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November 30, 2010 10:47 pm

Carmaking: A drive to Lego landBy John Reed

hen Sergio Marchionne became Fiat’s chief executive in 2004, its two main midsized cars – the Fiat Stilo and Alfa Romeo 147 – had

not a single screw in common.

In the space of a decade, the Italian company aims to have only three platforms on which it builds most of its models. Chrysler, its US

partner, will also use two of these as the basis for its cars by 2014.

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With its own modular design system, the rival Volkswagen aims to slash the production cost of its cars by 20 per cent and “engineered

hours per vehicle” – the time each takes to manufacture – by 30 per cent. All of its plants, says VW, will be able to 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.

“Theoretically, we can build every car in every plant, which makes it very flexible,” says Ulrich Hackenberg, the VW board member

overseeing the effort. “In earlier times we had one plant for every model.”

At Ford Motor, the new Focus that goes on sale in Europe and North America next year, then Asia from 2012, will have about 80 per cent

of its total number of parts in common, whether built in Michigan, St Petersburg or Chongqing.

Like its competitors, Ford will chop and change the car to suit tastes in various markets. European buyers will have a diesel option. Many

Americans will opt for automatic transmission and all-weather tyres. Crash requirements differ around the world, so some elements will

vary. But Ford, whose chief executive, Alan Mulally, is striving to make the company’s global operations all work together, describes the

Focus as a “world car”. It plans to build up to 10 models, including an electric Focus, hybrids and a successor to its Kuga compact SUV – all

atop the same midsize “C-car” architecture.

Behold the automotive “megaplatform” – the clearest sign yet of a race for scale that promises to shake up one of the world’s largest

industries. After a crisis that shook carmaking to its foundations, the contours are emerging of a new order that will reward only those

producers that are able to make cars in seemingly endless varieties but with more than ever in common under the skin.

What carmakers call platform sharing is a long-established practice in a painfully competitive industry. Until recently, platform sharing

meant using the same rigid physical chassis to build very similar cars with cosmetic differences, or identical ones with different nameplates

– a practice known as “badge engineering”. The products had to have the same size wheelbase and suspension. Now, on more flexible

platforms, automakers can plug in different modules and build cars of very different shapes and sizes at the same plant.

The economic downturn – which accelerated their push into faster-growing emerging markets and low-emission technologies – has at the

same time intensified carmakers’ quest for manufacturing scale in an effort to cut costs. As advances in manufacturing technology allow

unprecedented flexibility on production lines, further advantage goes to the biggest producers.

“Automakers’ adoption of the global platform strategy is similar to Walmart’s ability to keep costs low by realising economies of scale,” says

Anthony Pratt, head of the automotive practice at PwC, the consultancy. “While this is not a new trend, this is the first time nearly all

automakers are embracing it en masse.”

Once its “C” platform is in full swing, Ford expects it to be producing more than 2m vehicles a year – about as many as Fiat sells in all.

Indeed, analysts predict that the rise of huge-volume car platforms will trigger a Darwinian struggle for survival among supplier groups as

they angle for the same global contracts, a battle in which only the biggest and fittest will prevail. The ability of incumbent manufacturers to

develop and produce large families of vehicles will also serve as a formidable barrier to entry to the global top table for rising carmakers

such as those of China.

The push for critical mass in development and manufacturing is driving partnerships between competing producers, as evidenced by

Daimler’s agreement this year with Renault and Nissan to co-operate on small cars, vans and engines. As Engelbert Wimmer of PA

Consulting, which advises the industry, puts it: “Now, you’re really big or you’re dead.”

. . .

As the drive for size and the shift to flexible manufacturing both take place, it is VW that may increasingly be the company to watch. The

German industry titan is retooling its worldwide operations to reap what it says will be huge economies of scale under a modular-based

approach to making cars. VW said last month it would invest nearly €52bn ($67bn) in its automaking operations, much of which will go into

retooling its plants.

By 2018, VW aims to make 10m cars a year that share these same basic designs. The push is a central part of the strategy of Martin

Winterkorn, the trained engineer who turned Audi into a profit machine and is now VW’s chief executive, to unseat Toyota by that year as

the industry’s top producer worldwide.

VW is more sceptical than Ford that car buyers around the world will want broadly similar vehicles. While the Golf and Polo models are

essentially the same everywhere, the group also builds a suite of products to cater to local markets, including the Lavida compact it makes

in China or the low-cost Gol in Brazil.

Yet within the group’s stable of brands – which range from Skoda and Seat up to Audi and Bentley – it is doing a very similar thing. VW has

long been an industry leader in sharing as much as possible among ’ similarly sized cars, then adjusting their exterior and interior features

and driving dynamics in keeping with what is expected of each marque. Audi was able to make the business case for the A1 – its smallest

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model yet, and a challenge to BMW’s Mini – in large part by sharing architecture with the VW Polo and Seat Ibiza.

VW says it plans to pursue common car platforms at a magnitude not yet seen in the industry. Within a decade. it plans to consolidate the

bulk of the vehicles it makes – from compacts to SUVs – around two basic modular designs, one with the engine mounted longitudinally and

a second with a transverse position. It also plans a third “new small family” group of cars, built in co-operation with Suzuki, its Japanese

partner, to target emerging markets and “megacities”.

With the big cost savings VW foresees – and huge volumes of cars with more commonality – it, like Ford, can plough more money into

features that provide an edge against competitors, such as infotainment systems, or speed up the rate at which it refreshes or replaces

models. By localising production of more models, VW and its big peers can also avoid import duties in a potentially less free-trade world.

