Tag: global auto production

OM in the News: Large-Scale Castings Revolutionize EV Auto Production

As we discuss in Chapter 5, Design of Goods and Services, product strategy options support competitive advantage. Tesla does exactly that (see page 162) with an new huge casting system. Conventional construction of modern vehicles involves the assembly of numerous sections of stamped sheet metal that are joined together by welding, rivets, and epoxy to form the chassis structure of the car’s platform, reports Design News (Aug. 3, 2022).

One of Tesla’s 8 Giga Presses

New cars like the Tesla Model 3, Maserati SUV, and Volvo EV depart from convention by building the cars atop just a few very large, very complex aluminum alloy castings. These bolt together to form the entire chassis, with front, center, and rear sections that replace, in Tesla’s case, 370 discrete parts that would need to be joined together to form the car’s chassis.

The industry forecasts that the global market for all types of die casting will total more than $100 billion by 2026, from $76 billion this year. Demand for passenger cars and light commercial vehicles across the globe, more so importantly in developing markets, will especially drive robust demand for use of cast products for a range of automobile parts and components in the coming years. The market is also expected to benefit immensely from the shift towards aluminum over steel and iron products among automakers.

There are manufacturing benefits too. There is better modeling of performance and a simplified supply chain. There is just one piece for that whole weld assembly from a single source as opposed to numerous components, fastener nuts, and rivets coming from different places. Manufacturers can go to a single supplier from dozens–and a lot of those parts may have come from overseas.

Tesla explains the process in an 11 minute video that you may wish to share with your class: “Molten aluminum is forced into a high-pressure mold. It solidifies as it cools and is then dipped in water to speed up the cooling process. After some laser cutting and quality checks, the parts produced using this process will eventually become part of the floor structure in our new electric model range. This process significantly reduces the number of parts produced and allows for greater design and production flexibility.”

Classroom discussion questions:

  1. How is Tesla achieving competitive advantage?
  2. Why is this a supply chain issue?

OM in the News: VW Rethinks Globalization

VW halts EV production in Germany as Ukraine crisis hits supplies

For years, Volkswagen thrived as a global company, building its cars all around the world. We illustrate the magnitude of this approach in Figure 8.4 (see page 350 in your text). But as war, health scares and trade disputes roll back decades of globalization, the firm is changing its manufacturing approaches to adapt. VW’s goal now, writes The Wall Street Journal (March 28, 2022), is to shore up access to components and raw materials and to shorten supply chains to make its regional businesses less dependent on faraway suppliers.

Without the vast home market of its U.S. competitors, VW long ago bet on international markets for growth. As the world’s second-largest car maker, VW benefited like few other companies from decades of post-Cold War detente, falling import tariffs and JIT supply chains. But can such a global business endure as supply chains are strained by the pandemic, the semiconductor shortage, rising raw-materials prices and new geopolitical fractures?

When Covid-19 shut China down at the beginning of 2020, components built there were suddenly missing from supply chains and VW’s factories in China and Europe stood idle. By the end of the year, VW produced 18% fewer vehicles than the year before. Then came the next crisis, with the world’s supply of semiconductors drying up, VW slashed production at its global factories in 2021, just as the industry was rebounding from pandemic lockdowns. VW production fell another 7% by the end of 2021.

Even isolated incidents have highlighted the fragility of a business woven across borders. A few months ago, a fire on a cargo ship destroyed nearly 4,000 of VW’s most expensive cars including Porsche, Bentley and Lamborghini on their way to the U.S. In February, when Russia invaded Ukraine, VW found itself without Ukrainian wiring harnesses, forcing it to halt production of electric vehicles at VW, Audi and Porsche, and stop production at its biggest German factory.

Ukraine and Covid production stoppages exposed how VW could no longer focus solely on obtaining the cheapest parts, however remote or scattered their producers. Now, VW is making the uninterrupted delivery of parts a priority over competitive pricing, and looking at dual sourcing of components, a practice that the industry gave up years ago in favor of single sourcing components and JIT delivery.

Classroom discussion questions:

  1. What OM lessons has VW learned from the chip and wire harness shortage?
  2. Why will VW invest over $7 billion in the U.S. in the next 5 years?

OM in the News: The Chip Crisis Finally Hits Toyota

Toyota’s Motomachi plant is one of the factories with suspended production.

The global semiconductor shortage has finally started to bite at Toyota, highlighting how a resurgence in Covid-19 infections from the Delta variant is now stifling chip manufacturing in Southeast Asia, worsening a parts crisis for car companies.

