The Globalization of the Auto Industry: A Lean Challenge

Any manufacturer striving to be lean must work to establish partnerships with both suppliers and customers so that the entire supply chain operates as smoothly or as “leanly” as possible.

That is both a challenge and a necessity for today’s major automakers, who must rapidly expand operations with a whole host of new partners throughout the world. They must also have a portfolio of products for the entire world.

I’ve just returned from the Automotive News World Congress, an annual conference in Detroit. Clearly one of the overriding issues of that event was the globalization of the auto industry.

The United States may be the largest market for cars and trucks, but as a market it is both mature and saturated. Future growth for the industry lies elsewhere, most notably in three countries: China, India and Russia. (Brazil is fourth.) And while all major automakers have rapidly growing operations in all of those locations, those operations are still relatively small, with tremendous opportunities for growth.

Chris Lacey, who is General Motor’s executive director for central and eastern Europe (including Russia), summarized the challenge in his conference presentation when he described the “5 Ps” of GM’s approach. P stands for Partners, and Lacey said GM seeks five categories of the right partners:

Within GM to provide products for the range of price points required:
In the marketplace for manufacturing
For component supply
In the market for vehicle distribution and repair
With the right philosophy with customers

The same challenge faces every automaker, but it’s a lot tougher than in the West. Lacey pointed out that in Russia and neighboring European countries, all sales of motor vehicles were through the government until about 20 years ago. China also has a very limited history of capitalism, and India lacks significant infrastructure for cars.

Beyond setting up supply chains in numerous locations, the other challenge of globalization is having a global portfolio of products. Derrick Kuzak, Ford’s group vice president for global product development, described how this has prompted Ford (and probably many other automakers as well) to move in the direction of fewer platforms that support a wide range of vehicles worldwide. (He said Ford will reduce its number of global vehicle platforms by 40 percent by 2012.)

This requires a lean approach, something recognized by Ford CEO Alan Mulally. According to The New York Times,

“The real work at Ford going forward is that we continually integrate the four companies around the world,” he said in an interview.

Mr. Mulally is modeling his “One Ford” idea on his former employer, Boeing, as well as on Toyota’s vaunted product-development system. A self-proclaimed admirer of Toyota, Mr. Mulally said the company could cut costs further by copying the Japanese automaker’s strategy of building differently styled vehicles on similar basic chassis structures.

“Toyota grew up as a global company,” he said. “They tailored their vehicles for unique regions of the world, but the fundamental platforms are the same.”

Ford, of course, is trying to achieve the same thing every other automaker is trying to achieve. The winners in this game of hardball will be those who move the fastest, are the most disciplined, and who most successfully embrace and implement lean strategies.

The race is on.