Platform strategy will decide future of OEMs: Auto industry growth in this decade

Platform consolidation is being worked upon hurriedly based on a collaborative approach taken by key vehicle OEMs. This results in sharing market reach, engineering, and co-developing cars on core platforms. This is also a major reason why partnerships are a growing norm in the auto industry. This is because modularity till a certain point is feasible. Beyond this, it is inter-OEM synergies that need to be worked upon. As such, the number of auto partnerships will continue to grow over time.

The Renault-Nissan-Daimler alliance serves as an example for OEMs that look to ‘harness platform and procurement synergies without undergoing full operational integration’. Growth of platform synergies will be the new threshold that will facilitate consolidation of the global auto industry. Platform consolidation will find a lease of life in intra-platform component commonality and global production flexibility.

Volkswagen is amongst the leading OEM’s to have implemented modular strategy for platforms, and go on to use common platforms amongst their multiple brands, and across vehicle segments. VW shares a platform with the Volkswagen Touareg and Porsche Cayenne. Volkswagen sales during 2011 reached 8.16 million units while that of Toyota stood at 7.9 million. This decrease in Toyota sales was primarily due to natural calamities that struck Japan in March 2011. Volkswagen is excited about the increase in their sales figures as this would soon make them the largest automakers in the world, something that they have been striving to accomplish specially since they have been at number two position for quite some time.

While General Motors has not yet announced their figures for 2011 but analysts feel that it would not be more than 9 million units. Volkswagen’s increase of 14.3% as compared to their 2010 figures is quite an accomplishment for the company but will not be resting on their laurels as they are aware that this is just the beginning of their climb to be in number one position. Volkswagen has set targets of reaching 10 million units per annum by 2018, and hence has a lot of work to do so as to achieve this goal. Such growth goals in the competitive car market can be attained with vehicle platform sharing.

Though platform consolidation is recommended there are a number of negative facts that need to be taken into consideration. Risk of recalls is greater due to faulty components which will in turn affect quality control and supply chains. This calls for immaculate quality control and increased effectiveness of supply chains. An example of this would be the recently announced recall of 299,000 cars by Volkswagen, Europe’s largest auto maker by sales. The cars in question are fitted with diesel engines, and there could be possible problems resulting from cracks in the fuel-injection system. VW began the initiative late last year, and have notified vehicle owners tough there’s been no confirmation from the company regarding how many vehicles have already been recalled. Potential cracks can be an occurrence in the VW Golf, Jetta, Passat,Tiguan, and other models in production from 2009 onwards. With the risks that parts’ sharing throws up, VW’s Skoda, Audi, and Seat marquees too are affected.

Rules and regulations of each country would vary and this would make production and pricing strategy on common platforms rather difficult. This apart, when it comes to buyers, the customer expects vehicles to be different even if there’s platform sharing. This necessitates market specific product positioning, and places emphasis on pricing strategy by OEM’s. In order to integrate successful platform sharing, the next few years would lay emphasis on R&D, and extensive regulatory support. An important criterion will be consumer-driven innovation that will increase acceptance of cars developed on global platforms. Further emphasis needs to be laid on segment driven marketing, i.e., personal car, executive car, family car, etc.

The above story is based on a report by Bhavya Sehgal and Pronab Gorai at Evalueserve.