Japan’s largest car maker said Thursday it was cutting production in the country by 40% because of a shortage of semiconductors, highlighting how the scarcity is hitting even the best-prepared companies. In North America, Toyota is reducing factory output by between 40% and 60%. In total the cost will be 140,000-170,000 fewer vehicles manufactured. Toyota had recently touted its ability to insulate itself from the global shortages that burned its peers thanks to stockpiles of components and close relationships with suppliers.

Ford and GM also are scheduling more downtime at North American factories, in part because virus-related restrictions overseas are further adding to chip-supply constraints. Ford this year has lost output of more than 160,000 F-150 trucks, its top-selling vehicle and main profit driver. GM expects to make 100,000 fewer vehicles in North America in the second half of this year.

For much of this year, the chip-shortage challenges in the auto industry have largely stemmed from car companies miscalculating how quickly auto sales would bounce back and not ordering enough semiconductors, writes The Wall Street Journal (Aug. 20, 2021). Now, the auto industry is confronting a new wrinkle with a resurgence in Covid-19 infections in Southeast Asia, particularly in Malaysia, denting output at computer-chip factories that are already straining to fill orders. This region is where semiconductors are assembled into small components that control everything from engines to headlights.

The shortage has had a silver lining for Toyota and other car companies because the dearth of cars on dealer lots has pushed up prices.

Classroom discussion questions:

  1. What techniques shown in Supp. 7 of your Heizer/Render/Munson text are available for matching capacity to demand?
  2. What is the cause of the global chip shortage, and what is the solution?

OM in the News: Tesla Attacks Germany’s Auto Establishment

It’s Tesla’s first entry to European production, having selected a site that will churn out as many as 500,000 cars a year, employ 12,000 people and pose a serious challenge to Volkswagen, Daimler, and BMW, reports Industry Week (Jan. 20, 2020). The frantic activity underway to quickly set up Tesla’s latest assembly plant is a daring attack on the German auto establishment.

The project represents a second chance for the quiet town of Gruenheide, just southeast of Berlin. Gruenheide lost out on a similar factory two decades ago, when BMW opted for Leipzig. That missed opportunity helped town officials to move quickly when Tesla expressed interest in entering Europe, with a plot set aside for industrial use and offering easy access to the Autobahn and rail lines. “The investment is a unique opportunity,” said the mayor. “It gives young people with a good education or a university degree the possibility to stay in our region.”

The plant will make batteries, powertrains and vehicles, including the Model Y crossover, the Model 3 sedan and any future cars. The factory will include a pressing plant, paint shop and seat manufacturing in a building that will be 2,440 feet long—nearly triple the length of the Titanic. There’s space for four such facilities.

Tesla is taking its fight for the future of transport into the heartland of the combustion engine, where the established players long laughed off Tesla as a feeble upstart  that couldn’t compete with their rich engineering heritage.  “No other foreign carmaker has done that in decades given Germany’s high wages, powerful unions and high taxes.” said an industry analyst. Building a factory in Europe’s largest car market is a major test of Tesla’s global ambitions, a place where buyers are loyal to local brands. Meanwhile, labor costs in Germany’s auto sector are 50% higher than in the U.S. and five times what they are in Poland, just an hour’s drive away from Gruenheide.

For Gruenheide, the planned investment has suddenly transformed the town of 8,700 people into a sought-after location.

Classroom discussion questions:

  1. Why did Tesla select  this European site?
  2.  What is your SWOT analysis of this location decision? (See Chapter 2 in your Heizer/Render/Munson text)

OM in the News: The Ford-VW Electric Car Alliance

(From L-R) Jim Hackett, Ford CEO, Bryan Salesky CEO of Argo AI, and Herbert Diess, VW CEO.

As we discuss in Chapter 5 (see the Product Development Continuum and Figure 5.6), alliances are often appropriate for exploiting opportunities where substantial resources and risk are involved. We now see Ford and VW investing in Argo AI to pursue the market for electric and self-driving cars.

Unprecedented shifts facing the auto industry are forcing players to consider new partnerships and potential consolidation, writes Industry Week (July 12, 2019). VW, the world’s top automaker, offers the industry’s most ambitious roll-out of electric models, while Ford, also in the top 10, is developing advanced self-driving technology with Argo. For VW, the Argo investment offers an opportunity to potentially catch up with Alphabet’s Waymo, and GM’s Cruise unit. Road tests and accumulating huge amounts of data are critical for the further development of self-driving cars, and few apart from Waymo are equipped to do it alone.

