Car production and the design that drives it has always been an immensely complicated processes. In an effort to tailor models to local market requirements, designers have traditionally started a new model with a clean sheet. But this has resulted in a plethora of platforms and few shared parts, making economies of scale for anything more than a few light fittings and door handles an impossibility. Over the last ten years, that has begun to change. Arguably, Ford came first with their European Mondeo mid-size sedan that they also built in the US and sold as the Ford Contour and Mercury Mystique. The project, though not a resounding success, although with the right objective, allowed Ford to amortize the cost of platforms across multiple markets and achieve economies of scale not possible when a manufacturer has its own ground up design for every market.
An FT article this week reviews in some detail how the world’s major auto manufacturers, those with major production facilities in more than one continent, have taken this concept of one platform as a basis for multiple models to a new level. Ford has promoted their One Ford policy for some years and has again pushed their “world car” concept with the Focus and Fiesta models. The new Focus that goes on sale in Europe and North America next year and then in Asia in 2012 will have about 80 percent of its total number of parts in common, whether built in Michigan, St. Petersburg or Chongqing.
That does not mean the cars will look exactly the same in all markets or come delivered with the same range of options and features. One platform will achieve the optimum in economies of scale while still retaining ultimate flexibility to tailor models to local markets. Sound impossible? Hence the complexity we mentioned at the outset. This serves as the holy grail for auto makers. None seems further down the line, or likely to reap the greatest rewards than Volkswagen of Germany. VW aims to slash the production cost of its cars by 20 percent and “engineered hours per vehicle the time each takes to manufacture by 30 percent. All of its plants will produce cars that share modules even though they may range in size from the subcompact Polo up to sport utility vehicles such as the Tiguan. The FT quotes Ulrich Hackenberg, the VW board member overseeing the effort, saying, “Theoretically, we can build every car in every plant, which makes it very flexible. In earlier times we had one plant for every model. VW seems serious about this approach — retooling its entire worldwide operation to achieve what it hopes will become enormous economies of scale. Last month, the firm said it would invest US $67 billion, much of which will go into re-tooling. By 2018, VW aims to make 10 million cars per year, all sharing the same basic designs, by which time they intend to unseat Toyota as the world’s top producer.
Although VW has more skepticism than Ford that car buyers will want to buy the same shaped vehicle in different markets, they do have vehicles among their range, like the Polo and Golf, that follow the Ford “world car” philosophy. Unlike Ford though, they also have what they term a suite of products that cater to local tastes. An approach they will continue with in spite of plans to consolidate the bulk of the vehicles it makes from compacts to SUVs around just two basic modular platforms one with the engine mounted longitudinally and one in the transverse position.
The article identifies a few downside risks to this strategy, risks that VW itself acknowledges and has tried its best to avoid. As Toyota’s recalls over the last year have shown, when you use the same part from the same supplier in multiple applications and something goes wrong, the consequences can be enormous. In Toyota’s case, 12 million recalls don’t just have a financial impact, but an image impact too, tainting the whole brand rather than just one model.
Nevertheless, the benefits will likely accelerate this trend. The question becomes: Can consumers tell the difference? Spare a thought for the minority producer, such as those in China, India and those outside the fold of the majors. The cost savings gap between the big and the small will grow ever larger and with it the ability of those smaller companies to compete.