Steering Carmaking into the 21st Century

Transcription

1 Steering Carmaking into the 21st Century FROM TODAY S BEST PRACTICES TO THE TRANSFORMED PLANTS OF 2020 BCG REPORT

2 The Boston Consulting Group is a general management consulting firm that is a global leader in business strategy. BCG has helped companies in every major industry and market achieve a competitive advantage by developing and implementing unique strategies. Founded in 1963, the firm now operates 51 offices in 34 countries. For further information, please visit our Web site at

3 Steering Carmaking into the 21 st Century FROM TODAY S BEST PRACTICES TO THE TRANSFORMED PLANTS OF 2020 NOVEMBER 2001 ANDREAS MAURER WILKO ANDREAS STARK

4 2001 The Boston Consulting Group, Inc. All rights reserved. For information or permission to reprint, please contact BCG at: Fax: (+1) , attention IMC/Permissions Mail: IMC/Permissions The Boston Consulting Group, Inc. Exchange Place Boston, MA USA 2

5 Table of Contents INTRODUCTION 6 THE COMING REVOLUTION IN AUTOMOTIVE MANUFACTURING 8 TODAY S PLANTS: CHALLENGES AND BEST PRACTICES 10 Today s Challenges 10 Plant Design and Performance 11 Shop Design and Performance 12 THE FORCES DRIVING CHANGE 20 General Market Forces 20 Changes in Car Design 21 Changes in Production Technologies 23 THE PLANT OF TOMORROW 26 The Overall Plant 26 The Press Shop 28 The Body Shop 31 The Paint Shop 31 The Final Assembly Shop 32 CHARTING THE COURSE TO THE FUTURE 35 Implications for OEMs 35 Implications for Suppliers of Plant Equipment and Services 36 Implications for Suppliers of Components, Systems, and Materials 36 Conclusion 38 GLOSSARY 40 3

6 About the Authors Andreas Maurer is a vice president in the Düsseldorf office of The Boston Consulting Group. Wilko Andreas Stark is a consultant in the firm s Stuttgart office. Both are members of BCG s worldwide Automotive Industry practice. * * * The ideas in this report represent ongoing learning based on BCG s client work and research. We welcome your questions and comments. To inquire about this report or about the services offered by BCG s Automotive Industry practice, please contact either of the authors: Andreas Maurer maurer.andreas@bcg.com Wilko Andreas Stark stark.wilko@bcg.com 4

7 Acknowledgments The authors would like to thank the many managers at automotive OEMs and supplier companies who have shared their experience, as well as several colleagues who have contributed to this report, particularly Karsten Hoppe, Arthur Kipferler, Nikolaus Lang, François Rouzaud, and Sven Rutkowsky. They would also like to acknowledge the contributions of the report s editors: Kathleen Lancaster, Barry Adler, and Katherine Andrews. 5

8 Introduction In this report, we take a close look at the way passenger cars are manufactured today and how that process will change between now and We focus not on the evolution of the automotive industry as a whole but on the likely evolution of any single plant. Therefore, although we examine a range of developments in car design, materials, and production technologies, as well as general market forces such as fuel supplies, we do not address, for example, industry consolidation or other trends that will not specifically affect manufacturing. Our focus is the plant itself and the facilities it will need in order to be competitive in In these pages, we outline the structures and practices that are typical of today s plants, assess the differences among them in productivity, describe the common challenges they face, and identify what can be considered best practices. We then discuss the driving forces that are already beginning to transform manufacturing structures and practices. Next we describe the new structures and practices that we believe will be prevalent in Finally, we offer some thoughts on getting there from here: practical actions that automakers and suppliers can take today to position themselves to operate successfully over the next two decades and beyond. A note on our time horizon: The year 2020 seems far in the future. In auto manufacturing, however, processes evolve slowly, paced by regular introductions of entirely new models, each requiring major investments in capital equipment. For auto plants to operate competitively two decades from now, their management must first understand the likely evolution of car designs, manufacturing technologies, markets, and infrastructure over that period and then plot the evolution of each plant, year by year, to keep in step with the coming changes. The time to begin that planning process is now. After all, 20 years represents only about four model switches. We feel confident about predicting developments in production over the next two decades. We have based our conclusions on extensive analysis of selected plants in Europe and North America; on interviews with industry experts, component suppliers, plant equipment suppliers, and car manufacturers; and on The Boston Consulting Group s broad experience working with leading automotive companies around the world. Although our findings and conclusions will apply to almost all passenger-car plants worldwide, the impact of these developments will vary significantly from plant to plant, depending on each plant s location and size, the types of vehicles it produces, and its current performance. 6