Besides sharing costs for the development of self-driving cars, Ford will use VW’s electric-car underpinnings that form to backbone of the most aggressive rollout of electric cars in the industry, with VW spending $34 billion. Adding more vehicles to production lines would help gain scale and save costs, and offer Ford a platform to better comply with tougher rules on carbon-dioxide emissions in Europe. Ford will build at least one mass-market battery car in Europe starting in 2023 and deliver more than 600,000 European vehicles based on VW’s platform, dubbed MEB, over 6 years.

“Our global alliance is beginning to demonstrate even greater promise , and we are continuing to look at other areas on which we might collaborate,” said VW’s CEO.

Classroom discussion questions:

  1. Define an alliance.
  2. What are the advantages and disadvantages of an alliance such as one described above?

OM in the News: Toyota’s New “Quiet” Plant in Kentucky

Lexus
Lexus’ “quiet” plant in Kentucky

Last month, a switch was flipped at a sprawling auto factory in Georgetown, Ky., and with it, Toyota started building Lexus cars in the U.S. for the first time.  Adding the 50,000 Lexus ES 350 models to be produced each year will transform the Kentucky plant into the largest Toyota factory in the world. That Toyota will have its largest factory in the American South is only the latest example of a building boom here by foreign automakers, writes The New York Times (Nov. 13, 2015).

Domestic automakers, by contrast, have resisted building new plants here. They have taken steps like adding shifts and hiring more workers at existing American plants, but building new ones is the purview of foreign automakers like Mercedes, Toyota, and VW, that are taking advantage of the lower shipping and trade costs, currency stability and largely nonunion work force that American factories provide.

Getting the new Lexus production line ready meant an expansion of machinery to create an almost completely separate operation from the rest of the Toyota factory. It also meant training workers in the Lexus quality control methods, which require tighter tolerances for fitting parts compared with regular Toyotas and more meticulous painting. The 750 new workers spent a total of 1.5 million hours training. Some even traveled to Japan to train with Lexus workers at plants there.
Then there is the noise at the plant — or lack of it. The quest has been to create what was unimaginable not too long ago: a largely noiseless, hushed atmosphere to house the new assembly line. “We want our team members to be able to hear a click,” says Lexus. “It is not just enough for a worker to see a potential problem; the worker should be able to hear it, too.”
Classroom discussion questions:
1. Why a quiet plant?
2. Why is Lexus manufacturing in the U.S.?

 

OM in the News: Mexico’s Auto Assembly Lines Surge Ahead

assembly linesWhen Audi decided to move global production of its Q5 SUV to North America, the prize went to Mexico. Audi now is finishing a $1.3 billion factory in a small town called San Jose Chiapa. Mexico’s low wages and improved logistics were part of the draw. But for Audi, which plans to ship the factory’s output all over the world, what tipped the scales was Mexico’s unrivaled trade relationships. The Audi deal shows that Mexico’s 40 different free-trade pacts give it allure in the global car market, threatening the American South’s industrial renewal.

Seven Asian and European auto makers have just opened, or will open shortly, new Mexican assembly plants, reports The Wall Street Journal (March 18, 2015). Others have made significant expansions in Mexico, among them Nissan, GM, Ford and Fiat Chrysler. This month, VW said it would spend $1 billion expanding a Mexican plant to build a small SUV for the U.S. and foreign markets. All told, auto makers and parts suppliers have earmarked more than $20 billion of new investments. The wave of investment has turned Mexico into the world’s 7th-largest producer of cars—it passed Brazil last year—and the 4th-largest exporter after Germany, Japan and South Korea. Mexico’s current production of 3.2 million cars and trucks will rise more than 50% to 5 million by 2018. It has been more than six years since an auto maker picked the U.S. South for a “greenfield” plant, meaning one where the company didn’t already have facilities. Such projects have all gone to Mexico lately.

Audi is taking some unusual steps to control its risk. First, to ensure quality, the company created a consultancy that fanned out to 160 parts suppliers in Mexico, encouraging some to change plant design or improve weak production processes. The company created an inventory of local sources for every part and for all raw materials used in the Q5, and has required suppliers to source from its list. And Audi now is training 600 people from Mexico at its headquarters in Germany. Visiting on 18-month stints, the Mexicans train on Audi systems and are indoctrinated with the company’s intense focus on quality.

