Indego, automotive consultancy, automotive consulting, steve young Indego, automotive consultancy, automotive consulting, steve young

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Indego / Business Model / Press Coverage

Press Coverage

 
The IndeGo Concept for a next generation car company has been widely covered by the business, consumer and industry press. The following selected extracts relate to the concept and comment on the opportunities for it to be successfully applied.

 Automotive News Europe Logo

July 23rd, 2007

Steve Young is disappointed but not disillusioned that his novel IndeGo model for a new type of auto company has yet to take off.
 
Young, who is GAZ International Chief Operating Officer and CEO of GAZ-owned van maker LDV, developed IndeGo in 2004 when he was automotive practice leader at AT Kearney in London. GAZ International Chairman Martin Leach helped with the concept.
 
The aim of IndeGo was to improve potential margins by outsourcing, localizing final assembly, and focusing on lifetime revenues rather than the initial sale transaction for its income.
 
“IndeGo is dormant,” Young told Automotive News Europe. “It requires the right opportunity to launch. We came close to one, but it didn’t work out and we were disappointed.”
Young declined to give details but said that some Indego thinking was being used at LDV. “Indego is not part of the GAZ remit,” said Young, “but we find its principles a good yardstick when running a business such as LDV.”
 
Concepts such as lean overheads, close relationships with customers and lean dealership structures were already in place, he said.
 
 
 


September 4th, 2004


"Mr Cole of CAR, one of America's most respected analysts of the industry, suggests that its current business model is already broken. He points out that in the good old days car firms would make a profit as soon as their factories were operating at more than 80% of capacity; the cash dried up when plant utilisation fell to around 50-60%. These days utilisation is consistently high, but for the wrong reason: discounts. So even when the factories are busy, there is no guarantee of profits.
 
So what else can car companies do to make themselves even more competitive? One interesting idea has recently surfaced from a team led by Steve Young at A.T. Kearney, a consulting firm, working with Martin Leach, a former president of Ford Europe and the product-development wizard behind the revival of Ford's Mazda associate. The team set out to design a "new generation" car company, a bit like the new low-cost budget airlines now spreading everywhere.

What they came up with was a "virtual" company that would outsource just about everything, from organising networks of suppliers to manufacturing, some design and delivery, and service. Manufacturing would be done in small plants within each national market, to ensure that it was close to the customers. Parts would be made in a network of factories in low-wage countries, a rigorous extension of what is already happening in the industry today.

Such a company, the team found, would have an operating margin of about 22%, roughly double that achieved by Nissan, the best of the conventional volume carmakers in 2002. That would make its returns nearly three times better than Toyota and BMW; four times better than Peugeot and DaimlerChrysler; and more than 20 times better than GM and Ford.

The secret behind this high return is that such a company would be offering services throughout the whole automotive supply chain. It would sell mobility, not cars. At the moment, explains Mr Young, the car companies win revenues (and profits) only from the start of the life of a car. But if they leased the car and retained ownership throughout its entire life on the road, typically eight years, they could tie in revenues from such things as insurance, servicing and repairs.

Their putative company, which they dubbed Indego, would make four models and aim to sell a quarter of a million of each. But because the company would be leasing the cars several times over as used vehicles and providing associated services, such as insurance, 250,000 vehicles going through several transactions over eight years could generate the same sort of revenue as a conventional car company making 2m vehicles a year. Moreover, the product-development costs would have been written off against eight times the volume of eventual revenues. Mr Young says that the exercise has been well received by many manufacturers, particularly components firms, which are trying to introduce elements of his model into their operations.

If distributed manufacturing and the virtual car company sound somewhat familiar, it is because elements of them have been mooted before. About six years ago, Peter Wells and Paul Nieuwenhuis of Cardiff Business School launched the idea of micro-factories assembling low volumes of cars within local markets; their micro-factories would also act as retail distribution points.


Indego seems to have been inspired by other pioneers too. In 2000 Jacques Nasser, then boss of Ford, tried to turn his company into an all-singing, all-dancing consumer outfit providing automotive services. In many ways he was ahead of his time. But Ford, and Mr Nasser's career, came to grief because his grand strategy involved too many initiatives and too much expensive diversification downstream. When the company had to replace millions of defective Firestone tyres fitted to its SUVs, the audacious experiment suddenly stopped. That may have set back much-needed changes in the way the car industry is organised by a generation.

So what else can car companies do to make themselves even more competitive? One interesting idea has recently surfaced from a team led by Steve Young at A.T. Kearney, a consulting firm, working with Martin Leach, a former president of Ford Europe and the product-development wizard behind the revival of Ford's Mazda associate. The team set out to design a "new generation" car company, a bit like the new low-cost budget airlines now spreading everywhere.
 