9

10 The Coming Revolution in Automotive Manufacturing Players in today s auto industry are facing a critical turning point. By the year 2020, hundreds of automotive plants around the world will be altered significantly, and their ways of doing business will be radically transformed. Decisions that industry executives make today will determine whether and how their companies will thrive over the next two decades. These decisions will not be simple ones. In the next few years, industry participants will find themselves facing unprecedented pressures from converging market forces. More than ever, competition will be keen and global; consumers will expect even more in the way of performance and service; new materials and technologies will force make-or-break investment decisions; and radically different cars will require entirely new assembly lines and processes. The way management prepares today to respond to these forces will determine the fate of some 475 auto plants worldwide, representing an investment of around $100 billion in buildings and plant equipment. Both the OEMs that run those plants and the thousands of companies that supply them with goods and services will need to chart a very careful course over the next few years because the coming changes in the industry will require meticulously timed investment strategies. (For definitions of italicized industry terminology used throughout this report, see the Glossary on page 40.) For each major change in vehicle concepts and production methods, the entire supply chain will need to gear up in unison. And in the case of new vehicle concepts such as fuel cell cars, not only must consumers be ready to embrace them, but an entire fuel-delivery infrastructure must also be designed and installed. Time is critical because lead times are long. The initial investment to build a single new plant equipped with the latest technologies and designed to produce 200,000 to 300,000 cars a year typically amounts to $400 million to $500 million; it also involves new regional infrastructure and complex, coordinated planning with suppliers. To remain competitive in 2020, companies need to follow a three-step process: first, achieve world-class performance in as many areas as possible; second, determine the structure and function of the plants they will need to operate in 2020; and third, develop year-by-year plans for transforming their current plants into the 2020 models. To get things started, companies must benchmark the performance of their own plants against that of best-practice plants worldwide. Current plants vary enormously in terms of throughput time and the productivity of their personnel, space, and assets, as well as other key measures. Even as companies strive to meet and exceed current best-practice levels, they will need to take into consideration the key forces driving change over the next two decades. Consumers expectations will continue to rise in terms of their cars safety, quality, and even intelligence for example, a car s ability to know when tires need air or drivers have lost their way. Consumers will also expect shorter delivery times and build-to-order capability. BMW, for instance, is planning to meet the first expectation 8

11 by achieving order-to-delivery periods of less than ten days. Niche models will proliferate and the pace of model introductions will accelerate, requiring carmakers to operate more flexibly and at lower cost along the entire production process. Meanwhile, cars will acquire more electronics for safety, comfort, and communications, including steer-by-wire and brake-by-wire systems, automatic stop-and-go systems, and Internet surfing capability. Lightweight materials, primarily aluminum and plastics, will displace a significant amount of steel, and the steel that remains will be used with greater sophistication to reduce its total weight. The impact on auto manufacturing will clearly be far reaching. Over the next two decades, to accommodate the new lightweight materials, plants will need to adopt new production technologies such as gluing, laser welding, plastic molding, hydroforming, and thixoforging. Meanwhile, the ability to match paint colors perfectly will make it possible to manufacture and paint various body modules, such as doors and hoods, at locations removed from the main assembly line, delivering them just-in-time and just-insequence to the line for assembly to the car body. This development will change the structure and function of the final assembly shop and give rise to a host of new satellite plants for body modules. We discuss all these topics current issues and best practices, forces driving change, and the plant of the future in detail in this report. The following are among the key changes that will take place in the automotive industry between today and 2020: Materials. The share of steel (by weight) used in global automobile production will decline from 63 percent to 55 percent, whereas aluminum's share will increase from 8 percent to about 13 percent. Car Design and Features. Cars equipped with fuel cells will capture some 20 percent of the market in North America and Europe, and will also move into other markets, requiring dedicated production lines to accommodate new power-train concepts. Electronics will put a much higher burden on final assembly and testing. Production Technologies. True color matching will make it possible to paint and preassemble body modules such as doors and trunk lids, which will be manufactured in satellite plants rather than in the main plant, transforming current assembly flows. The press shop and the body shop will converge. Plant Size. Plants will actually shrink slightly following some temporary expansion over the next few years. Paint shops will shrink by 50 percent on average, press shops by 25 percent, and final assembly shops by 15 percent. Body shops, by contrast, will need 20 percent more space as they add lines for fuel cell cars. Some additional space will be required in the plant for expanded training facilities and a visitor center, while beyond the plant there will be a need for an enlarged supplier park. Plant Feel and Function. Plants will feel very different. They will be more modular, more flexible, and much more accessible for logistics purposes, with smaller interior spaces that nonetheless provide plenty of room for the maneuvering of logistics vehicles. The evolution of present-day plants into the plants of 2020 will not proceed uniformly. The various shops will evolve in uneven steps, as markets become ready for innovations and as new materials and technologies become available. Each major step will require adaptation throughout the plant and along the entire supply chain. Critical to successful transformation will be close and constant collaboration not only within each plant but also between plants and their suppliers, logistics service providers, customers, and the wider world of fuel suppliers and regulatory agencies. To orchestrate this evolution, management will need to focus both on today s best practices and on the impending changes that will transform the plant. 9

