Closing Case Redesigning the American Car In 2003 Detroit's big three carmakers, GM, Ford, and DaimlerChrysler, accounted for only 60.2 percent of the vehicles sold in the United States, the lowest number ever. The market share loss has been greatest in the U.S. pas- senger car market, where foreign producers walked away with 55 percent of the market in 2003, up from 34 percent in 1993. For most of the last decade, strong sales of sports utility vehicles, where Detroit dominates, have held overall market share losses in check, but now foreign producers such as Toyota, Honda, and Kia are going after that seg- ment too, creating huge potential problems for Detroit. The American automobile makers have responded by trying to reinvigorate their passenger car business and coming out with a host of new designs. Just as impor- tantly, they are trying to cut the costs of developing and producing those cars. The old rule of thumb was that it took four years and cost $1 billion to design a new car and tool a factory to produce it. To recoup these costs, Detroit would typically sell a car for seven years before developing a new design. Unfortunately for the American for example, the goal is now to reuse 40 to 60 percent of parts from one car generation to the next, thereby reduc- ing design time and tooling costs. At Ford, the number of parts has been slashed. For example, Ford engineers now choose from just four steering wheels, instead of contem- plating fourteen different designs. Another important trend has been to reduce the number of platforms used for car models, as Japanese producers have long been doing. Honda, for example, builds its Odyssey minivan and its Pilot and Acura MDX sports utility vehicles on the same platform, and it has added a pickup truck to the mix. Currently Chrysler bases its vehicle fleet on thirteen distinct platforms. The com- pany is trying to bring this down to just four platforms, reducing the product development budget from $42 bil- lion to $30 billion in the process. Ford and General Mo- tors have similar aims. The platform for GM's new small car offering, the Pontiac Solstice, will also be used for its new Saturn coupe and perhaps one more GM car. As GM develops its next generation of Chevy Silverado and GMC Sierra pickups, it plans to reuse much of the exist- ing platform, cutting development costs in half to nearly $3 billion. Over the next eight years, Ford plans to use its Mazda 6 sedan platform (Ford owns Mazda) as the basis for ten new vehicles. The idea, according to Ford's head of operations, is to engineer it once and use it often. Hand in hand with changes in design philosophy, the Detroit companies are retooling their factories to reduce costs and make them capable of producing several car models from the same line. By doing so, they hope to be able to reduce the breakeven point for a new car model. GM's Solstice, for example, is forecast to sell around 25,000 units a year-too few to recoup fixed costs under the old design-and-build philosophy. But GM has cut de- sign costs by using a common platform and common parts, and it has cut tooling costs by investing in flexible manufacturing technologies that can be used to produce multiple designs based on the Solstice platform from the producers, the Japanese shortened the life cycle of a typi- cal vehicle to five years, and by lowering development and tooling costs, they have been able to make good money on their car models. Now the American producers are trying to strike back. Typical is Ford, which has reduced its product de- velopment time by a quarter since the late 1990s and con- tinues to reduce it by 10 percent per year. Ford now de- signs almost one-third of its models in less than thirty months. One reason for this progress has been the in- creased communication among designers. Ford designers used to work in different teams and did not share enough knowledge about parts and platform design. Now teams get together to see how they can share the design work. foreover, design teams are rying to use the same parts in a wider variety of car models and, where appro- priate, use parts from old models in new cars. Detroit auto designers used to boast that new models were completely redesigned from the floor up with all new parts. Now that is seen as costly and time consuming. At General Motors, same basic line. GM has also worked hard to get unions to agree to changes in inflexible work rules. Assembly line workers now perform several different jobs, which re- duces waste and boosts productivity. Similarly, Ford hopes to have 75 percent of its production built on flexi- ble assembly lines by 2010, and, if successful, its invest- ments in flexible factories could reduce annual costs by some $2 billion a year. Critics say that the new vision coming out of Detroit is not that new. Although the techniques being discussed will reduce development time and tooling costs, Japa- nese automakers have been pursuing the same tech- niques for years. The critics fear that Detroit automak- ers are chasing a moving target and that when they arrive in the promised land, it will be too late, since their global competitors will have already taken competition to the next level.54 Case Discussion Questions 1. How have lower development and tooling costs given Japanese auto manufacturers an advantage in the marketplace? 2. What steps are the Detroit automobile makers taking to reduce product development time and tooling costs? If they are successful, what are the implications of these initiatives for (a) the number of car models they can sell and (b) breakeven volumes for an indi- vidual model? Will these initiatives benefit Detroit's customers? How? 3. The Japanese producers have been pursuing for years many of the methodologies now being intro- duced in Detroit. Why do you think it has taken the Detroit automakers so long to respond to their foreign competitors? 4. If the Detroit companies successfully implement their new operating strategies, do you think they will gain a competitive advantage in the marketplace?