A strategic review of automotive product development practices indicates that the demand to develop more vehicles with less budget will continue well into the next decade.
Automotive Engineering 2010, a research report prepared by Roland Berger Strategy Consultants, predicts that suppliers will be responsible for nearly 60% of the industry’s research and development work by the end of the decade, compared with approximately 40% today.
Wim van Acker, managing director of the consultancy’s automotive practice, said new-model proliferation and product complexity will continue to increase along with pressure to reduce costs and product development lead times.
“Despite the tremendous price pressures on automakers and their suppliers that we’ve seen in recent years, cost-reduction efforts will most likely continue,” he said. “In order to remain competitive, companies must seek innovation and efficiency in the way they currently conduct business.
“The industry is dealing with an unprecedented growth in vehicle models and product features,” he added. Since the 1960s the number of basic vehicle segments has grown from four to more than 15. The industry’s top five manufacturers alone are expected to introduce nearly 160 new models and facelifts in the US market alone from 2003 through 2007.
The number and complexity of new-model features also continue to climb. The electronics content of an average car in the 1970s was less than 10% but is expected to top 40% by 2010.
Regulatory requirements also will have a major impact on product development. Rising fuel economy, safety and environmental standards will put additional pressure on OEM product development.
Despite significant increases in product content and complexity, research and development budgets have remained flat and are expected to remain so in the future. Since 1998, R&D budgets as a percent of sales at five of the industry’s top OEMs have remained virtually unchanged at an average of 4% of sales. At the same time, leading manufacturers have reduced the amount of time required to develop new vehicles from about 36 months in the mid 1990s to 24 months or less today.
Roland Berger partner Mahesh Lunani said that while costs and complexity have risen sharply in recent years, the price of an average vehicle based on the US producer price index of motor vehicles has remained virtually unchanged since 1993.
To remain competitive, Lunani said automakers and their suppliers need to develop global R&D networks; create sustainable commonisation/reuse of parts; focus on electronics and emerging technologies; develop world-class product creation processes using best practices; improve integration with suppliers and increase share of electronic engineering staff.
The report sees a further clustering of product, system and component development into global centres of excellence. Europe will continue to lead in the development of small front-wheel-drive cars, diesel technology and luxury vehicles while small displacement engines, multi-purpose vehicles, and hybrid platforms will be led by Japan. OEMs will look to North America for the development of light trucks, SUVs, minivans, large segment vehicles and V6 and V8 engine families.
“Our review shows that R&D capabilities must be globalised to meet the demand for product differentiation at competitive price levels in the global market place,” Lunani said.
“Electronics competence will play a very important role in the future, especially since half of all warranty costs are attributable to electronics hardware and software,” he added.