What they came up with was a "virtual" company that would outsource just about everything, from organising networks of suppliers to manufacturing, some design and delivery, and service. Manufacturing would be done in small plants within each national market, to ensure that it was close to the customers. Parts would be made in a network of factories in low-wage countries, a rigorous extension of what is already happening in the industry today.
In 2000 Jacques Nasser, then boss of Ford, tried to turn his company into an all-singing, all-dancing consumer outfit providing automotive services. In many ways he was ahead of his time. But Ford, and Mr Nasser's career, came to grief. When the company had to replace millions of defective Firestone tyres fitted to its SUVs, the audacious experiment suddenly stopped. That may have set back much-needed changes in the way the car industry is organised by a generation.”


Autocar.co.uk

July 20th 2004

IndeGo the future of car ownership

Some big brains think they can more than triple the profit margins in the car industry: stop selling cars and lease them instead. The implications are huge.

Download PDF to read more.
   

 Automotive News Logo

July 12th, 2004

Automakers need to stop selling cars and stop aiming to be "best in class." Instead they should lease their models throughout the vehicle's life cycle and try to be "good enough." That was the message delivered by Steve Young, London-based vice president of AT Kearney's global automotive practice, during the Automotive News Europe Congress.
 
The management consulting firm formed those conclusions while creating IndeGo, its model of the next-generation car company.
 
According to the concept, the company of the future will have four assembly plants that build a combined total of 250,000 units a year.
 
The body panels will be made of colored plastic so the plants won't need costly paint shops. Suppliers will handle powertrain development, sales will be via the Internet and delivery will be direct to customers.
 
Young said that many automakers have shown interest in IndeGo. He believes that some of the concept's core ideas will become real in the next five to six years.
 
"I'm not suggesting that VW or Ford will change their profile," Young said, "but there are brands that have been neglected and markets that have been neglected where this would work."
 
AT Kearney developed the IndeGo concept with the help of new Maserati CEO Martin Leach.
 


Automotive News Europe Logo

April 19th, 2004

The IndeGo concept was created by the AT Kearney consulting firm in London with the help of Martin Leach, former president of Ford of Europe. Leach says IndeGo was conceived to address some of the issues he saw in the volume car manufacturing and distribution business. "By taking a ground-up view, it has enabled us to achieve a business model that could achieve substantially better returns than are achieved in the volume business today and at relatively low levels of scale," Leach says.
 
Steve Young, a vice president in Kearney's automotive practice, says: "The auto industry is one of the few areas where we haven't seen a new business model. It has happened with airlines, computers and telecoms. It's overdue in terms of what investors are looking for and what customers are looking for." Kearney's idea was to take the best business practices from successful companies in other industries and apply them to the car industry. Models came from the airline industry (Southwest Airlines and Ryanair), the computer industry (Dell in particular) and the fashion industry (Kearney cites the Zara chain).
 
"The financial performance of the auto industry is constrained by the current business model," Young says. "Shareholder returns lag behind other industries." He believes conditions are ripe for either an outside player or another car company to invest in such a concept. Young says: "Toyota could do it out of petty cash." 

 

April 19th, 2004

Automotive industry consultant AT Kearney has developed a business model for a 'next generation car company' claimed to produce a return on sales of 22%, compared with the less than 6% to 16% currently achieved by the industry.
 
Company vice-president Steve Young said: "In most other industries there have been new entrants, such as Ryanair in airlines, which have fundamentally changed the prevailing business model, forcing the traditional players to respond.
 
"Our research asked whether a new business model could apply in automotive, offering better shareholder returns and higher customer value. We concluded that this is possible, and the auto industry needs to respond to this."
 
The concept - called Indego to reflecting "independent thinking and mobility" is said to delivers superior returns for five key reasons.
 
It captures services revenue (financing, insurance, maintenance, repairs and others) over the whole vehicle life cycle by selling mobility, rather than by selling the car itself. Indego will not sell cars but will rent them on a long term basis to a succession of users.
 
It eliminates the traditional distribution structure and processes along with the cost inefficiencies and barriers to maintaining and retaining customer relationships over time. Indego will take orders over the internet, directly from customers, and supply them directly at their home or place of work 10 days later.
 
It eliminates much of the complexity of traditional car manufacturing, through a simpler product and restructured process. Indego will source body structures and some components from low cost economies, but will assemble in small, simple plants, close to its markets.
 
It is a virtual product development organisation, using the skills of suppliers and external design houses to replace each model every two years. This will allow it to be responsive to new trends and appeal to increasingly fashion-sensitive buyers.
 
New approaches to product design and manufacturing will enable Indego to be more responsive, breaking even at lower volumes than the traditional business model, and less sensitive to volume fluctuations.
 
The Indego business model is based on offering customers a "mobility package" based on the use of a car for an agreed term of one to three years, including all servicing, repairs and insurance, at a cost starting from less than £5 (about $US8.50) per day. Customers will pick from one of four models, either new or used. The business focus of the business will be on customer care, providing peace of mind, predictable costs and added value services throughout the customer contract period.
 
Indego will provide levels of customer service that until now have been available only to buyers of the most expensive luxury cars.
 