12 Today s Plants: Challenges and Best Practices Many of today s auto-manufacturing plants have grown helter-skelter over the years in a series of ad hoc responses to changing technologies and markets. As a result, bottlenecks and inefficiencies now plague the operations of all four shops that make up an auto plant the press shop, the body shop, the paint shop, and the final assembly shop as well as their interactions with one another and with the plant s suppliers and logistics providers. Unless management intervenes soon, matters will only go from bad to worse as impending developments put further strain on existing systems and practices. To address these issues in a practical, strategic way, management must first understand the key challenges facing today s plants and the best practices currently available in terms of design and performance. Today s Challenges Although car plants today differ widely in both layout and performance, they share a number of fundamental challenges. Chief among them are awkward layouts, space constraints, and inflexibility. Awkward Layouts Many auto plants have evolved over several decades. Their manufacturing buildings, in particular, have been enlarged over and over again. And because many plants have had no room for horizontal expansion (particularly in Europe, where most older plants are embedded in towns), they have grown upward and inward, creating crowded and disorganized production facilities. In many plants, this crowding is exacerbated by the encroachment of both R&D and various administrative functions into manufacturing space. In other cases, administrative and other vital functions such as tool shops have been moved to remote locations, making logistics complex and impeding regular communication which is particularly essential among R&D, marketing, and production, just as it is among the different shops. Space Constraints Today s plants are caught in a vicious cycle. The production layouts that have evolved over decades typically leave little space either inside or outside the buildings for moving and storing materials. As a result, both the individual shops and the overall plants feel crowded. Moreover, manufacturing processes are far from clear and comprehensible to everyone involved. Under such circumstances, manufacturers cannot count on getting needed parts delivered just-in-time, so they must keep larger stocks in order to avoid production downtime caused by missing parts. Larger stocks, in turn, further reduce the available space, making processes less clear, visible, and comprehensible. Less clear processes, in turn, require more space than clearer ones, as well as more inprocess rework hence the vicious cycle. Space constraints also mean that it s increasingly difficult to position core suppliers close to assembly although proximity between car manufacturers and their core suppliers is highly advantageous for effective communication, as well as for just-in-sequence deliveries. 10

13 Inflexibility Because car plants represent huge investments in tooling and machinery geared to the production of specific car models, they are slow to switch models or increase output in reaction to changes in demand. Paint shops, for example, can rarely respond adequately to surges in demand and thus often become serious bottlenecks. Moreover, paint shops like press shops cannot easily be replaced or modified, so they tend to anchor their plants layouts and determine their material flows for years and even decades after they are installed. Car plants that are truly flexible in layout and can react swiftly to changes in demand have yet to be built. EXHIBIT 1 TYPICAL PLANT LAYOUTS TODAY Communication center Press shop Body shop Central-core form Paint shop Final assembly shop Potential areas of expansion Plant Design and Performance Shared-spine form Campus form The challenges described above arise largely from the way plants are designed, which in turn affects their performance. Today s car plants consist of four shops housing four basic operations: pressing (also referred to as stamping ), body work, painting, and final assembly. (The pressing is sometimes done off-site, especially at small car plants.) These facilities are arranged in varying configurations, most of which fall into three general types: central core, shared spine, and campus. (See Exhibit 1.) In the central-core model, the shops are quite close to one another and connected through a communication center. The VW/Audi plant in Curitiba, Brazil, is one example. Footprints for this model typically take the form of a cross, with four wings joined at the center, or a three-pointed star, in which one of the three points houses both the press and body shops. In the shared-spine model, the shops are parallel to one another and connected by a common communication and transportation spine, as the tines of a fork are connected by its base. Nissan s plant in Sunderland, England, is an example. In the campus model, which is typical of older plants, the shops are actually separate buildings. The BMW plant in Munich is one. Of the three models, the central-core design can be considered best practice because it locates the various shops close together and provides possibilities for expansion and convenient docking access. SOURCE: BCG analysis. Plant layout is just one of many variables affecting overall performance. Throughput time that is, the time it takes for a car to move from the beginning of the body shop to the end of final assembly ranges from 14 hours at best-practice plants to 45 hours at the least efficient plants. (See Exhibit 2, page 12.) Variations in productivity are equally broad. Personnel productivity (excluding pressing) ranges from more than 100 cars per person-year to fewer than 40 cars per person-year. Space productivity ranges from less than 1 car per year per square meter to up to 2 cars per year per square meter (excluding pressing). There is a positive correlation between personnel productivity and space productivity. It is important to note that these productivity measures have not been adjusted to recognize differences in product complexity or the degree of vertical integration, among other factors. Nonetheless, the huge gap between best-practice plants and less productive plants is striking. 11

14 EXHIBIT 2 AVERAGE THROUGHPUT TIME PER VEHICLE IN INDIVIDUAL PLANTS European plant Japanese-owned plant in North America North American plant South American plant Hours Difference of 31 hours 14 D C A/B D C D C E B C/D D D D C D DRI vehicle segment SOURCES: Harbour Report 2000; BCG benchmarking survey; BCG analysis. NOTE: Figures are not adjusted by product complexity or degree of vertical integration. Shop Design and Performance Differences in performance between best-practice shops and average shops are even more pronounced than differences between plants. The Press Shop The press shop at a large car plant typically processes more than 1,000 tons of sheet steel a day to produce body parts. Production is fully automated, both for the transfer presses and tandem press lines that make medium and large parts, and for the punching department that produces small parts. Not every plant has a punching department on site because punching small parts is not considered a core competence. The most productive car manufacturers tend to focus on the body parts that are critical to their vehicles dimensional integrity and surface-panel quality, outsourcing other parts to suppliers. Today s press shops tend to be quite similar in function. (See Exhibit 3.) Production of large body parts starts with the blanking presses, which cut coiled sheet metal into blanks. These blanks then move on to storage or to nearby lines of large transfer or tandem presses, which can stamp out a number of different major body parts, depending on which sets of dies are attached to them. The average number of sets of dies used by each press line varies significantly among press shops, from as few as 6.6 to as many as 29. (See Exhibit 4, page 14.) Dies may need to be changed more than eight times a day. Among the plants we studied, the productivity leaders average about seven die changes per line per day. The process of changing the dies in a large transfer press can take anywhere from 7 minutes in a highly productive shop to 18 minutes. (See Exhibit 5, page 14.) For obvious reasons, the sets of dies are located as close to their press lines as possible. Often, however, there is not enough space to accommodate them nearby, so they must be transported back and forth from farther away, generating additional logistical complexity and costs. 12

