In 1911, six radically different versions of the Model T, ranging from a 2-seat coupe to a 6-seat Town Car, were rolling out of Henry’s Highland Park, MI, assembly plant.
While they shared the same paint color – black – remarkably, the company was building vehicles for six different market segments on a single platform in one facility.
Today, just 20 miles (12 km) from the defunct Highland Park facility,is firing up its former Michigan Truck Assembly plant in the city of Wayne, MI, where multiple configurations of the new Focus C-car, including electric and hybrid versions, will begin rolling off the line together.
They soon will be joined by the new C-Max cross/utility vehicle in what has become one of Ford’s most versatile factories.
In the intervening century since the Model T, Ford,and all largely have addressed the demands of a rapidly growing market by adding capacity to plants once dedicated to building large volumes of a single model.
Flexible production – the ability to shift output between products on a single assembly line – has distinct advantages over the 1-vehicle-per-plant model. It allows OEMs to better utilize capacity, adjust inventory to match current demand and avoid overproduction or unnecessary downtime.
Japanese auto makers introduced flexibility to North America in the 1980s. The first transplants could build a variety of vehicles, allowing the newcomers to compete in multiple segments despite working with fewer plants and less capacity than the Detroit Three.
If this new manufacturing strategy tolled a warning bell, it went unheeded as the domestic industry carried its mid-century manufacturing methods into the 21st century.
But unprecedented changes among the Detroit auto makers and their markets today are aligning to make flexible production not just an attractive idea but an imperative for OEMs fighting to prosper in the re-emerging, reconfigured North American auto industry.
In the days of enormous production capacity and virtually assured market shares, GM, Ford andcould leverage economies of scale with straightforward production schedules.
Output was controlled by adjusting line rates or altering downtime and overtime hours, and excess inventory was reduced by routine incentive spending that moved less desirable vehicles through the dealerships. What was lost on the margins was made up in volume.
But as Detroit began to bleed market share in the face of leaner, nimbler competition, that manufacturing model became less tenable. In 2000, with more than 14.4 million units of production capacity, Chrysler, Ford and GM sold 12.7 million domestically sourced light vehicles in North America.
In 2005, the region’s second-biggest sales year ever, the three auto makers delivered just 10.7 million vehicles, leaving nearly 35% of their combined capacity unused.
Facing the new reality, the Detroit Three set about right-sizing their operations, closing 25 plants between 2005 and 2010 (while also opening four new ones), reducing overall capacity by more than 3.5 million units.
With less capacity, higher utilization becomes a necessity. But it only makes sense if a facility is versatile enough to match output to changing demand.
With little headroom to increase production at any facility, high utilization requires the ability to shift the build mix quickly or risk leaving unmet demand for popular vehicles and/or building cars no one wants.
With fewer plants and less room to maneuver, Detroit is contending with the same situation that faced the early foreign transplants: How to compete under the constraints of limited capacity.
Also compelling a move to flexible production is the unprecedented confluence of market segments. In 1985, midsize cars made up 40% of all light-vehicle sales, while small cars accounted for 25%. Everything else, including light trucks, divvied up the remaining third of the market.
By the mid 1990s, pickups, vans and SUVs were pulling more than 38% of all LV sales. Midsize cars claimed 27% and the rest of the segments still were splitting a third of the market.
Despite the flip-flop between car and truck shares, the dominance of one or two groups of vehicles was ideal for Detroit’s production strategy. If 40% of sales absolutely was going to be light trucks in a given year, it made sense to devote facilities to cranking out as many as possible, without worrying about a quick mix change at any one plant.
But once North American consumers experienced minivans in the 1980s and SUVs in the 1990s, it brought about a radical change in the market, creating an expectation that passenger vehicles should offer the utility of a light truck along with the comfort and amenities of the traditional car.
The industry’s response was cars that were more truck-like with increased cargo space, hatchbacks and fold-down seats, while trucks strove to offer better handling and car-like interiors.
The twin demands of the marketplace eventually led to the 1995 introduction of the cross/utility vehicle, a segment specifically designed to bridge the ever-shrinking gap between car and truck.
The result is a market where every vehicle is in direct competition with nearly every other vehicle in the showroom. In this new environment, no one segment dominates.
In 2010, CUVs, traditional light trucks and midsize cars each accounted for 20%-24% of U.S. sales, while small cars grabbed roughly 18% of the market. The rest of the industry, including large cars, luxury cars and the re-emerging minivan, represented 14% of sales.
Today’s family-car buyer potentially is in the market for everything from a hybrid hatchback to a large CUV, and the final choice may not be made until the consumer is sitting down at the dealership.
In this environment, product, not segment, is king – and could throw the best-laid production plans into disarray. In the context of such a fluid, unpredictable market, rigid production schedules can be disastrous.
