Dr Peter Wells Centre for Automotive Industry Research The crisis spiral Dr Peter Wells Centre for Automotive Industry Research

Contents The crisis spiral concept Automotive examples Interconnectedness Time Automotive examples MG Rover & Mitsubishi Wider considerations

Sources of crisis Economic / business Environmental / social Internal e.g. Failed new model, labour unrest, major supplier fails External e.g. general demand slump, material supply crisis Environmental / social Not including ‘disaster recovery’ External source (usually) Unpredictable…major role for corporate communications

Revenue Falls / Costs Rise The Crisis Spiral Demand Falls Revenue Falls / Costs Rise Brand Status Falls Output / Sales Fall

The Crisis Spiral FINANCE STAFF DEALERS SUPPLIERS

Plant Investment Falls FINANCE LOOP Secondary Sales Vulnerable Shares Sold Value Falls R&D Investment Falls Revenues Fall / Costs Rise £ Shortage Plant Investment Falls Assets Sold Interest Rates Up Debt Rating Falls

SUPPLIER LOOP Revenues Fall / Costs Rise No Component R&D Supplier Volumes Fall No Supplier Parks Benefits of Alliances Reduced Advance Payment Revenues Fall / Costs Rise Weak Partners Time To Market Increases Product Uncompetitive Need Alliances Less To Contribute Quality Falls

DEALER LOOP Revenues Fall / Costs Rise Sales / Dealer Fall Confidence Falls Multi Franchises Customer Service Falls Dealers Leave Revenues Fall / Costs Rise Adopt Other Brands Property Declines Dealer Investment Falls Territory Lost Training Declines

PERSONNEL LOOP Revenues Fall / Costs Rise Plants Closed Down Contract Staff Hired People Laid Off Competencies Decline Pay Limited Revenues Fall / Costs Rise Recruitment Difficult Morale Falls Best People Leave Absenteeism Rises Productivity Falls

Some Brief Examples MG Rover The forty year crisis From the impossible to the inevitable Losing control over destiny Car design integration ability lost Key decision moments e.g. move to BMW Key intervention moments?

Some Brief Examples Mitsubishi Initial problem with detaching wheel Main problem came with cover ups and denials Been through successive rescue plans Now trying CSR-lead revival Major reengineering of corporate culture Additional problems in the US Still spiralling downward

Crisis and Time Different elements of entire value system respond at different rates: Finance…immediate Link between reputation risk and finance risk Run on the bank problem…drawing the line in the sand Other elements work through more slowly Government (non) intervention critical

Crisis and decline Can the spiral be reversed or even pre-empted? Does the crisis accelerate the rate of decline? Are corporations more vulnerable now than they used to be?

Conclusions More research needed!