Pninfarina

Competitive Environment

In the near term, the environment in the European automobile market appears bleak and may result in a shakeout that increases pressure for change on European manufacturers. Many of the changed environmental factors are the direct or indirect result of the superior manufacturing capabilities of Japanese and other non-European firms.

Competitive Environment Bleak

1.The market has grown only slowly in the past two years and is more than 10 per cent below the 1991 high sales. (Exhibit 3).
2. Profit levels are at cyclical lows.
3. Manufacturing capacity utilization is low - around 75 per cent.
European Manufacturer under Pressure
1. Asian competitors have been gaining share at the expense of European producers (Exhibit 3).
2. Japanese "voluntary" exportrestraints are scheduled to expire soon. In European markets without restraints, Japanese producers have significantly higher share than in markets with restraints.
3. Customer satisfaction levels are generally lower for European manufacturers (Exhibit 4).
4. European producers appear to seriously lag Japanese and American quality and labour efficiency levels (Exhibit 5).

Impact ofManufacturing Capability

1. Improved manufacturing techniques have been responsible for the simultaneously superior quality (internal and external) and superior manufacturing efficiency and costs of non-European producers.
2. ;Increased plant productivity made possible by improved manufacturing contributes to over-capacity problems by getting more production from fewer inputs.
Pininfarina and NicheProducer Position

Niche Producer Advantages

1. Lower fixed costs provide lower overall costs, when volumes are low.
2. Niche producers can respond more effectively to volume fluctuations.
3. Niche producers often bring product and design skills and superior reputations.

Potential Threats to Niche Producers

The spread of more efficient production and producers has raised at least twopotentially serious problems for niche producers.
1. Traditional niche manufacturer customers (e.g., Peugeot & Fiat for Pininfarina), who themselves are experiencing considerable erosion of sales, may have less business to offer.
2. Since with the improvement in operational efficiency without major incremental capital investment implies volume production is feasible at lower volumes, the nichebusiness may shrink.
Potential Opportunities for Niche Producers
If niche producers can improve their operational efficiencies more rapidly than European and other volume producers, they can become an increasingly attractive option of lower volumes and might greatly expand their market share. In that sense Pininfarina's improvement in operations to date, as detailed in Exhibit 6, is a step in theright direction.
Potentially, there are still other opportunities created by the changes underway in the European auto industry. Japanese producers have considerably shorter model lives in addition to lower production costs. This suggests that the trend in future will be towards finer market segmentation with shorter-lived models. Such a trend might entail greater volume risks on a given model,or more volatility in seasonal sales levels, and might require greater levels of design effort for a given sales volume. In this scenario, conditions favour the traditional strengths of niche producers - low volume production, flexibility in volume, and highly skilled design. Consistent with this possibility, design revenue at Pininfarina has grown three-fold in three years. Trends in the autoindustry towards greater integration of manufacturing and design may also present an opportunity to a niche manufacturer who can master the needed skills.

Pininfarina's Present Position and Strategy

* Recent Operating Performance at Pininfarina
1. Pininfarina is highly dependent on just two models.
2. Pininfarina went through a severe revenue decline in 1992 and 1993, due to a severe drop...