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Economies of scale for one thing. Material cost is the biggest variable expense when it comes to building vehicles, by far. When you can scale-up your parts purchases your per unit costs can drop substantially if you are sharing components on multiple vehicles. (Not to mention avoiding up-front tooling costs.)
In addition, R&D projects can be shared amongst all brands so instead of FCA and PSA each having a separate team working on electric vehicles, you only need one team doing it. Half the cost....
When you get the cost down then you either make more money or it allows you to increase the quality of the component you are buying. So the end result is a better product and/or healthier corporation that has more money to invest in future programs/product upgrades.
They should find out how to make a muffler, the latest Jeeps and Chrysler products are the loudest mass produced vehicles in the country. I have no idea how they get past the Federal Motor Vehicle Standards.
The drivers love them and manage to leave stop signs at full throttle with no regard to others around them who may not enjoy the noise.
Economies of scale for one thing. Material cost is the biggest variable expense when it comes to building vehicles, by far. When you can scale-up your parts purchases your per unit costs can drop substantially if you are sharing components on multiple vehicles. (Not to mention avoiding up-front tooling costs.).
Once you get to a couple hundred thousand vehicles, additional volume really doesn't do that much. Component-sharing is much hyped among MBAs who haven't actually designed or manufactured products, but it rarely yields the benefits everyone thinks it will.
Quote:
Originally Posted by iamweasel
In addition, R&D projects can be shared amongst all brands so instead of FCA and PSA each having a separate team working on electric vehicles, you only need one team doing it. Half the cost....
That works even less well than common components. Trying to force your new subsystem to meet multiple competing vehicles' demands is a good way to make something like the elephant designed by committee, but it's not going to work all that well for any of the internal customers that spend all their time putting their oar into the water.
Quote:
Originally Posted by iamweasel
When you get the cost down then you either make more money or it allows you to increase the quality of the component you are buying. So the end result is a better product and/or healthier corporation that has more money to invest in future programs/product upgrades.
I think the real benefit of giant corporations - to the corporations - is the way they have more resources available to engage in the operations of finance. The finance and investment arms of many conglomerates end up making more than the production arms. Giant over-developed tails wagging withered vestigial dogs.
Once you get to a couple hundred thousand vehicles, additional volume really doesn't do that much. Component-sharing is much hyped among MBAs who haven't actually designed or manufactured products, but it rarely yields the benefits everyone thinks it will.
Well I happen to be one of those MBA's who has worked in product development for the #1 selling vehicle in the country, and if you think the economies of scale stop after a couple hundred thousand vehicles then I would strongly disagree with you on that.
I'll give you one example I worked on: Front Seat Structures. (Essentially the metal framing of the seats, not the fabric, cushioning, stitching, etc.)
My F-150 program was the lead on the new corporate seat structure. On the driver seat alone we had about 20 different seat frames / mounting dimensions being used in the company at the time. (Each one requiring different tooling.) The plan was to reduce it to 3 different versions that the entire company could use. (Essentially small, medium and large. We took the lead on the large version.)
All new product programs in the pipeline had to design their floor plan to accommodate one of these 3 seat structures. On average this dropped our variable cost of seat structures by about 20%. This was primarily due to reduced tooling costs amortized into the piece cost and increased volumes of the 3 part #'s we were left with.
When you sign supplier contracts often times there is a sliding pricing scale based on volume, and on the seat structures there were about 10 different pricing/volume tiers all the way up to 5 million parts. You buy between X & Y, you pay Z, buy between A & B, you pay C, etc.
So back to FCA, if they start sharing components across FCA and PSA instead of each doing their own thing then yeah, I think they can save some money for the new combined company if they do it right. This is why everyone is doing platform sharing across the industry. The visible exterior and interiors may have unique parts to differentiate platform mates, but common chassis/powertrains can help trim the cost down.
Last edited by iamweasel; 07-17-2020 at 02:31 PM..