15 EXHIBIT 3 A BEST-PRACTICE PRESS SHOP TODAY Delivery of coils and blanks by truck or rail Coils Social area Expansion area for a second blanking press Blanking press Tools Expansion area for tailored blanks Low-bay warehouse for blanks and tailored blanks with offices on top Expansion area Scrap disposal Social area Die cleaning/maintenance Tandem presses Quality check Blank delivery Dies Dies Tryout presses Transfer press Blank delivery Quality check Simulator Social area Die cleaning/maintenance Social area Maintenance area Office Storage for measurement equipment Training center Office Quality center Expansion area High-bay warehouse for stamped parts Rework area Delivery to body shop SOURCE: BCG analysis. In addition to the blanking and transfer presses, press shops generally contain small maintenance areas, which are used to perform small, quick maintenance tasks and are located near the press line in each hall. However, comprehensive tasks must be performed in a central maintenance area, usually located in a separate hall. There is a wide range of productivity among today s press shops, as measured in various ways. For example, asset productivity in the plants we studied ranges from below 70 to 240 bodies in white per press line per day. Labor productivity ranges from less than two to more than five person-hours per body in white. 13

16 EXHIBIT 4 AVERAGE NUMBER OF SETS OF DIES PER PRESS LINE IN INDIVIDUAL PLANTS European plant Japanese-owned plant in North America North American plant Sets of dies Average Difference of 22.4 sets of dies SOURCES: Harbour Report 2000; BCG benchmarking survey; BCG analysis. Underlying these measures, productivity in press shops is driven primarily by the design of the stamped parts and the respective dies. The most productive shops have a high share of double-part production meaning that each press line stamps out two parts simultaneously per hit and their press lines consist of only three or four presses, meaning that they need only three or four hits per stamped part. The design of the stamped parts also has a huge impact on the cutting rate (the percentage of steel wasted in the stamping process), which ranges from 35 percent to more than 50 percent. Given that the typical press shop of a large plant processes 1,000 tons of steel per day, a 50 percent cutting rate would mean that 500 tons of scrap would have to be removed and recycled every day. At the same time, a press line doing double-part production and pro- EXHIBIT 5 CORE SETUP TIME FOR LARGE TRANSFER PRESSES IN INDIVIDUAL PLANTS European plant Japanese-owned plant in North America North American plant Minutes Difference of 11 minutes SOURCES: Harbour Report 2000; BCG benchmarking survey; BCG analysis. 14

17 ducing 24 stamped parts per minute would turn out 1,440 parts per hour, all of which would have to be removed to the high-bay warehouse. A major problem shared by many press shops today is the lack of sufficient space behind the large transfer presses for fork-lift trucks to maneuver when removing the racks filled with stamped parts. The Body Shop The body shell of a vehicle consists of several hundred parts that are stamped from sheet metal (internally or externally) and delivered just-in-time to the body shop. The body and press shops should be close to each other in order to reduce logistics costs, but in some plants they are not because of space constraints. The parts are first joined together to form small subassemblies, which are then welded together to create the actual body structure. The subassembly lines are aligned with the main assembly line, which consists of several sections sequentially dedicated to assembling the bottom of the body, welding the body side panels onto the bottom, attaching the roof to the body side panels, and finally affixing the doors, fenders, trunk lid, and hood. (See Exhibit 6.) Most car manufacturers now use laser measurement after welding to check with very high accuracy the precise fit of all the parts. Today s body shops are almost entirely automated. The stamped parts are joined together primarily by welding them at key points. Surprisingly, the number of welding points varies significantly, even among vehicles in the same class. For example, among vehicles in the upper-medium price bracket, welding points range from fewer than 5,000 to more than 6,000 with the higher end of the spec- EXHIBIT 6 A BEST-PRACTICE BODY SHOP TODAY Decoupling Railway Expansion area To paint shop Logistics Social area Expansion area Logistics Bottom assembly 1 Bottom assembly 2 Rework area Maintenance Quality center Finish Inner-body side panel Inner-body side panel Outer-body side panel Outer-body side panel Roof Doors, fenders, hood, and trunk lid Doors, fenders, hood, and trunk lid Logistics Training center Office Social area Logistics Expansion area SOURCE: BCG analysis. 15

