Company outlines series of cost-saving measures; but most will target suppliers
Volkswagen is looking to implement significant cost savings across the purchasing operations of its core VW passenger car brand by scaling back the range of components used by the unit. According to a presentation made by the firm's chief financial officer (CFO) Hans Dieter Pötsch, the company is looking to reduce the variety of components used in core models like the Golf and the Polo, which will offer significant savings potential. Other core cost-saving measures the brand is targeting include:
• Reducing complexity and speeding up management decision-making.
• Sharpening target-oriented investment.
• Increasing localisation in core markets.
• Enhancing R&D efficiency.
• Leveraging scale effects and group-wide synergy potential further.
The VW Group is looking to significantly improve the performance of the VW brand, following a pledge made last July by CEO Martin Winterkorn to cut costs and improve profit margins. The simplification of the component sets of its core models in Europe is one of the key measures that VW will implement in order to take its core passenger car brand back to a profit margin of 6% by 2018. This plan was put into place after its operating margin fell to 2.9% in 2013. With the two joint-ventures in China with Shanghai Automotive (SAIC) and First Automotive Works (FAW) the VW passenger car brand sold 6.1 million units of the company's combined sales total of 10.1 million units, meaning the company’s Chinese operations now have a large impact on the Group's overall financial performance.
The announcement has echoes of similar announcements made by Fiat Chrysler and Renault/Nissan in the first month of 2014. However, Volkswagen does not have the low-hanging fruit that is available to companies creating savings on a common platform strategy. Fiat Chrysler claimed to have more than 100 parts that could be aligned, even if they are not part of a shared platform. For example, the jointly-developed CUSW platform underpins the Dart, the Cherokee and the Viaggio. Three plants in North America are able to build vehicles based on CUSW.
The announcement places further pressure on Volkswagen’s modular MQB A/B platform strategy, with the platform set to become the biggest in the world over the next few years. Light-vehicle production on the platform is set to ramp up from 2.5 million this year to six million in 2021, dwarfing all its rivals’ platforms in the process.
This platform supports vehicles using a front-engine, transverse layout. Commonality will focus on the part of the vehicle ahead of the A-pillar, including the engine cradle, pedal box and front bulkhead, which is expected to reduce engineering and manufacturing times. This all-new platform launched in 2012 starting with the Audi A3 in second-quarter 2012 was followed by the VW Golf's seventh generation a couple of months later.
The strategy of the megaplatform essentially reduces the vehicle to a series of parts that are then given set parameters wherever possible. This level of standardisation reduces R&D expenses and engineering times as it makes modules for different vehicles interchangeable. VW produces vehicles on the platform on a much larger scale than any of its rivals.
The announcement by Volkswagen shows how the MQB platform is coming under pressure to deliver these cost savings just as it is starting to ramp up production. However, some will see the list of cost-saving measures that the company has produced (above) and just see more pressure being put onto suppliers. Speaking to Automotive News last year, Ernesto Antolin, vice chairman of Grupo Antolin, outlined the potential pitfalls of supplying a megaplatform, “The bigger the platform, the bigger the recall will be if there is a problem”.
In the short-term horizon, this platform will be supported by a majority of models from the Volkswagen Group's product portfolio, including the Audi, SEAT, Skoda and Volkswagen brands. The models that are expected to launch within the short-term horizon vary from the relatively small Audi TT to the relatively large Skoda Superb. With this large coverage of different brands and various size of models, this platform is expected to become Europe's largest platform in terms of output volume in a very small time frame.
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