Near-Future Auto Platform Consolidation Threaten Auto Parts Makers

By Thom Cannell
Detroit Bureau
The Auto Channel

Detroit MI March 5, 2010; All automobiles, whether a Lincoln MKT, Mazda2, or Volkswagen Passat are built on what the industry calls a platform or architecture. Just as the houses in your subdivision, or condos in your building have similarities in design and construction, so do vehicles. Sharing the engineering hidden behind the dashboard, beneath the carpet, and inside the wheelwells makes it less expensive to build a car and less expensive to buy.

In the ‘60s and ‘70s Detroit automakers built nearly identical vehicles and attached slightly different exterior sheet metal. Today this sharing goes much deeper. For instance the Volkswagen group uses a similar platform for the Audi A8, Bugatti Veyron, and Bentley Continental. Those vehicle have no physical resemblance to each other, yet share common engineering.

Let’s say you are Chrysler, Ford, or GM and need to make it possible for customers to buy a good car at a lower price. If you could engineer an architecture that, like the 2”x4”stud walls of your home could be made longer, or wider or taller using the same engines and transmissions (powertrain), the same window glass, the same radiator, alternator, ABS, and air conditioner components it would lower prices through higher volumes. This is precisely what is happening. Ford, GM, and to a lesser extent Chrysler are implementing global vehicle architectures. Even Jaguar and Land Rover are combining platforms!

According to the industry research organization Grant Thornton LLC, the Detroit Three will shrink their current 40 platforms (2009 number) to 29 by 2014, less than four years away. Fourteen of those platforms will be global platforms produced in North America and at least one other region. The remaining platforms will be regional, like pickup trucks and minivans.

This reduction has massive implications for those who supply the auto industry, which is almost 20% of US manufacturing companies. According to Grant Thornton, if suppliers do not have commitments for 2014 automobiles in their order books by the end of 2010—this year—they should plan to sell, merge, swap business units, or expect to close.

Company representative James Ricci recently told members of the Detroit-based Automotive Press Association “2010 is a critical year for suppliers—don’t just enjoy the (sales) volumes.” Between now and 2014 Thornton expects US auto sales to increase to an annual volume of 12.6-15.5 million vehicles, a volatile number. Midwestern-based suppliers will see utilization of their facilities approach 100%, seemingly a great position. It is not. Industry experts say a cushion of 10-15% allows better flexibility to meet demand and keep workers at all levels energized rather than strung out and depleted.

The company says that if a supplier is to succeed it needs to hold contracts with Toyota, Honda, GM, or Ford as those manufacturers will account for 70-% of sales. GM and Ford will remain critical to suppliers as they will continue to command 40% of North American sales volume. They think that Ford may have reached market stability (percentage of market) but will see dramatic increases (predicted as much as 58%) in sales volume as the economy increases.

This is where the platform strategies start to kick in. The number of platforms will drop from 64 (total for major manufacturers) to 56 in 2014, with Ford’s change being the most dramatic going from 6% global platforms to 64%. Thornton says engines suffer much less change, only losing one or two compared to today. GM’s number of platforms may be cut in half by 2014 as models are eliminated or consolidated.

Regional platforms like our large SUVs and pickups with their V-6 and V-8 engines are unique in a world of I-4 engines and should be unaffected, though small pickups (Canyon, Colorado, Ranger) may be increasingly global.

Comparatively, Honda, and Hyundai are largely on global platforms whereas only 10% of GM’s platforms are. GM’s GMT 900 is the largest regional platform, and Ford’s P415 F-Series platform is its largest. Chrysler, a comparative newcomer to globalization, will start its changes later than Ford or GM, yet are expected to achieve 47% globalized platforms by 2014.

For suppliers this means increased volumes for those that have orders reaching beyond 2013-2014. If your company has no orders, or some of your business units don’t, Grant Thornton expects to see mergers, acquisitions, even strategic swaps between companies.

Automakers will move some existing products from current platforms to new global ones. For instance GM’s recently launched Camaro will move from its current Zeta platform to their Global Alpha in 2013, which will also carry Cadillac products, and others.

Thornton’s Ricci says powertrain components will continue to be sourced 48 months ahead, and other bits, pieces, and complex assemblies will be scheduled 30-36 months ahead. By February of 2011 the new CTS and next generation Camaro will be mostly sourced they say.

The bottom line; suppliers have the remaining months of 2010 to prove their capacity and capability. In 2014, 10 global platforms will account for 46% of all production in North America and six of those platforms will belong to Ford or GM. For every supplier Grant Thornton anticipates:

• Size and scale matter more than ever. • GM and Ford will remain critical to Tier 1 suppliers, perhaps more than ever.

• Disruptions in commodity supplies will loom larger.

• Lead times will be driven down, yet new and common processes, plus better tools and more robust testing will increase quality.

• Investment seems aimed at electronics rather than interior trim or castings.

• It may be a good time for purely regional suppliers to divest, sell, or exit.