18 trum producing stiffer car bodies but also reducing asset productivity. (See the Glossary on page 40 for definitions of automotive segments.) The size of the vehicles produced by the plant also contributes to wide divergences in asset productivity among body shops. (See Exhibit 7.) Here, too, space limitations can constrain logistics and reduce the clarity and efficiency of the assembly process. Some body shops are even stacked on multiple floors. Best-practice body shops accommodate the whole assembly process on one floor for logistical ease and process clarity. They also have a logistics belt around the whole body shop, as well as broad access roads to guarantee accessibility. Another factor contributing to productivity problems is that some body shops still break their main assembly lines into too many individual stations rather than using fewer stations and performing more operations at each one. Because the amount of time the car bodies spend traveling between stations is relatively constant (at about 12 seconds), EXHIBIT 7 ASSET PRODUCTIVITY IN TODAY S BODY SHOPS As vehicle size increases, asset productivity declines Asset productivity (bodies per year/initial investment in U.S.$millions) 1,800 1,440 1, European plant North American plant Japanese-owned plant in North America A B C1 C2 D1 D2 E1 E2 DRI vehicle segment SOURCES: Harbour Report 2000; BCG benchmarking survey; BCG analysis. NOTE: Asset productivity is adjusted by vertical integration; plant productivity is measured against initial investment; results are not adjusted by shift pattern. having fewer stations means that the bodies spend less overall time in the shop even though it means longer cycle times per station. Best practice is a cycle time of at least 60 seconds to achieve a process in which at least 80 percent of each cycle is devoted to production. (See Exhibit 8.) The Paint Shop Of the four shops, the paint shop generally represents the highest investment in the entire car plant. The painting process comprises several steps, which are performed similarly in all plants. (See Exhibit 9.) Coming from the body shop (often by way of a buffer line), the car bodies are cleaned, treated with a phosphate coating (necessary for a good bonding between paint and metal), and then submerged in a cathodic bath, which gives the sheet metal its protective prime coat. Next come a protective underseal and the sealing of any joints. Only then are the filler coat, the base coat, and the clear coat applied to the vehicle. After each step, the body has to dry. The top coat is usually sprayed on by automated applicators, using an electric field to conduct the paint mist uniformly onto the entire body. Despite the similarity of the processes used in all paint shops, their throughput times range from 4 to more than 13 hours per vehicle. (See Exhibit 10, page 18.) They also use very different kinds of paints. European car plants tend to use water-based paints, which are better for the environment, whereas North American plants primarily use solvent-based paints. A new painting system based on dry powder or powder slurry, which has been used in the white goods industry for decades, is now being used in some car plants. (For example, DaimlerChrysler s plant in Rastatt, Germany, uses this system.) This painting system lowers emission levels dramatically. We anticipate that as new paint shops are completed, they will use only water-based and powder-based paints to minimize environmental damage. A significant problem in some paint shops is the number of cars that need rework, primarily because of dust particles in the shop. These range from 5 to 25 percent, inevitably leading to additional 16

19 EXHIBIT 8 DEDICATED BODY-SHOP PRODUCTION TIME RELATIVE TO CYCLE TIME Optimal productivity requires a cycle time of at least 60 seconds Dedicated production time (%) Cycle time (seconds) SOURCE: BCG analysis. NOTE: Calculations are based on a transportation time of 12 seconds from station to station. costs. Differences in rework rates also reflect different manufacturers standards for the quality of paint finishes. The Final Assembly Shop After leaving the paint shop, the auto bodies typically are stored in a high-bay warehouse until they are ready for final assembly. From the high-bay warehouse, the bodies move like a string of pearls from one assembly station to the next. (See Exhibit 11, page 19.) The doors are usually removed at the beginning of the line, preassembled separately with their windows, electronics, interior trim, air bags, and other elements, and then reattached to the body at the end. Vehicle components such as the chassis are put together in preassembly stations and brought just-in-sequence to the assembly line. Major parts and components, such as the seats, are also delivered just-in-sequence to the respective assembly stations. These components may come EXHIBIT 9 A BEST-PRACTICE PAINT SHOP TODAY Third level Repair buffer Office and social area Technology Technology Training center Buffer Cars enter from the body shop Second level Audit Body washer Drying Phosphate coating Cathodic bath Pretreatment Body underseal and sealing of joints Drying Maintenance Filler Drying Finish Drying Base coat Clear coat Drying Finish Cars move to final assembly First level Rework Spot repair Training and social area Rework Spot repair Dip bath Used air Sewage Paint supply SOURCE: BCG analysis. 17

20 EXHIBIT 10 THROUGHPUT TIMES IN TODAY S PAINT SHOPS IN INDIVIDUAL PLANTS Coat system Clear coat Base coat Filler Solvent based Water based Powder slurry/powder Hours Difference of 9.2 hours European plant European plant European plant European plant North American plant European plant South American plant North American plant European plant Japaneseowned plant in North America European plant Japaneseowned plant in North America SOURCES: Harbour Report 2000; BCG benchmarking survey; BCG analysis. NOTE: Figures are not adjusted for product complexity. from suppliers or may be produced by the car manufacturers themselves in separate preassembly buildings. The degree of automation in today s final assembly shops is quite low. In general, robots are used only to assemble large or heavy parts such as windows, seats, and dashboards. Given the variety of options and features that are possible today, the final assembly process requires meticulous planning and highly developed logistics, as well as skilled workers. A major problem of today s final assembly shops is, again, limited space for logistics and difficult docking onto the building. Because of these problems, final assembly shops typically still store thousands of parts along the assembly lines. Whereas just-in-time or just-in-sequence deliveries don t make sense for small parts, prepacking such parts for each individual body could increase process clarity and reduce inventory. The prepacked parts could be carried with the body on the assembly line and assembled as needed. Also contributing to complexity is the fact that some final assembly shops, like some body shops, are housed on several floors. The spine design prevents these problems and can therefore be considered the best-practice layout for final assembly. Labor productivity varies widely among final assembly shops, from 39 to 228 vehicles per person-year. (See Exhibit 12.) Although these figures reflect differences in vehicle complexity, degree of vertical integration, and net working hours per year, the magnitude of the gap is still remarkable. Similarly, the number of vehicles needing rework after final assembly ranges from 2 to 30 percent, reflecting, among other factors, different approaches to organizing production and different degrees of worker autonomy. Clearly, there is ample room for improvement both within the shops and in the overall plants. The shape that improvement will take and the pace at which it will affect plants will be determined by forces already gathering power. 18

