Outsourcing of Automobile Component Manufacturing/Design, Business and Industry Trends Analysis

Along with automakers, auto parts manufacturers were hit hard by the global recession.  The U.S. Department of Commerce reported that more than 50 auto parts makers filed for Chapter 11 bankruptcy protection in 2009 and up to 200 were liquidated.  However, those that remained in business, many by divesting themselves of unprofitable businesses and focusing on their core strengths, managed to turn themselves around in a remarkably short time.  For example, Lear Corporation emerged from bankruptcy in 2009 after selling its automotive interiors business and focusing on car seats and electronics.  The company reported revenue growth from $11.9 billion in 2010 to $18.2 billion in 2015.

Meanwhile, auto parts manufacturers in China are enjoying an upswing to serve the growing market there for light, cost- and fuel-efficient vehicles.  In addition, a number of U.S. parts manufacturers, including American Axle & Manufacturing Holdings, Inc. and Meritor, Inc. (formerly ArvinMeritor), opened plants in China and India to diversify their interests and take advantage of the booming markets in those countries.

Automotive manufacturers save vast amounts by outsourcing design and engineering to overseas offices, while sharing component designs across a wide range of automobile models.  A growing trend in manufacturing is for American carmakers to utilize engineering and components from foreign plants and manufacture or assemble them domestically.  At GM, Chrysler and Ford, a large percentage of models are designed and completed in this cross-platform, globalized manner.

Fiat hopes that cross-utilization and globalization of engineering, styling and manufacturing will create tremendous efficiencies and cost-savings in its business relationship with Chrysler (now 100%-owned by Fiat).  The challenge is to avoid building cars with a cookie-cutter feeling.

At Ford, a sweeping plan to slash the number of global suppliers brought tremendous results in terms of cost effectiveness and simplification of component design.  The company’s goal was to cut its list of 2,500 suppliers to less than 1,000 by offering larger long-term contracts to a smaller number of suppliers, thereby streamlining the product process and saving time and money.  For example, Ford previously used 28 different seat structures around the world, and now it’s been cut down to two.  Ford estimated that it could save as much as $7 billion per year through more efficient purchasing.  The company also developed plans to radically simplify production by utilizing only five platforms for all its models (thereby working from the same basic components in plants that utilize the same type of tooling), down from 15 platforms in the recent past.  For example, by 2016, the firm planned to produce almost 2 million vehicles from the parts that are currently used in the Escape SUV.

Achieving the “American look,” which may include significant changes in bodywork and interiors, is of major importance to car sales in the U.S.  Attempts to market the same car, identical in every detail, across global markets are often failures.  For example, tastes in Europe often differ from those in the U.S. when it comes to appearance and styling. Likewise, “American look” cars may be difficult to market in other countries.

Nonetheless, the savings from cross-border platform development, when properly marketed, are impressive.  The cost to develop a midsize car by an American manufacturer can run $1 billion in the U.S.  Using a chassis and engine design from overseas can cut the cost nearly in half.

Automobile makers outside the U.S. are also sharing parts and engineering in a big way.  Take, for example, the development of the Nissan March, a compact built on the same chassis created for a Renault.  The shared design was projected to save both companies 20% on development costs.