Why Ford Motor Company (F) Is Worried About VW

Page 1 of 2

Which automaker is the biggest in the world?

Ford Motor Company (F)For years, there have been only two answers to that question: Detroit’s General Motors Company (NYSE:GM) , which held the title for a long time, and Japan’s Toyota Motor Corporation (NYSE:TM), 2012′s reigning champ, which has swapped the crown back and forth with GM in recent years.

Soon, though, there could be a third contender: Germany’s Volkswagen AG (PINK:VLKAY), which is in the early stages of riding a radical new approach to designing and building cars to increasing success in markets around the world.

And that radical new approach has many automakers worried, starting with Ford Motor Company (NYSE:F) .

Platforms and the success of Ford’s turnaround
Most automakers use some variation of a “platform” strategy to share parts and combine manufacturing of several models. In industry-speak, a platform is simply a set of common dimensions that allow different vehicles to share key parts (which typically aren’t readily visible) and to be made on the same assembly lines.

Cars built on the same platform may be — and often are — quite different from one another, but because of what they have in common, they cost less to design and produce. For example, Ford’s global “C” platform is the basis of the Focus compact, the Escape SUV, and the C-MAX hybrid.

Those are three very different vehicles, but they increase Ford’s economies of scale — and, thus, its profits per vehicle sold — because of what they have in common. The commonality also makes it simpler and more cost-effective to bring them into emerging markets, leveraging Ford’s existing production bases in places like Russia and China, where the Focus has become a top seller.

In recent years, Ford has drastically consolidated the number of platforms (and models) that it uses globally. This move, a key part of the “One Ford” plan that has transformed the company, has resulted in a huge reduction in Ford’s global fixed costs. It has also resulted in a significant improvement in quality, as Ford is now able to give each new platform and each new vehicle more design and engineering attention.

That was a huge step forward for Ford. But VW’s new approach takes that concept one big step further.

From platforms to Lego bricks at VW
VW has essentially rethought the whole idea of vehicle platforms, coming up with a modular approach to car-building that allows the sharing of designs and components on a massive, global scale. Essentially, VW’s plan is to have just three vehicle architectures — but to design them in a modular way, so that dozens of different, distinct vehicle models can be built from the three sets of common components, as if they were Lego bricks.

The potential scale is vast: Where Ford might order 4 million or 5 million copies of a particular part over the production run of a series of models on one platform, VW might order 30 million or more. That kind of scale should result in huge cost savings: According to a Reuters report, Morgan Stanley (NYSE:MS) has estimated that VW’s savings could be as much as $19 billion by 2019, and the company’s overall gross margins could approach 10% — huge for a global automaker.

Page 1 of 2
blog comments powered by Disqus
Insider Monkey Headlines
Insider Monkey Small Cap Strategy
Insider Monkey Small Cap Strategy

Insider Monkey beat the market by 52 percentage points in 24 months Click to see monthly returns in table format!

Lists

10 Most Influential Papers In Economics

Top 8 Biggest Charities in the US

10 Worst Celebrity Career Moves Ever

Top 10 Best Paid Tennis Stars in the World

10 Cities with High Demand for Nurses

6 of the Worst Greeting Card Messages Ever Crafted

6 Ways to Make Money in ArcheAge and Build Your Empire

10 Foods To Eat To Lower Cholesterol Levels

The 10 Most Hated Television Characters of All Time

The 30 Worst Halloween Costume Ideas Ever Brought to Horrible Life

10 Vocational Skills in Demand Today with Jobs Waiting to be Filled

10 Best Places to Visit in Central and South America

The 10 Greatest Empires in History Which Nearly Conquered the World

The 6 Cheapest Boarding Schools In America 2015

5 Clear Reasons LoL is Better than DotA, Continues to Rule MOBAs

The Only 9 Teams with a Chance to Win the Super Bowl

The 15 Most Common Phobias in America that Induce Fits of Panic

Top 6 Least Expensive Tourist Destinations in 2014

Jim Goetz, Peter Fenton, Jim Breyer: Top 6 Venture Investors for 2014

Top 15 Billionaires in 2014

5 Pitfalls To Avoid When Buying a Franchise

Top 20 Medical Schools in the US – 2014 Rankings

4 Business Strategies that Turned Jamie Oliver into the World’s Richest Chef

6 Qualities That Make You A Good Team Player

10 High Paying Seasonal Jobs in America this Holiday Season

The 10 Busiest Shipping Lanes in the World

5 Most Valuable Brands in China

The 10 States with Highest Substance Abuse Rates Crippling Their Populace

The Top 10 Things to Do Before You Die That Will Echo for Eternity

The 10 Best Selling Items on Etsy

Top 10 Things to Do in Tokyo, the Greatest City in the World

10 Mistakes on Social Media that Can Harm You and Will Probably Get You Canned

The 10 Best Cities to Find Jobs in 2014

The 10 Most Controversial Songs Of All Time to Hit (and get Banned from) the Airwaves

The 20 Biggest IPOs in US History

The 10 Best Places to Visit in Mexico that Are Beautiful and Safe

7 Bad Habits that Age You Beyond Your Years

The 40 Best Fortune Cookie Sayings That Will Leave You Bemused, Befuddled, or Beguiled

10 Foods to Eat Before a Workout to Make Every Drop of Sweat Count

The 5 Best Documentaries On Netflix You Must See

The Most Heartwarming and Inspirational Story Of This Halloween Season, It Will Make You Cry and Jump For Joy

10 Best Party Songs of All Time to Bring the House Down With

5 New World Order Conspiracy Theories that Will Strangle the World

The 10 Highest Rated Movies of 2014

The 10 Largest Container Shipping Companies in the World

The 10 Largest Armies in the World: Who Should We Be Afraid Of?

Best Warren Buffett Quotes on Money You Need to Hear

The 10 Highest Suicide Rates by Profession

The 20 Most Underrated Movies of All Time

The 10 Fastest Growing Companies in America

Subscribe

Enter your email:

Delivered by FeedBurner

X

Thanks! An email with instructions is sent to !

Your email already exists in our database. Click here to go to your subscriptions

Insider Monkey returned 47.6% in its first year! Wondering How?

Download a complete edition of our newsletter for free!