There is an excellent 3 minute video linked to the WSJ article.

Classroom discussion questions:

1. Why are automakers heading to Mexico?

2. What can the U.S. do to entice manufacturers?

OM in the News: America’s Car Capital Will Soon Be… Mexico

 

By 2020, Nissan plans to produce a million cars a year in Mexico
By 2020, Nissan plans to produce a million cars a year in Mexico

“Seemingly overnight,” writes Forbes (Sept. 8, 2014), “Mexico’s automotive output has soared, bolstered by a flood of investment from foreign-based carmakers, including Nissan, Honda, VW and Mazda.” With $19 billion in new investment, production has doubled in the past 5 years to an estimated 3.2 million vehicles. The reason is simple: Mexico has some of the most liberal free trade arrangements in the world. It has agreements with 44 countries, making it an ideal export base for automakers from Europe, China, Japan and America. (The U.S. has agreements with only 20 countries.) The result: 80% of the cars built in Mexico are exported to other countries..

In recent weeks Infiniti, Mercedes and BMW have all detailed plans to build cars in Mexico, with Hyundai-Kia just around the corner. Audi is midway through construction of a $1.3 billion factory that will build luxury SUVs starting in 2016. Currently the world’s 8th-largest auto producer, Mexico is on pace to surpass Brazil this year. By 2020 Mexico should behind only China, the U.S., Japan, India and Germany, with an annual production of 4.7 million vehicles. Automakers like the young (average age: 24) and comparatively cheap (about $40 per day) Mexican workforce. But there are plenty of other reasons. European carmakers say Mexico’s dollar-dominated currency gives them a natural hedge against fluctuating exchange rates.

Nissan has led the way with its massive new 21-million-square-foot factory. It took just 19 months for the $2 billion plant, one of the largest industrial investments ever made in Mexico, to get up and running, a record for Nissan. Production of the Sentra began last November and was quickly ramped up to full capacity of 175,000 vehicles a year, operating 23 hours a day, 6 days a week. Some 3,000 jobs were created, and another 9,000 at supplier companies. The boom in Mexican production is already rattling the North American auto industry. Today 40% of all auto-sector jobs are in Mexico, up from 27% in 2000. Canada and the Midwest have taken the brunt of the job losses.

Classroom discussion questions:
1. Why Mexico?

2. What are the supply chain implications?

OM in the News: Ford’s Epic Gamble on Aluminum

Alcoa's Iowa plant has expanded to meet the growing need for aluminum in the auto industry
Alcoa’s Iowa plant has expanded to meet the growing need for aluminum in the auto industry

Ford has a long-term plan to unify its global manufacturing, writes Fortune (July 24, 2014). But profits depend largely on a beefy truck that is sold only in N. America and will never find a market in Asia or Europe. Not that it needs to. The F-series has outsold every other car and truck in the U.S. for 3 decades, with some 33 million out the door. So when Ford decided in 2009 to fundamentally change the product it advertises as “Built Ford tough” by making it with a lightweight aluminum body, it was messing with a uniquely valuable franchise. Ford figured the change could reduce the weight of the F-series by 700 pounds, significantly improving its fuel economy (US standards require a fleetwide average of 54.5 mpg by 2025).

But aluminum is more expensive than steel, more complicated to assemble, and more difficult to repair. The changeover from steel would mean alterations to nearly every phase of the business. Aluminum can’t be easily welded and must be riveted and bonded with adhesives. New suppliers would have to be found and validated, plants refitted, production techniques changed, repair technicians hired and trained. Importantly, the changeover to the 2015 models would have to be extended, slowing production and denting profits. “It will be magic or tragic,” says the CEO of AutoNation.

Adds Ford’s CEO, “We had three alternatives: make incremental changes to the existing truck, add more aluminum parts, or make it all aluminum.” Ford created 4 work teams to investigate what it saw as the big unknowns surrounding aluminum: availability, manufacturability, serviceability, and likability. At the Dearborn Truck Plant, one of 2 plants where the F-150 will be built, the company is spending hundreds of millions of dollars to build and install new stamping presses and dies to produce the aluminum panels and replace today’s spot welders with rivet guns, advanced welders, and adhesive machinery in the body shop. With both plants currently producing the 2014 F-150, they will have to be taken down one at a time for a total of 13 weeks for refitting, depriving Ford of $2 billion in revenue.

Classroom discussion questions:

1. How is Ford’s production process changing?

2. What are the risks the company faces?