Study: Europeans to Dominate Modules

The U.S. pioneered mass production, and the Japanese led “lean,” but a French-German study says European auto makers will come out on top of this new structural change to “modular production.”

“A majority of the deciders in the automobile industry are convinced that a structural change is in (the) course of developing and is going to lead to a complete rethinking of the way in which they work,” says Remi Cornubert, director of the automobile section of Mercer Management Consulting.

According to Mercer, this cooperative future should lower costs by €600 to €1,000 ($742-1,236) per car.

Future Automobile Industry Structure 2015, a joint study by Mercer in France and the Fraunhofer Institute in Germany, suggests that by 2015 suppliers will be responsible for 77% of the value in automobiles, up from 65% today. The OEMs will concentrate on style and differentiating their marques, outsourcing anything that does not contribute to brand identity.

Engineers at OE technical centers already have lost some of their weight inside their companies. Because suppliers are relied on for innovation, power is shifting to the purchasing department, says Cornubert, and good negotiators who can achieve win-win relationships will become more important at the OEs.

Cost reductions from modules should lead to OEMs raising their operating margin from about 5% today to 8%, and the return on capital invested should rise from 10% today to 15%. Currently, only BMW AG and Nissan Motor Co. Ltd. realize such results.