Nissan is using a similar modular approach to building small cars, the most difficult vehicles for any automaker to turn a profit. On its new

“V” platform it is building the Micra at plants in China, Thailand, India and Mexico. The “V” stands for versatile, and the Japanese producer

will also make two other body types – probably a saloon car and a people-carrier – in the same places.

The modular technology allows Nissan to add a different engine, transmission or front or rear end in a manner that one senior executive

likens to a popular children’s toy. “We’ve invested in a big Lego box,” says Andy Palmer, Nissan’s head of product planning. “The fact that

you can put different permutations together gives you a great degree of flexibility.” Nissan expects the platform to produce more than 1m

cars a year.

The cost argument is compelling, and covers more than just how and where vehicles are manufactured. On top of what Ford saves on

purchasing, it economised on engineering and design by developing the coming Focus in one place – its global small-car hub near Cologne.

By developing a globally similar car, Ford will also save on marketing costs as it reduces the number of messages it needs to use in

promoting the model.

But there are some risks for carmakers in creating a Lego box, Walmart world of increasingly commoditised products. Clipping the same

part or module from the same supplier on to many models can make for recalls running into the millions, as happened at Toyota, which has

recalled more than 12m vehicles over the past year. “You have to get it right,” says Wolfgang Bernhart, a consultant with Roland Berger

Strategy Consultants. “If you have a problem in a module and use it in all your cars, you have the same problem everywhere.”

. . .

Another danger for an industry that depends on keeping customers engaged is that carmakers will produce bland, homogenised products

they reject. GM was roundly derided in the 1980s for badge-engineering in a way that brought differently branded cars that were too

similar to each other in look.

Some early signs of strain are showing at VW in its race to the top of the industry. Skoda, VW’s Czech “value” brand, has been adding more

upscale features on to its cars in a move that some analysts warn could dilute its cheap-and-cheerful market niche and cannibalise its

parent brand’s sales. While the Audi A1 received mostly adulatory press, some reviewers described the car’s price tag – about €16,000-

€25,000 depending on the features customers select – as demanding for a vehicle that shared underpinnings with the cheaper Polo.

Fiat says that it is remaining vigilant as it undertakes its own ambitious consolidation of platforms in co-operation with Chrysler. The Italian

carmaker wants the shared parts in its cars to rise to 75 per cent by 2014, from 55-65 per cent now – and, as evidenced by the Stilo’s lack

of crossover with the Alfa 147, essentially nil less than a decade ago.

The three architectures will account for 70 per cent of the 6m cars the two companies hope to be making by 2014. For a group that makes

everything from the basic Uno up to racy Ferrari sports cars, Fiat says it is on guard to maintain its cars’ distinctiveness. “Does this mean

the soup needs to be the same for everybody?” asks Harald Wester, Fiat’s chief engineer, before answering decisively in the negative.

In a warning that others in the industry will heed, he says: “The standardisation push coming from the industrial community of the

company has to be counterbalanced by the brand people, the product people, who have to be very careful watchdogs and gatekeepers of

the coherence and integrity of the products.”

.............................................................

QUEST FOR A ‘WORLD CAR’

The chequered history of Ford’s efforts to find one vehicle that fits all

The notion of a “world car” suitable for customers everywhere is the holy grail for carmakers.

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United States of AmericaRELATED TOPICS

Ford Motor’s attempts to satisfy the world with a single model have a chequered history. In 1993 the US carmaker launched the Mondeo, a

European-engineered midsize model with global ambition built into its name. As part of a push by management to unify global operations, it

also built two US variants: the Ford Contour and Mercury Mystique. For Americans used to “econo-boxes” – no-frills Japanese-built small

cars – they were a revelation, equipped with features such as charcoal-filtered climate systems and all-speed traction control as standard.

But the back seats were too small for US tastes, and some wondered why the cars were so close in price to larger models such as Ford’s

Taurus. When a Ford executive let slip that the global-car programme had cost $6bn, it was lambasted in the media as bad business – even

if the figure, which included the retooling of factories and development of a new engine family, was misleadingly high.

A few years later, Ford generated more bad blood by using the Mondeo platform to build Jaguar’s X-type compact saloon. Fans of the UK

marque, which Ford has since sold to Tata Motors of India, resented what they saw as a ham-fisted introduction of a mass-market car into

a more exclusive line-up. The car sold poorly.

Today, Ford – like most of its competitors – is pushing to cut costs by limiting regional variations in its vehicles. It is talking about “world

cars” again as Alan Mulally, chief executive since 2006, seeks to make better use of global operations under his “One Ford” turnround

strategy.

The company claims buyers worldwide are starting to demand similar cars. “There’s a great deal of convergence globally, especially around

certain segments,” says Derrick Kuzak, head of product development. During the credit crunch, for example, as US fuel prices spiked, Ford

noticed buyers of its F-Series truck trading down to cars such as the Focus. Customers then began to demand the better-crafted and

better-equipped interiors to which Europeans are accustomed. The proliferation of information about cars on the internet has played a role

in the growing compatibility of tastes around the world, Ford says.

Mr Kuzak says the company has therefore resisted any urge to “dumb down” interiors on the US version of the new Fiesta, its recently

launched small car, which like the Focus it developed in Germany but sells worldwide. A decade and a half after the Contour and the

Mystique, Americans are ready to pay more for well-equipped smaller cars: the US version of the Fiesta is selling well.