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

The Top 10 States With Fastest Internet Speeds

10 Best Places to Visit in USA in August

Top 10 Cities to Visit Before You Die

Top 10 Genetically Modified Food In the US

15 Highest Grossing Movies Opening Weekend

5 Best Poker Books For Beginners

10 Strategies Hedge Funds Use to Make Huge Returns

Top 10 Fast Food Franchises to Buy

10 Best Places to Visit in Canada

Best Summer Jobs for Teachers

10 Youngest Hedge Fund Billionaires

Top 10 One Hit Wonders of the 90s

Fastest Growing Cities In America

Top 10 U.S. Cities for Freelancers

Top 9 Most Popular Free iPhone Apps

Top 10 Least Expensive Private Business Schools in the US

Top 15 Most Expensive Countries in the World – 2014

Top Businesses to Invest In

Top 5 Things You Might Be Doing Wrong With Your Business

Top 5 Strategic Technology Trends in 2014

Top Rags to Riches Stories

Parenting Behavior That Promotes Future Leaders

Top 5 Mistakes Made by Small Businesses

Top 5 Most Common and Potentially Devastating Financial Blunders

Top 5 Highest Paying Jobs for Web Designers

Top 6 Most Respected Professions that Also Pay Well

Top 5 Pitfalls Investors Should Avoid

Top 6 Lawyers and Policy Makers Under 30

Top 6 New Year’s Resolutions for Entrepreneurs

Top 7 Locations to Check in on Facebook

Top 5 Mistakes made by Rookie eBay Sellers

Top 7 eBook Publishers in 2013

Top 6 Health Industry Trends in 2014

5 Lessons for Entrepreneurs from Seth Godin

Top 5 Success Tips from Jordan Belfort – the Wolf of Wall Street

Best Master’s in Finance Degree Programs

Top 6 Earning Celebrities Over 50

The most expensive sports to play

Top 7 Earning Celebrities Under 25

Best 7 Online Courses to Take: Free Finance MOOCs

Top 6 Bad Habits that Promote Failure

20 Most Valuable Soccer Teams in the World in 2013

12 Most Expensive Countries for Foreign Students

Top 30 Most Influential Women in the World

Top 20 Most Expensive New Year Eve Shows

Top 5 Best Vocational Careers

Top 10 Jobs for 2014 by Salary Gain (Predictions)

Top 5 Digital Trends for 2014

Top 6 Things You Can Do To Increase Your Productivity

Top 9 Trending Smartphones in 2013

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!