The project team included Martin Leach, former president of Ford of Europe (and tipped to soon be running luxury sportscar maker Maserati for Fiat), who said: "The automotive business model has not changed over the last 100 years since Henry Ford launched the Model T.
 
"This research shows that there is the potential to make a step change in performance, leveraging recent developments in technology, industry capability and consumer attitudes."
 
AT Kearney believes that existing manufacturers, dealers, suppliers and finance houses could today apply many of the principles incorporated in the Indego concept. However, in the research the firm also says that the concept is viable as a start-up, and that a new entrant could emerge, with the same mould-breaking results as seen in airlines.
 
 
 

April 19th, 2004

Interesting chat with Steve Young from AT Kearney yesterday afternoon about ‘Indego’ – the ‘Next Generation Car Company’. What are we talking about here? A cheap car for sure; lean and flexible manufacturing; direct distribution from manufacturer to customer; multiple assembly plants close to market; a mobility package that reflects whole life costs; extensive outsourcing - low vertical integration; a new brand with a ‘clubby feel’ - a little like smart or Mini; a car that is ‘good enough’ to meet the market need rather than ‘best in class’. And the high operating margin claimed (21.7% which compares with 16.7% for super-profitable Porsche) has a lot to do with retaining customers for high margin peripherals way past the traditional industry pattern of first-owner then gone.
 
And we’re talking single flexible platform, four models (straddling segment B through C) and ultimately, 250,000 units annual production – but if you set that against global B and C seg annual sales of around 20 million units, maybe that is not such a lot. The company hangs on to its vehicles from production to scrappage – eight years. Customers are on two or three year contracts, depending on what they want.
 
Typical customers? Steve emphasised that we’re not talking bottom of the market or barrel scraping here. The thinking is ABC1s, but people without a big technical interest in cars and maybe an emphasis on certain demographics – single women, young families. They just want a simple mobility solution and maybe there’s a brand reassurance element too.
 
He took me through the whole concept – it’s a holistic approach but Steve pointed out that elements of it along the value chain could be stripped out if necessary.
 
Is anyone going to turn Indego into reality? Steve said that the financial case has been made and the model that ATK has constructed would meet conventional investment criteria. But let's face it - the project isn't a bad intellectual exercise for a management consulting company. Can't do any harm with clients or potential clients.
 
How new is all this? Steve acknowledged that some of the ideas have been around before, but a lot of work
seems to have gone into the whole picture and fresh look that is Indego. And some of the impetus for the work has certainly come from Martin Leach (and I wouldn’t mind betting that Jac Nasser would have liked to have a pet project like this on the go during his days at Ford).
 
Incidentally, he mentioned that Martin Leach is just completing his Italian language immersion course before taking up his Maserati position on June 1st. Molto bene!
 
I seem to take my camera with me everywhere I go these days (see below). Berkeley Square in London where ATK has offices is one of the city's finest Georgian (18th century) squares (there’s even a song about the place - ‘A nightingale sang in Berkeley Square…’). There’s a smart Bentley outlet there too – Jack Barclay. A black Continental GT was being backed out of the entrance as I walked past. Nice motor. The green in the centre of the square was a picture of tranquillity – people reading newspapers, picnicking or dozing, in the late afternoon sun. One enterprising chap had even set up a hammock (and no, that's not me inside it).

FT.com logo 
April 19th, 2004
“The plan for a new-style car company - dubbed Indego - has been drawn up quite seriously. "The automotive industry is not an attractive place to put your capital," says Steve Young, vice-president of the global automotive practice at AT Kearney. "People are there to get a balanced portfolio, not because it has good returns. Our message is not that the existing industry is screwed up, but that there is a better way." That way involves radical changes to manufacturing, sales and after-service.
 
Broadly, the new model is of a company selling trendy transport solutions, rather than cars. The customer would pay for a package, not just a vehicle.
 
Production would actually be slightly more expensive than the big factories, because of the loss of scale and the "soft" tooling which lasts less time. But the plants would be more flexible, allowing more frequent updates of vehicles, so there is always something fresh to persuade drivers to upgrade.
 
But the cars would not be sold. The biggest increase in profitability, on the Indego model, would come from leasing the vehicles - so when one driver returns a car, it can be refreshed and released as a second-hand model. In effect, the second-hand market, profits from which are currently shared by dealers and private buyers, would be controlled by the manufacturer.
 
Parts of the Indego model could be used to change practices in every section of the car industry, according to Mr Young. Established manufacturers can use lower cost design and manufacturing for new markets, while linking up with dealers to gain a share of profits on second-hand vehicles.
 
The dream deal, though, would be a new manufacturer. Wal-Mart, General Electric and Microsoft are all suggested as having the spare cash to fund the creation of Indego, although none has yet been approached.
"The more we got into this the more reassured we were that it was viable and could actually be done. It is feasible. It could even be done by an existing [car] manufacturer." Mr Leach said.”