Total Cost Minimization In The Automotive Industry

“Competition is the keen cutting edge of business, always shaving away at costs.” – Henry Ford. Ford’s quote perfectly encompasses the main reason cost minimization is essential. To be competitive, you need to be priced competitively. With a purchase as large as a car, price is a huge factor to many people. In order to have vehicles that appeal to the masses, it has to be affordable.

Henry Ford is the man behind the affordable car. His invention of the moving assembly line was so revolutionary it dropped the price of his Model T from eight-hundred-fifty dollars to three hundred-dollars. The Model T was produced between 1908 and 1927 of which a total of fifteen-million cars were made. This incredibly low price even for 1925 resulted in forty percent of all cars sold in the United States to be Model T’s. To this day Ford Motor Company has the bestselling vehicle in the United States and Canada, the F-Series pickup truck. The sales numbers on Ford’s cars of the past and today would not be possible without cost minimization. In automotive manufacturing; commonality, labor and manufacturing solutions as well as manufacturing versatility are essential to cost minimization. Commonality between models is essential for the minimization of cost in the automotive industry. Commonality is “a common feature or attribute”.

The automotive king of commonality implementation is Toyota Motor Corporation. In 2013 Toyota’s President Akio Toyoda implemented a plan for seventy percent commonality across all of their models. Commonality at this scale can reduce manufacturing costs greatly. When parts are shared between platforms and models it can be manufactured on a larger scale. This also reduces research and development costs associated with each vehicle. If all models share the windows switches or turn signal stocks, it requires no engineering between models. Obviously, this would reduce cost in manufacturing each vehicle because a separate line or factory is not required for each car. Another form of commonality implemented by Toyota is the sharing of powertrains between vehicle models. Toyota uses their GR Series Engine in different variants between many of their commuter models including the luxury Lexus models (The Toyota GR Series Engine). This can help cut manufacturing cost significantly between models as the main block of the engine can be produced in the same factory for many models. Many other companies use this method of cost cutting including Ford Motor Company. As a local example, the Essex Engine plant in Windsor produces the five-litre four valve dual overhead cam V8 with twin independent variable cam timing. This engine is used in both the Mustang GT and F-150 pickup truck.

Another type of commonality requires cooperation between multiple companies and brands. Some examples of this are BMW and Toyota combining on the Supra and Ford and GM codesigning the ten-speed automatic gearbox. The new MKV Toyota Supra will share an I6 engine with the new BMW Z4. The two manufacturers worked jointly on the I6 engine from the initial concepts of the two vehicles. The two cars have different manufacturers names on them, however the Toyota Supra is said to have a little more BMW in it than initially expected. The interior, engine, chassis, transmission and electronics are all BMW. Join projects like this help spread out cost for both manufacturers. Since BMW is putting their parts in the Supra, they receive more profit for their initial investment toward their Z4 performance vehicle.

Performance vehicles are historically unprofitable. When a manufacturer can put more cars on the road for their research and development, the research and development become more worthwhile. Speaking of research and development being worthwhile, the Ford and General Motors ten-speed and nine-speed automatics were joint developed as well. The work on the two transmissions began in 2013 when Ford and GM announced a team up to develop them. The nine-speed auto was to be transversely mounted in front wheel drive applications and the ten speed to be used in rear wheel drive vehicles. The transmissions were jointly developed to be used in the future to tackle emissions and fuel economy restrictions. Due to the sheer volume of vehicles that will use this transmission the initial development investment as well as the cost of retooling factories for production of them becomes worthwhile. Commonality is a huge cost cutting measure used in the automotive industry today. A huge cost saving measure for the automotive industry is labor and manufacturing solutions. Labor cost solutions come in a variety of examples including; cheaper labor solutions, robotics implementation and manufacturing standardization. Cheaper labor on the surface may be assumed to be outsourcing of manufacturing to countries like China and Mexico. It is true that many manufacturers move work to cheap full-time markets, but part-time labor is another effective way at reducing cost. Using part time labor avoids costs of benefits for the worker, and uses an on-call system. With this system the worker chooses their hours based on how much they are willing to work. This reduced manufacturing costs significantly. Cheaper labor markets reduce cost by having lower wages. Mexico for example, is a very large vehicle manufacturing country. This is as a result of both cheap labor and lack of tariffs on imports from Mexico for the United States/Canada, European Union and Japan.

Another huge cost reducer is the implementation of robots onto assembly lines. Robots can do work more constantly and faster than any human can. These robots can often do a better job than a number of humans could. Instead of paying multiple line workers, auto manufacturers can pay a few technicians to do preventative maintenance on the robots. Many processes can be completely automated assuring quality control, whereas with a human worker, consistency may be an issue. These robots are used in factories all across the world to help manufacturing be as smooth as possible. Many companies produce the same vehicle in multiple plants around the world depending on the market the car will be sold in. For example, the Ford Focus is primarily made in four plants globally. It has plants in Mexico, Spain, Germany and China. Tooling and retooling these plants cost enormous amounts of money. “That has to be one of the most confusing things I have to deal with in my job. Ford Motor Company makes the same car in four different plants and they produce them in different ways in each one. Wouldn’t it make more sense to have one blueprint to base all of the other plants off of”? Ford Motor Company produces the same car in four different plants in four different ways. This is a complete waste of money. It would be significantly less expensive if the plants followed the same procedure in retooling. The costs of doing them differently really stacks up against the company. Labor and manufacturing solutions are essential to total cost minimization in the automotive industry.