21 EXHIBIT 11 A BEST-PRACTICE FINAL ASSEMBLY SHOP TODAY Cars enter from paint shop Logistics Road Door removal Logistics Windows Logistics Dashboard Maintenance Tools Transfer area: chassis power train Logistics Logistics Preassembly Chassis power train Road Front end Offices and social area Offices, social area, and training center Maintenance Quality and audit Rework area Finish Doors Logistics Preassembly Seats Wheels Logistics Road Preassembly Road Logistics: doors SOURCE: BCG analysis. EXHIBIT 12 LABOR PRODUCTIVITY IN TODAY S FINAL ASSEMBLY SHOPS European plant Japanese-owned plant in North America North American plant South American plant Vehicles per person-year Difference of 189 vehicles D C A/B D D D D C B C C/D C/D C E B D D E E E DRI vehicle segment SOURCES: Harbour Report 2000; BCG benchmarking survey; BCG analysis. NOTE: Figures are not adjusted for degree of vertical integration and product complexity. 19

22 The Forces Driving Change The main forces directly affecting auto manufacturing fall into three categories: general market forces, changes in car design, and changes in production technologies. The intricate interplay among these forces will not only set the pace for the evolution of automotive plants but also affect the allocation of tasks and ownership among industry players. General Market Forces As growth in demand for cars slows, competition is intensifying. To operate successfully in this environment, manufacturers must differentiate their offerings by developing more niche models and introducing new models more frequently as well as by making frequent face lifts to current models between model introductions. The impact on plants will be tremendous. Carmakers will need to produce smaller lots and operate more flexibly along the whole production process while lowering costs to stay competitive. It will be a very tall order. The need for niche models arises from the fact that consumers are increasingly demanding models tailored to their personal requirements. Furthermore, their expectations are rising steadily in terms of the car s safety, quality, and even intelligence. They are also demonstrating a growing desire for customized style, comfort, and entertainment features. For manufacturers, meeting these expectations will mean increasing the complexity of the production process, particularly in final assembly and the logistics that support it. Meeting expectations for quality without increasing costs will mean, among other things, installing in-line automated controls. Consumers are also expecting shorter delivery times, as well as build-to-order capability. Car plants must not only allow for more variety in the cars they produce but also accommodate shorter planning cycles along the entire supply chain. These shorter cycles will require highly precise production planning. Differences among individual cars of the same model will go deeper than paint and trim, and will require differentiation early in the production process. The plant must be flexible enough to meet these requirements. As we noted, while turning out smaller lots of more customized cars, manufacturers will nonetheless need to control or reduce costs. Keys to cost containment will be the ability to use only a small number of model platforms on which to build all the variants (for example, the Mercedes C-Class includes four model variants: a sedan, a station wagon, a sports coupe, and a convertible); sharing platforms within groups or even between competitors (Toyota and PSA Peugeot Citroën are planning to produce subcompact cars jointly in Europe); and achieving the benefits of focus and scale by further outsourcing noncore components. Also affecting the industry, and particularly the design of cars, will be the availability and cost of fuel, as well as stricter emissions standards. We expect the supply of crude oil and natural gas to last at least through the middle of the century, thanks to the steady increase in available fuel reserves. (See Exhibit 13.) Therefore, we believe that the combustion engine will remain the primary power-train concept in

23 EXHIBIT 13 AMPLE FUEL RESERVES THROUGH THE NEXT HALF CENTURY Energy reserves Crude oil reserves in billions of tons of CEU 1 Natural gas reserves in billions of tons of CEU 1 Supply duration = Annual consumption years 44 years 44 years years 64 years years SOURCES: Fritsch (1990); Siemens (2000); BCG analysis. 1 CEU = Coal equivalent unit. Between now and then, however, new power-train concepts electric cars that will run on rechargeable batteries, hybrid cars with both combustion engines and electric engines, fuel cell cars that will convert gasoline or methanol to electric power will begin to make inroads into the market. (See Exhibit 14, page 22.) We expect that by 2020, fuel cell vehicles will have achieved a market share of about 20 percent in North America and Europe. Fuel cells will be introduced primarily in the lowermedium price category. Impediments still to be overcome include the cost disadvantage of cars with fuel cells, as well as the lack of infrastructure to support methanol fuel cell vehicles. However, because methanol is a liquid fuel and can be sold by today s gas stations after modifications, we believe that a sufficient methanol fuel infrastructure will be in place by Sales of electric and hybrid vehicles may grow over the next two decades, especially in North America, where they will be encouraged by regulatory requirements. Nonetheless, we do not expect these kinds of vehicles to hold a significant share of the market in the long run because of persistent limitations in battery technology. Changes in Car Design The next two decades will see the introduction of radically different power trains, more electronics, and lighter materials. New Power Trains Ultimately, fuel cell vehicles will require a fundamentally different design in which the fuel cell is sandwiched between two layers of steel at the bottom of the car. In addition, these cars won t use the large transmissions or the combustion engines of today s vehicles. The main impact of the new design will be in the body shop and in final assembly. 21

