Morten Hannesbo is the CEO of AMAG Group AG, a position he has held since 2009. Before joining AMAG in 2007, he held several positions at Nissan, Toyota and Ford, including as the CEO of Ford Switzerland. AMAG is a privately held company owned by Martin Haefner and the Haefner family; it has more than 6,500 employees and is Switzerland’s leading importer and distributor of cars, including leading brands such as Audi, Volkswagen, Skoda, SEAT, Bentley and Porsche. The annual turnover is approximately 4.7 bn CHF. The company has more than 80 dealerships and service facilities and a large number of partners across Switzerland, and owns the Europcar franchise and a leasing company. It is considered highly successful, holding nearly 30% of new-car market share despite the industry’s fierce competition. So what are some of the more prominent changes the automotive sector faces, and how have manufacturers such as Volkswagen and major distributors such as AMAG adapted their strategies accordingly?
Automotive Sector Strategy
The automotive sector is subject to heavy cost pressures and major technical and usage changes. But for Mr. Hannesbo, a key factor for driving major technological shifts in cars is the ability to take advantage of thus-far undeveloped potential advances, especially with respect to power trains. For instance, the technologies behind traditional gasoline and diesel cars might not realistically be developed much further, and new emissions rules will make internal combustion engines increasingly expensive. These technologies have been nurtured for more than 100 years and can be considered mature. On the other hand, although invented over 100 years ago, electric cars are based on an emerging new technology. They have significant potential for further improvements and new developments over many years to come. The relatively low cost of electricity relative to traditional fuels as well as lower operating costs might also foster a shift toward electric cars—not to mention that electric cars definitely perform well, with breathtaking acceleration and comfortable driving! The so-called plug-in-hybrid (P-i-H) cars, however, are probably not going to become a widespread alternative in the long run, according to Mr. Hannesbo. P-i-H cars are too complex and expensive for the mass market, despite their excellent performance.
Another major technical change with broad implications for the automotive industry is the advance of driverless car technology. Here again, we have seen many break-through innovations impacting all segments and industries over the years. But this technology might still be years—if not decades—away from mass adoption. Legal considerations are holding it back, particularly regarding safety and insurance.
With traffic congestion, especially in many larger cities, often also coupled with pollution problems, one might see the emergence of car sharing, rather than each customer owning their own car. This pool of shared cars might typically be electric and self-navigating, with much higher utilization rates than we see today, as cars are often used less than 5% of a typical day.
Due to this abundance of technical, way-of-use and sheer cost-driven pressures on car manufacturers, the recent automotive news across Europe should come as no surprise:
Jaguar Land Rover: Record losses; downscaling
Honda: Closing UK plant; many uncertainties
Nissan: Not building a next-generation SUV in Sunderland
Ford: Reconsidering its strategy and footprint in Europe
The Volkswagen Group’s Strategy
The Volkswagen Group has developed a particularly effective product and brand strategy, with a clear positioning of each of the group’s brands. Each particular brand might thus genuinely stand for the following:
Audi: Cutting-edge technology and innovation
Volkswagen: Quality for all
Skoda: Value for the money
SEAT: Inexpensive and exciting technology that delivers
Porsche: Timeless sports cars
The Volkswagen Group thus seems to have gotten its product positioning right, exercising considerable influence over each of its operating units in preserving this brand positioning. While the technical platforms of the group’s various car brands are similar under the hood, and thus yield considerable cost savings, the features that customers experience above all are different from model to model and from brand to brand. For instance, key design features in each car, such as the instrumentation and exterior design features, have been kept different from brand to brand but still more or less consistent over the years within each brand. The customer groups supporting a given brand can therefore remain as comfortable as possible with their preferred brand. This concept was first conceived by Mr. Ferdinand Piëch, chairman of the Executive Board and later of the Supervisory Board of the Volkswagen Group from 1993 to 2015. Such brand loyalty is essential for the economic performance of any given brand. Note that this multi-brand strategy has many similarities to the one originally developed at General Motors by the legendary Alfred P. Sloan in 1921.
In Mr. Hannesbo’s eyes, some of Volkswagen’s major competitors, such as Toyota, might actually be changing too many design features when introducing new models, thus weakening brand loyalty and confusing customers. Still, Toyota cars are well-known to have very high technical standards and quality.
AMAG’s Strategy
AMAG is also trying to live up to this brand and product differentiation strategy. In support of it, the main brands each have their own distinctive dealerships and service organizations as well as complete brand separation. A customer can thus experience what a given brand stands for in a dealership specific to that brand while unaware that AMAG owns these various other brands. This strategy is better understood in contrast to having many brands represented in the same store. One of AMAG’s main competitors follows this approach. A more opportunistic, bargain-hunting customer might perhaps find benefits in this approach at the expense of a brand experience.
In the end, the customers’ preferences dictate the strategy. AMAG therefore sees continuously reinventing itself as essential, not the least to uphold its strong bond with its customers. Significant attention is therefore spent on what at first sight might seem “nitty-gritty” brand details. To strengthen this approach even further, the AMAG Innovation and Venture LAB was established in 2018, in which a team of more than 20 experts are continually trying to come up with new ways to help AMAG excite customers. This lab’s ideas include:
Surprises (positive experiences)
Relevant innovations, as seen by the customers
Ways to increase the economic returns to the company and its customers (through financial performance, sustainable cars, reliable cars, etc.)
Formidable efforts have been made to keep customers loyal to AMAG’s brands. This high focus on brand loyalty might be better understood when one considers AMAG’s low profit margins when selling a new car.
To strengthen its efficiency further and offer even better service, AMAG´s retail unit has introduced a so-called “hub and spoke” structure in the last years. There are now 14 regional hubs with several spokes connected to them. In this way, services are improved, with even the most complex repairs now handled within each region. This change allows for considerable cost savings, particularly with inventories.
Leadership Issues
Mr. Hannesbo feels that it is rather risky to undertake major strategic and/or organizational changes without actually knowing very well beforehand where one plans to go. Clarity regarding the intended direction is key! To actually get there would thus be a matter of putting in as good an effort as possible, to “try to do things right but also do the right thing.” Then, additional adjustments may have to be initiated as time passes by. Speed is crucial, and excessive risk-averseness will not do. This is an incremental approach—a “plan B” would not make much sense because of the capital-intensive nature of the business. In the end, this approach does assume, however, that one would know where one plans to go!
The management style at AMAG has become much less formal, and the various divisions have relatively high leeway along with clear financial, quantitative and qualitative objectives. Also, the management teams of each division are clear about the fact that they must perform well and be on top of things! When things do not go as expected, they should try to understand why and initiate ameliorating steps. Speed is also critical here - and to never give up. The so-called 80-20 rule should apply: it is typically more than good enough to go with 80% knowledge instead of striving for absolute perfection or 100% analysis. To go for this last 20% tends to take up too many resources, be too expensive and take too much time. It follows that occasional mistakes will be acceptable if quickly corrected.
Mr. Hannesbo feels that his experience with endurance sports (marathon running; road cycling) is relevant here: never give up; cope with pain; ration your resources (do not occasionally sprint!); believe in yourself; walk tall; and be excited about the fact that the goal is coming nearer!
In Mr. Hannesbo’s view, working in a privately held company is key in regards to sustainability, robustness and taking the long-term perspective because there are fewer short-term pressures. Furthermore, disruptions might be seen as leading to positive opportunities in the end when the horizon is long enough!
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