Much has been written about globalization in the auto industry. Whether it be related to an OEM, platform, nameplate or supplier, it is clear that all aspects of our industry are globalizing at different speeds. Globalization, in whatever form, can be daunting for many. It is the threat of the unknown.
Given the discussions of global OEMs, reduced supplier counts around the world as the supply base rationalizes, and even global marketing via the internet, some context is required as we navigate forward.
What is a global OEM? Simply put, in our book this is one which is active in most major sales markets and has production capacity in many (not all) of these. It is also designing vehicles with global markets in mind and has the build flexibility to deliver left- and right-hand drive with the proper homologation for specific markets. For many OEMs, this is old news.
Developing global platforms has been another issue. The trick has been to use common platforms or architectures to increase scale economies, reduce development costs per vehicle and offer greater speed to market. Execution has always been the issue. Finding the right mix of global commonality with regional flexibility to customize vehicles for local tastes, costs and content.
Over the years, OEMs have improved their execution in this respect. The early ‘80s Ford Escort was known as the “world car” though it shared little more than a name between the U.S. and Western Europe. The vast majority of components, dimensions and build process were different in most respects. Taken to the other extreme, the mid-‘90s Ford Contour and Mondeo likely shared too much—not optimizing the vehicle for either the U.S. or European markets. Though both examples are from Ford, General Motors and others are equally culpable in past decades. These are important lessons for all. The modern global platform has the flexibility to modify dimensions (with some restrictions), performance characteristics, content, and styling while commonizing major systems beneath the skin. This is a precarious balance which differs between OEMs, vehicle segments and price points.
Vehicle sourcing has also undergone a global renaissance. Looking back 50 years, we witnessed a regionally rationalized production structure where vehicles made by Europeans stayed in Europe and the same for vehicles made in North America. In the ‘70s, the advent of the global nameplate started; prime examples are exports from Japan or Germany of vehicles with minor changes other than drive format, powertrain fitment and turn signal lighting. The bulk of the industry was still regional, though global vehicle sourcing had started in both mass market and luxury segments.
Today, global nameplates from global OEMs dominate the industry. Corolla, Civic, C-Class and Town & Country are all nameplates that travel beyond their home territories. Global sourcing is now increasingly regional though. The advent of global platforms has enabled enhanced economies of scale, the ability to speed new vehicles to market, and the ability to integrate truly regional vehicle sourcing. The vast majority of high-volume offerings are now regionally sourced. According to IHS, 19% of global light vehicle production was shipped between regions as recently as 2008. This has declined to close to 15% today as OEMs seek lower currency volatility. What’s more, because of reduced shipping costs they can more flexibly build offerings from new facilities in China, Southeast Asia, North America, and Eastern Europe. Sourcing has moved from being predominantly regional toward global when Volkswagen then the Japanese and eventually Korean OEMs gained share with global sourcing to today when we again are regionally focused.
Understanding these sourcing shifts are critical. Regional sourcing has been enabled by global platforms and global nameplates and global suppliers. This last trend, the global supplier is driving down cost, lowering development times and increasing flexibility. While it does not mean that every component on today’s offerings is sourced from a global supplier, those suppliers without the means to follow their customers abroad now either lose the business or need to find partners and affiliations to ensure they support output outside the home region.
Today, we have global OEMs building global nameplates from global platforms with the majority of core components and systems emanating from global suppliers. Only the production sourcing structure has gone full circle from regional toward global and back to regional. The meaning of globalization has a different meaning, depending upon your place in the value chain.
Michael Robinet has been a managing director of IHS Automotive since 2011. Prior to that, he was the director of Global Production Forecasts for IHS Automotive. His areas of expertise include global vehicle production and capacity forecasting, future product program intelligence, platform consolidation and globalization trends, trade flow/sourcing strategies, and OEM footprint/logistics trends.