Hardly a day goes by when an American automaker isn’t making an announcement that negatively impacts either the consumer or the workforce. Today was different. I would like to thank LeftLane News for bringing to focus a story about Ford, GM, and Chrysler. All three operations have seen what has historically been their respective worst years ever so far this decade. While decade isn’t over yet, it looks like they have “survived” the worst of it. But when we analyse the causes of this downfall of the Big 3, one place to look as at production.

Specifically, let’s look at the options list for the 2007 Ford Focus. According to Ford, the venerable Focus line had an astounding – wait for it – 100,000 different options combinations. 80% of sales came from just 4,000 or 4% of the available combinations. That means that 20% of sales required an extra retooling of 96,000 combinations. Talk about a money suck. And the problem got twice as bad when you went to the dealer because if you were a consumer smart enough to know what you wanted, you had the devil’s own job of getting exactly the car you wanted. That meant that Ford was forced to slash prices on vehicles sitting on the lot for not weeks, but MONTHS! The logistical headaches were more than enough reason for Ford to rethink how it produced and marketed its automobiles.

Fortunately, when CEO Alan Mullaly came aboard from Boeing he brought with him a wealth of knowledge in the area of process simplification. It wasn’t so long ago that Boeing has similar problems in product and profitability – they doing quite well today. Long story short if you look at the Ford as an entry-level car, as you should, and recognize that 100,000 options combinations for such a car is way too many, and then you multiply that by the 17 model lines that Ford offers in the USA alone, you come up with 1,700,000 different build combinations. This number isn’t exact as the number of possible combinations varies based on the model.

The cost cutting is also occurring at Chrysler, where Yahoo.com claims that the possible vehicle combinations has decreased by 93% over the last two years.

We haven’t been able to estimate the monetary impact of these changes, but it could very well have a significant bottom-line impact at struggling wide-market automakers like the Big 3.

The problem doesn’t stop at the US border, however. Most of not all auto manufacturers can benefit from being able to spot current buying trends and then reducing the number of options available to consumers to drive down costs.

Peugeot is an excellent example of an automaker that has really struggled with profitability and growth in recent years. Peugeot currently has 18 different car and van models. One of their more popular models is the 207, which comes in three varieties, the 3-door hatch, the 5-door hatch, and the CC – a convertible. As an example we will examine the 5-door hatchback, which then offers 6 basic “trim” combinations. Once you select which trim you want, you have 6 different engine combinations. Thankfully, there are only *11* colour combinations for the EXTERIOR, and 4 options for the interior fabrics. Then you have 16 different options packages, which really isn’t that many, even for an entry level car.

That means the 207 can come in a whopping 76,032 different options direct from the dealer! What ever happened to Henry Ford’s principle of mono-coloured cars? The easiest way of dealing with this of course is reducing the number of engine options, the number of colour options, and crucially the number of extra feature options, e.g. heated seats and either eliminating them because consumers don’t want them, or if they do, making them standard.

Standardization SAVES MONEY! A key principle in business. If all Peugeot models had the same number of options, and they don’t, then the 18 model types could mean that Peugeot is trying to produce 1,368,576 combinations of the same crappy car. That means there should only be a couple of examples of each car combination. Plenty to satisfy the buying public surely! WRONG! Automakers must run exhaustive analyses of their buyers spending habits. Doing so will save them money and save them from bankruptcy.

Editors note: Beyond the KM will be bringing you a follow-up story in the summer related to the way that high-end automakers approach option choices. Stay tuned and visit regularly!

Sources:
http://www.leftlanenews.com/automakers-to-drastically-reduce-possible-vehicle-combinations.html
Ford Motor Company
Peugeot

This entry was posted on Monday, March 31st, 2008 at 9:24 pm and is filed under Focus, Ford, Manufacturing, Peugeot. You can follow any responses to this entry through the RSS 2.0 feed. This post was read by 523 people until now. You can leave a response, or trackback from your own site.