24 More Electronics New electronics for safety, comfort, and communications will be phased in gradually. By 2005, many cars will offer a dizzying array of electronic gadgetry, including keyless go systems, in which a card opens the doors and the ignition is a pushbutton; Internet surfing capability; voice control over the entertainment unit; and automated tire-pressure control. EXHIBIT 14 THE DEVELOPMENT OF NEW POWER-TRAIN CONCEPTS By 2015, many cars will have steer-by-wire and brake-by-wire systems (already well established in aircraft), in which electronic connections replace mechanical ones; adaptive cruise control combined with lane control, in which the car adjusts its speed or road position in response to traffic signals; and automated stop-and-go systems, in which the car accelerates and brakes in response to traffic conditions. We anticipate that by 2015, most countries will have eliminated today s principle impediment to introducing steer-by-wire systems: the legal requirement for a rigid link between the steering wheel and the axle. Combustion engine Gasoline fuel cell Methanol fuel cell Europe Market share (%) Hybrid drive Electric engine Natural gas engine By 2020, the share of total vehicle-production costs represented by electronics, including material costs, will have risen to more than 30 percent from today s figure of less than 20 percent. Lighter Materials Tomorrow s cars will be lighter than today s to reduce fuel consumption. Manufacturers will replace some of the steel currently used with aluminum, plastic, and magnesium. These alternative materials will appear primarily in doors and other assembled parts, rather than in the car body itself, because of the need to separate the different materials for optimal recycling North America Market share (%) SOURCES: OTT; Merrill Lynch; UBS; Deutsche Bank; BCG analysis. We anticipate that the percentage of steel used in global automobile production will decrease from 63 percent today to 55 percent by 2020, whereas aluminum s share will increase from 8 percent to about 13 percent over the same period. (See Exhibit 15.) The share of plastic will also increase, although its use will be limited because it is hard to recycle. Magnesium will be used only in small quantities because of its high price and only in internal parts because of its flammability. Over the next few years, hoods, doors, and roofs will be made of aluminum; fenders will be made of either plastic or aluminum; and trunk lids will be made of plastic to permit the integration of antennas for mobile phones, radios, Internet access, and global positioning systems. Nevertheless, steel will still play a major role in car manufacturing because of its cost advantage and recyclability. Furthermore, 22

25 EXHIBIT 15 USE OF MATERIALS IN GLOBAL AUTOMOTIVE PRODUCTION Compound annual growth rate, % of total weight of materials Steel ( 0.6%) Iron ( 1.7%) Aluminum (+2.7%) Plastics (+1.2%) Elastomers ( 1.2%) Glass (+0.6%) Copper (+1.6%) Zinc/magnesium (+5.0%) Other (+1.5%) SOURCES: Centre for Automotive Industry (Cardiff Business School, Wales); BCG analysis; BCG interviews. the potential of steel has not yet been fully realized. Over the next few years, car manufacturers will further reduce the weight of steel employed in car bodies by using more tailored blanks, in which two sheets of steel of different thickness or ductility are welded together (which offers the additional advantage of reducing the cutting rate). With the same goal in mind, manufacturers will also use hydroformed parts and high-tensile steels with better ductility. In addition, they will apply optimized node geometry, reducing the number of nodes and the number of welding spots. Changes in Production Technologies To accommodate the new lightweight materials, automotive plants will need to adopt new production technologies such as gluing, laser welding, plastic molding, hydroforming, and thixoforging. (See Exhibit 16, page 24.) Press and body shops will be particularly affected by these lightweight construction techniques. New concepts for the power train, brakes, and steering will affect the production process. When production of fuel cell cars reaches a significant volume, manufacturers will need to add dedicated production lines in the body shop and in final assembly. New braking and steering concepts, by contrast, will primarily affect final assembly. At the same time, the rising number of model variants will lead to smaller batch sizes, especially in the press shop. The press shop, in turn, will respond not only by adopting new production technologies such as hydroforming but also by using small hydraulic presses (especially for niche models) to reduce the investment in dies and machinery. Another important advance over the next few years will be the introduction of new simulation techniques. The entire development process will be digitalized, and the whole production process, including the material flow, will be simulated in advance. Each part s suitability for assembly will be checked by simulating the entire assembly process, thus reducing the need for prototypes. Simulation data will be transferred to both production design programs and automated production programs. This technological evolution will mean shorter gaps in production for model switches, a swifter return to full production after each model switch, and a general streamlining of all operations. Virtual reality will transform both R&D and production. In the press shop, new transfer presses introduced over the next few years will provide both dynamic orientation and electronic transfer. The most advanced plants may install cable railways to remove stamped parts from the transfer presses to storage. New die-transportation vehicles will allow faster and more frequent die changes, making the 23

