The Power Brokers

Automotive Industries, Sept, 2001 by John Shea

GM is about to enter the generator market for home use and Dunagan already sees the future in this. "We could do a deal with GMAC where people are asked if they want to pay a couple of extra bucks a month for extra power," he explains. "Just look at California and the energy crisis. There's a real market there."

Reasons to

Sell Powertrains

* Utilize Capacity

* Boost the Brand

* Defray Costs

* Technical Partnerships

* Profits

Buy Powertrains

* Fast to Market

* Meet Volume at Low Cost

* Zero Capital Investment

* Technical Partnerships

* Profits

Top Ten Things New Car Customers Care About
1992                     2001
1. Price                 1. Body Style
2. Body Style            2. Price
3. Engine                3. Colors
4. Financing             4. Financing
5. Colors                5. Wheels
6. Fuel Economy          6. Interior Features
7. Warranty              7. Safety Features
8. Convenience Features  8. Fuel Economy
9. Safety Features       9. Sound system
10. Transmission         10. Engine
Source: Power Research Marketing

GM Strategy

GM built 8.5 million engines worldwide last year, with 200,000 engines sold to non-automotive markets. Strategy for growth:

* Build smaller, more efficient engines that are flexible enough to be used for many applications across many markets.

* Achieve flexibility by designing variants on a small number of engine families.

* Achieve volume by building engines for various markets on same assembly line.

* Maximize capacity while reducing investment costs.

Honda Strategy

Honda built almost 11.5 million engines last year. Just over 20 percent of these engines were built for the automotive market. The balance were for motorcycles (43 percent) and power products (35 percent). Strategy for growth:

* Continue strength of purpose-built, smaller, efficient engines for specific markets.

* Produce larger engines when market demands more power and greater displacement is only way to achieve it

* Share component parts across markets sparingly.

* Increase flexibility or automotive applications through I-VTEC engines.

Filling the Portfolio Gaps

To help bridge gaps in engine portfolios and to maximize powertrain operations internally, OEMs are increasingly sharing engines across platforms, entering into developmental partnerships with alliance partners, and in some cases buying engines outright from competitors.

AUDI: Shares Audi A4 1.8T engine (4-cylinder, turbocharged 150 hp) with VW's New Beetle. Shares engines and components throughout the VW group -- including Skoda, Seat and Lamborgini.

BMW: Sells 2.5L I-6 diesel to GM for the 2002 Omega program in Europe. Will buy diesel engine from Toyota for Mini program in 2003.

DCX: JV with BMW to build 1.4L and 1.6L gasoline engines in Brazil for PT Cruiser and BMW Mini

FORD: Shares 2.0L 4-cylinder (standard) and 3.OL V-6 (option) between Ford Escape and Mazda Tribute. Partnering with PSA Peugeot Citroen to design multiple diesel engines (PSA is leading development of small- and mid-size engines. Ford is leading development of large engines). Buys light truck 7.3L V-8 diesel from Navistar. Buys diesels from VM-Motori for 2002 Ford Escape (2.5L and 3.1L).