Goutard: Beware of the Japanese, but dont fear a shortage of oil
He thinks PSA/Peugeot-Citroen was wrong to start a joint-venture plant with Toyota to produce minicars in Kolin, Czech Republic, and he isn’t afraid to say so even if it causes some hard feelings.
“Peugeot was indignant when I said it was naive for them to have common interests with Toyota – and Toyota was furious,” Goutard said. “But I don’t give a damn because I am no longer in the car industry.”
That is the kind of frank comment one gets when talking with Goutard. He speaks with authority because he was a major player in the European auto industry for 15 years. Based on his experience and what he calls a “completely Machiavellian view of the Japanese,” Goutard thinks PSA will suffer from giving Toyota access to an asset that has given it a huge edge over the competition: small diesel engines.
“This advantage has been diluted,” Goutard said.
The former Valeo CEO’s assessment of the Japanese mixes respect and caution.
“They are warriors,” he said. “Their invasion of the international markets has been subtle, slow and constant.”
An interested observer and admirer of how the Japanese do business since the 1950s, Goutard considers establishing Valeo in Japan as one of his top achievements as boss of the French supplier.
The chance came following Renault’s 1999 takeover of Nissan. Carlos Ghosn, then a Renault executive vice president, was sent to Tokyo to try to fix the nearly bankrupt carmaker.
Ghosn, who was then Nissan’s chief operating officer, asked Goutard to come to Japan to assess Nissan’s supplier base.
Goutard says he discovered that Nissan was being hurt by Japan’s industry supplier caste system, known as keiretsu, which awards “sweetheart” contracts to interconnected firms.
He told Ghosn, “Your keiretsu partners are selling to you at prices that are 30 percent above market.”
Goutard said the main motivation of Nissan’s keiretsu partners was not better service or communication or on-time delivery. These subsidiaries provided something more subtle.
“When they reached 50,” Goutard said, “key Nissan executives were sure they would have a chairmanship in one [of the affiliated supplier companies] and end up with a car and a chauffeur and a comfortable salary as a reward for their long-term service for Nissan.”
“I think my friend Carlos shook the tree,” Goutard said.
Ghosn divested Nissan from many of its former suppliers. Valeo took a stake in some, giving the French partsmaker a pathway into the Japanese market.
“It was my dream for years,” Goutard said, “and suddenly here we are in Japan.”
That wasn’t the first difficult market Valeo found a way into during Goutard’s reign.
Goutard credits Jose Ignacio Lopez, the legendary and controversial former purchasing manager at General Motors and Volkswagen, with helping Valeo grow outside its home market.
Goutard said that until the late 1980s, French carmakers Renault and Peugeot thought they had to give business to Valeo to keep the then-dependent partsmaker from collapsing.
“It made for a very uncomfortable situation because the business was not based on open competition,” Goutard said. “In a way, they resented the fact they had to give us business.”
Lopez was unrelenting in his demand for lower costs from suppliers, but Valeo was willing to meet those demands. This gave the French supplier a chance to broaden its client portfolio, making it more international. At the same time it forced rivals to find ways to drastically cut costs.
Valeo got big contracts from Lopez because it undercut GM’s and VW’s traditional suppliers by as much as 30 percent, Goutard says.
“We knew Bosch could not challenge our prices,” Goutard said. “Their business with Volkswagen was so huge they couldn’t react if VW’s purchasing department said that they suddenly needed to reduce their prices by 30 percent.”
When asked whether Valeo incurred large losses to reap huge gains later, Goutard said that wasn’t the case.
“We had new, lean manufacturing methods,” Goutard said. “We knew that our plants and our suppliers were extremely competitive and if we added the volume that we could secure from the German carmakers we would be able to meet the challenge of offering a 30 percent discount and still be profitable.”
To keep offering such low prices Valeo needed to produce outside of western Europe. It was able to do so because of the end of communism.
“When the Berlin Wall fell,” Goutard said, “we had access to central Europe so we could sustain this.”
He said suppliers didn’t have a vote when it came to entering central Europe.
If they wanted to meet carmakers’ continual demands for lower costs they needed to build components for less – and that meant they needed cheaper labor.
“We had to close plants in France, Spain and Italy and at the same time build new plants in the Czech Republic and Poland,” Goutard said. “This is what has been happening at Continental, Bosch and Faurecia for the last 15 years. And then we had to do it all over again with Asia – meaning China, India and even Japan.”
When asked about relations between automakers and suppliers he said the phrase long-term relationship “has been in the vocabulary of carmakers for many years,” Goutard said. “But the interpretation differs from one car manufacturer to another.”
He praised Renault and PSA for their “clever” relationships with their suppliers.
“They are demanding, but Renault, for instance, meets several times a year with its key suppliers,” Goutard said. “They explain what their strategy is and suppliers are free to express their satisfaction or dissatisfaction.”
He also gives BMW high marks.
“They are committed to innovation, quality and service,” he said. “Although price is a factor it is not the only factor.”
He puts General Motors at the other end of the spectrum.
“I have seen out-of-this-world meetings with General Motors,” Goutard said, “where the key buyer banged the table and shouted, ‘I want 20 percent immediately.’ ” Goutard said he was told that if Valeo didn’t provide the 20 percent price reduction, GM would cut its ties with the supplier.
He said it was almost impossible to compete against Delphi when it was a GM subsidiary and Visteon when it was a Ford-owned parts division.
“You would come with an extremely competitive offer and they would give Visteon or Delphi a chance to counter offer,” Goutard said. “How can you be an efficient purchasing department when you are playing politics with a subsidiary of the group? I think this has harmed the companies.”
When asked about the future of the auto industry, Goutard predicted that carmakers’ biggest worry will be controlling tailpipe emissions and not finding alternative fuels for their vehicles.
“The world will be flush with oil,” Goutard said.
He gave two reasons for his prediction.
1. People are going to slow down consumption
2. The melting of the ice in the Arctic will allow access to vast stocks of oil and gas in places such as Greenland, Canada, Russia and Alaska.
He predicts that Denmark, which has administrative control of Greenland, will become a world power when it comes to gas and oil production.
He also believes there will be more oil available because of an increased use of bio fuels and a surge in the use of small,
fuel-efficient engines that require four to five liters per 100km.
His final summation was simple: “I don’t see the disappearance of the car.”