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September 28, 2000

Automotive: drive for cost savings

Other manufacturers must follow suit to keep up over the next three years. Covisint, the massive online supplier marketplace, will assure vast savings in procurement. However, the sector cannot rely on suppliers to cut margins forever. Only those manufacturers that also look inward and seek technology initiatives in other areas will hit their savings targets.

By CBR Staff Writer

Renault has announced a E3 billion cost-cutting drive.

Chairman Louis Schweitzer has outlined his vision: savings of between 1,000 to 2,000 francs per car. That’s an overall target of E3.0 billion over the next 3 years. It might look a tall order. But if Mr Schweitzer has got his sums right, then with 1.09 million Renault and Nissan cars sold in the first six months of the year, the company could have already saved at least 167 million Euros – a leviathan sum when margins are already tight. The largest chunk of savings is planned from purchasing costs, with a 51% target. The rest will come from marketing and distribution, manufacturing and synergies with Nissan.

Other manufacturers must join in. Ford-Werke, which lost $195 million in 1999, has already signaled sweeping changes as part of Ford’s overall European restructuring plans. The timely approval of Covisint, the mammoth supplier eMarketplace set up by the large automakers may prove just the godsend that is needed. Renault’s announcement highlights the vast cost savings that are planned from procurement. The B2B exchange will particularly improve margins in high tech electronics components purchasing.

But automakers must not neglect to look inwards either. Covisint must not be seen as the only contribution that eCommerce can make. There are also vast hidden savings to be made in manufacturing and distribution. Therefore, manufacturers must embrace eCommerce initiatives across the sector and not just rely on suppliers to keep reducing margins.

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