Toyota successfully defended its status as the world’s largest automaker in the first half of 2014. However, Volkswagen has gotten very close and is widely expected to overtake Toyota either by the end of the year or in 2015 at latest.
As we all know, size alone does not matter. Both manufacturers are quick to stress that they primarily strive for profitability rather than leading unit sales. However, size and profitability are directly interlinked. The increasing use of common parts and modular setup allows larger automakers to derive profit gains from sheer size.
Adopting a modular production strategy is arguably essential if automakers wish to stay competitive in the industry. A Roland Berger study shows that companies with a modular strategy have revenue growth that is one-third larger than competitors that have not adopted such a strategy, particularly in emerging growth markets.
In July 2014, Nissan-Renault announced a record number of synergies worth €2.9 billion in 2013 that had been derived from joint activities with a special emphasis on common platforms and components. Nissan-Renault introduced an alliance system called Common Module Family, which it launched around 2010. By 2020, Nissan-Renault expects at least 70 percent of its vehicles to be produced under this concept, a result that would cut development and procurement costs by 30 percent.
Toyota’s New Global Architecture system, first announced in 2012, also aims at cutting development costs by 30 percent. Toyota is also looking to work with three common platforms on 50 percent of all its cars. Similar efforts are underway at other large Asian automakers such as Honda and Hyundai, and also General Motors and Ford in the U.S.
There are three global megatrends that offer the same challenges to automakers worldwide: the growth of emerging markets, the diversity of customer needs and environmentally friendly technology.
By 2018, 47 million units, or nearly half of all vehicles currently produced, will be sold in emerging markets.
The diversity of customers worldwide demands a wide variety of car segments but also individualized models within one segment, which result in greater variations and faster development cycles.
The growth of digitization only adds to a wide variety of customer expectation. In addition, the need to introduce environmentally friendly technology adds complexity to the process, which results in additional cost pressure.
These challenges are immense but they are by no means new. The need to keep costs down while responding to increasingly diversified and global market needs has been the automotive industry’s primary issue for at least the past 25 years. Over this time, the answer has always been the same: production synergy through modularization.
In the early 1990s, all leading automakers started to introduce platform strategies. They developed various models on a single platform, although such models were typically restricted to the same segment.
In 2000, German automaker Volkswagen was the first to start adopting modules via different segments and has remained the industry leader in modular programs ever since. In 2007, Volkswagen introduced a modular matrix strategy for vehicles with longitudinal engine orientation called the MLB and installed it in the Audi A5. Nowadays, nearly all Audi models from A4 to A8 are based on the MLB.
In 2012, Volkswagen finally launched the Modularer Querbaukasten (MQB) (front-engined, front-wheel drive automobiles that were produced through the employment of a shared modular system). The MQB was first applied to the Audi A3 and, subsequently, the Golf VII.
In 2013, the MQB was applied to 1 million vehicles, a figure that is expected to increase to 4 million units by 2016. Volkswagen has said it would apply the MQB in more than 40 different models.
In addition to the modularization of its vehicles, Volkswagen puts high emphasis on the modularization of its production. The keyword is Modularer Produktionsbaukasten (MPB), which summarizes efforts to standardize machines, tools, processes and factory layouts. By 2016, Volkswagen plans to operate more than 20 MPB factories in countries such as Germany, China, Mexico and Brazil.
Other German automakers, including BMW and Daimler, have also recently increased their modularization efforts but clearly lag behind Volkswagen. This is only natural as they offer premium brands with a lower global production volume.
However, leading Japanese automakers such as Toyota, Nissan and Honda cannot afford to stay behind as they are all competing in the same volume segment. Their long-held advantage in terms of production quality and efficiency is currently threatened by the ongoing modularization trend in the global automotive industry.
Dr. Jochen Legewie is managing director of German communications consultancy CNC Japan. See his blog at www.cncblogs.jp.