toward profitability?
It is difficult to say exactly when. We saw a rebound four years ago after the first phase of Project Olympia. From that point we were on the right track again. Unfortunately, we fell back a bit, particularly in 2004.
But after we finalized the restructuring negotiations in the beginning of last year, we were really over the hump.
If you could go back in time, what would change?
Even my fallout with BMW management turned out for the best for me as it has enriched my life. Yes, it would be better to part with a company in a different way. But honestly, I am not so sure I would do certain things differently.