Preparing for Alternate Realities
Perhaps the biggest force pushing flexible production to the forefront is the uncertainty surrounding energy consumption and emerging alternative-powertrain technologies.
Increasing concerns about the environmental and political consequences of oil dependence have sparked technological advances in alternative power sources and stirred the call for government action to curb energy use, particularly within the automotive sector.
Yet, as the clamor for fuel-efficient vehicles rises, large and midsize vehicles remain popular and profitable, while hybrids and other alternative-power vehicles currently account for less than 3% of monthly U.S. LV sales.
Even if new technology eventually supplants gasoline engines, it’s unclear which one will prevail. An OEM would be prudent to have an egg in every basket, while preparing to change production to any number of high-efficiency vehicles at a moment’s notice.
Two dramatic swings in consumer demand in the past three years illustrate the dangers of rigid production in an increasingly volatile energy market.
Gas prices unexpectedly rose throughout the spring and summer of 2008, peaking at more than $4 a gallon in August. Between fourth-quarter 2007 and second-quarter 2008, the SUV share of U.S. LV sales plummeted from 12.8% to its lowest level in 16 years at 7.8%.
During the same period, small-car share rose more than 50%, from 14.9% to 22.6%.
The rapid shift left auto makers, especially the Detroit Three, reliant on high truck volumes while scrambling to bring smaller vehicles to market. Even companies such as, which had plenty of smaller cars on hand, found themselves struggling to pair those vehicles with smaller engines.
The dearth of available fuel-efficient vehicles, coupled with the ensuing collapse of the credit market in the fall, contributed to a 3.5% drop in annual share for the Detroit auto makers, the largest year-to-year loss for the U.S. domestics ever.
SUVs, reeling from a heightened image as of being impractical and inefficient vehicles, never regained their pre-spike share, even as gas prices fell rapidly in the fall of 2008.
The prospect of a more radical shift in demand that could accompany a prolonged increase in gas prices looms heavily over car companies, especially those with entire facilities devoted to producing gas-hungry vehicles and nothing else.
Flexibility was tested again in 2009 by the federal government’s “Cash-for-Clunkers” scrappage program, which incentivized sales of fuel-efficient vehicles.
The program paid immediate rewards to auto makers that quickly could build large volumes of smaller, fuel-efficient vehicles. Korean auto makersand Kia enjoyed enormous sales bumps during the program’s 2-month run.
But the overnight rise in demand for smaller vehicles left truck-centric Detroit at a distinct disadvantage, with a post-bankruptcy Chrysler’s share falling to historic lows.
Today, as the government continues to look for ways to shape energy consumption beyond setting higher fleet-fuel standards, any new policy initiatives – from incentives for fuel-efficiency to sanctions on gas guzzlers to higher fuel taxes – have the potential to change the LV landscape in one fell swoop.
The conundrum for auto makers is that moving away from current models means leaving profits on the table, while a failure to be meet potentially explosive demand for more fuel-efficient vehicles tomorrow could decimate their market share.
It’s Not Early, But Not Too Late
The inevitability of a flexible-production model seems to have registered with the Detroit Three.
Under the supervision of, Chrysler’s plants are scheduled to build a wider variety of vehicles in coming years and to leverage the two auto maker’s platforms for multiple markets.
Ford recently introduced to its North America operations three approaches to flexibility. Its Chicago plant can produce four very different vehicles, including the Ford Taurus sedan and Explorer SUV, on a single platform.
Its Louisville, KY, facility is being retooled to make vehicles on multiple different platforms, and the multi-configuration Focus facility in Wayne is a study in current flexible-production technology.
may see the writing on the wall, as well, in light of its struggles to increase builds of its most-popular vehicles beyond the three shifts it’s been forced to implement at some plants, even as other facilities are being underutilized.
But faster, broader action will continue to be warranted as pressures for a flexible industry continue to mount.
Auto makers are preparing for the approaching changes to the U.S. corporate average fuel economy standard with little idea of how the new benchmarks will manifest themselves in the market.
Fuel prices, always susceptible to natural disasters and political upheavals around the world, have risen throughout this year’s first three months and may disrupt market segmentation sooner than later.
Additionally, a single technological breakthrough or large private or public investment in one infrastructure over another could propel one alternative power source to sudden dominance.
Not to mention that the Detroit Three have yet to face the full repercussions of their recent capacity reductions. Plant closures took place as the recession simultaneously trimmed millions of units from the market.
As demand heads back to a forecast level of 16 million LV sales in the next five years, Ford, GM and Chrysler will have to prove, for the first time, that they can succeed not by virtue of their size but by becoming as versatile and flexible as their competition.