Reason: *
OK, so you had an example of where it appeared to work. Even in those cases, the ancillary costs are rarely considered. How many of the other vehicle platforms had to add cost elsewhere to make your design work? How many programs had to be delayed in launch in order to incorporate your new universal seat design, and how much did those launch delays cost? What was the opportunity cost of having engineers and purchasing agents working on this initiative rather than other ones?
My point is that almost always after a giant merger, the resulting enormous company performs worse than the two companies did before the merger - and if they're both sick companies to start, instead of two large sick companies you end up with one giant very sick company.
OK, so you had an example of where it appeared to work. Even in those cases, the ancillary costs are rarely considered. How many of the other vehicle platforms had to add cost elsewhere to make your design work? How many programs had to be delayed in launch in order to incorporate your new universal seat design, and how much did those launch delays cost? What was the opportunity cost of having engineers and purchasing agents working on this initiative rather than other ones?
My point is that almost always after a giant merger, the resulting enormous company performs worse than the two companies did before the merger - and if they're both sick companies to start, instead of two large sick companies you end up with one giant very sick company.
If you do it right, there are no added incremental costs elsewhere. If you mandate every program uses a new widget immediately, then yeah, there will be wasted costs by retrofitting existing platforms to incorporate the new widget into the existing design.
But normally you wait to implement the new widget into subsequent vehicles only in years when a major redesign is being done. At that point, like the seat structure example, they are redesigning the floor pan, anyway, so they can set up the proper mounting points from the beginning and not retrofit anything.
With the seat structure example, at Ford the F150 and Expedition were first, then the year after it went into Mustang, Explorer and Flex, then a year after that it goes into a few more vehicles, and 5-7 years later all vehicles now have one of the 3 seat structures in them.
I don’t disagree with you on the general premise that many mergers end up failing, though, but lots of times that’s due to management incompetence outweighing economies of scale benefits.
Once you get to a couple hundred thousand vehicles, additional volume really doesn't do that much. Component-sharing is much hyped among MBAs who haven't actually designed or manufactured products, but it rarely yields the benefits everyone thinks it will.
That works even less well than common components. Trying to force your new subsystem to meet multiple competing vehicles' demands is a good way to make something like the elephant designed by committee, but it's not going to work all that well for any of the internal customers that spend all their time putting their oar into the water.
I think the real benefit of giant corporations - to the corporations - is the way they have more resources available to engage in the operations of finance. The finance and investment arms of many conglomerates end up making more than the production arms. Giant over-developed tails wagging withered vestigial dogs.
I think one of the key ways that "bigger is better" is that Company A, with twice the sales and profits of Company B, can devote twice as many dollars to developing the next generation of products with the same percentage of their gross sales or profits. This was one of the reasons cited when Case and New Holland merged in the late 90's, so they could better compete against market leader John Deere, especially when emerging technologies were being developed and adopted (GPS planting and harvesting, robotics, self-driving equipment, tighter diesel engine emission compliance, etc.).
One of the big problems facing large corporations that merge, is that they end up with too much manufacturing capacity, redundant service organizations, older facilities, diluted brand heritage, and a company that ends up being a "hodgepodge" of facilities and people that would look nothing like what a "startup" would do. They not only double their advantages, they also double their problems, and like the Nissan and Renault merger, the weaker company becomes a drag on the healthier one - Nissan's CVT issues happened AFTER the merger with Renault, didn't they?. Even if not, Nissan (Datsun) used to have a good reputation for quality, not so much today.
Often, the CEO's will unleash a whole Dilbert-book of terms like "leveraging synergies while optimizing manufacturing footprints and rationalizing supplier bases", but often it's simply throwing scat at the wall hoping it will stick; two drowning men hoping that grabbing onto the other will help them make it to shore. Remember the old (unpublished) CEO adage, "When in doubt, reorganize". In this particular case, I guess that time will tell. But my guess is that Toyota didn't rush to have a management strategy meeting when it heard the news.
Stellantis. That is one of the stupidest sounding names I've ever heard.
And the A in the logo is an upside down V. Come on, I thought upside down V's went out of style after the 80's.
It sounds stupid in English, but maybe it didn’t in the their languages? Of course, they should have had people who could tell them that involved in the discussion.
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