26 press shop far more flexible. Similarly, die logistics in the body shop will become simpler. We expect that by 2020, in-line quality control of the stamping process will reduce the number of rejects and speed the return to full production after each die change. In addition, the changed material mix will require new bonding techniques to join parts together. Gluing, in particular, will increase significantly over the next few years, and laser welding will partly replace electric spot welding. Major changes will take place in paint technology. By 2020, the use of preprimed sheet metal will have replaced the current sequence of phosphate coating, cathodic dip coating, and pretreatment. (See Exhibit 17.) The current filler layer of paint will either become unnecessary or be combined with the base coat. Some models, such as the Mercedes S-Class, are already using thinly precoated sheet metal in place of traditional forms of secondary corrosion protection. More significant, we expect exact color matching to become available by This development will make it possible for parts such as doors, hoods, and trunk lids to be painted and their respective modules preassembled in different locations. Today s complex process of disassembling doors from the body, sending them to separate preassembly stations, and then reassembling them with the body will become much simpler. (See Exhibit 18.) Finally, new robots will contribute to a higher level of automation in the final assembly shop. These new robots will be not only smarter but also able to see and feel and therefore able to perform more tasks. However, robots will never entirely replace human workers, who will always be inherently more flexible. EXHIBIT 16 NEW LIGHTWEIGHT PRODUCTION TECHNOLOGIES Lightweight materials Lightweight forms Lightweight production concepts Plastics Aluminum Magnesium Titanium High-tensile steels with improved ductility (dual-phase steels) Tailored blanks/patchwork Profiles Optimized node geometry New structures and complex geometries Foams Reduction in the number of welding spots Reduction in the number of nodes Simple bonding methods Production methods used Forming internal high-pressure deformation hydroforming plastic molding (SMC 1 /GMT 2 ) thixoforging Bonding gluing laser welding clinching SOURCE: BCG analysis. 1 Sheet molding compound. 2 Glass mat thermoplast. 24

27 EXHIBIT 17 THE EVOLUTION OF THE PAINTING PROCESS Today 2020 Uncoated sheet conventional Body washer Cathodic dip coating 1 Body sealing Pretreatment Filler Base paint Clear paint Secondary corrosion protection Thinly precoated sheet Body washer Cathodic dip coating 1 Body sealing Pretreatment Filler Base paint Clear paint Preprimed sheet Body washer Body sealing Base paint Clear paint SOURCE: BCG analysis. 1 Including phosphate coating. EXHIBIT 18 THE EVOLUTION OF THE PRODUCTION PROCESS FOR DOORS Main building Satellite plant Today Press shop (body and doors) Body shop (body and doors) Paint shop (body and doors) Disassembly of doors from the body Separate preassembly of doors Reassembly of doors with the body 2020 Press shop Body shop Paint shop Separate preassembly Logistics Assembly with the body SOURCE: BCG analysis. 25

28 The Plant of Tomorrow So what will auto plants look like in 2020? Most will be somewhat smaller than today s plants, and all will allocate space differently both among the shops and within them. Many may appear at first glance quite a lot like the best-practice plants of today. But on closer inspection, it will become clear that changes in car design, production technologies, and task sharing along the production chain will have fundamentally altered the layout and performance of both the overall plant and the individual shops. Plants built at the end of the second decade of the century may look radically different, replacing the classical chain of rectangular buildings with a huge integrated cylinder served by streams of vehicles from nearby satellite plants and supplier parks. The Overall Plant We expect that most future auto-manufacturing plants will adopt the central-core form prevalent among best-practice plants today. Three-armed plants will displace four-armed plants as the press shop and the body shop converge. (See Exhibit 19.) Over the next few years, subassemblies such as doors and hoods will be removed from the body shop, preassembled in the press shop, and only then delivered to the main assembly line in the body shop. By 2010, small hydraulic presses will have been installed close to robot cells to form integrated subassembly areas, particularly for the production of niche models. These changes will pave the way for more extensive changes. By 2020, after the advent of a new painting process, plastic-molding presses will be installed close to the main assembly line in the body shop. However, large transfer presses will still be essential for steel and aluminum parts made in large lots. At first, manufacturers will try to accommodate both fuel cell cars with electric engines and cars with combustion engines on one platform. Given the huge differences between the two power-train concepts, this approach will make sense only while fuel cell cars are produced in small numbers. Once they are produced in large numbers, fuel cell cars will merit their own vehicle platforms and dedicated assembly lines, which won t require the preassembly areas needed to join combustion engines with their respective transmissions. Meanwhile, the increasing variations on each model over the coming years will inevitably require more flexibility and space along the whole production process. As entire modules are preassembled offline and some even outsourced, less space will be needed in the main plant. However, those modules will still need to be stamped, preassembled, and painted. We expect that these tasks will take place in small satellite plants or preassembly shops at varying distances from the main line. These plants may belong to the auto manufacturer or to suppliers. We could imagine that suppliers might take over responsibility, for example, for the entire production of doors, including stamping, painting, and preassembly. We expect that suppliers will partly take over mounting and testing and that logistics companies will assume responsibility for prepacking parts for final assembly. 26

29 EXHIBIT 19 LONG-TERM INTEGRATION OF THE PRESS AND BODY SHOPS press Hydroforming Small hydraulic press Plasticmolding press Plasticmolding press Plasticmolding press Small hydraulic press Robot cell Robot cell Robot cell Robot cell Main assembly line Flexible standby cell Small hydraulic press Hydroforming press Small hydraulic press Robot cell Small hydraulic press Robot cell Small hydraulic press Small hydraulic press SOURCES: BCG analysis; BCG interviews. One implication of the decentralization of the production process is that each shop will need more docking stations. The final assembly shop, in particular, is likely to need many more of these stations. Transport of preassembled modules from the docking stations to their respective assembly stations on the main line should be kept short and should be automated. All these changes will affect the size of the individual shops and the overall plant. Thanks largely to radical changes in the paint shop, the car plant as a whole (not including the new satellite miniplants located nearby) will shrink by some 5 percent by 2020, after swelling temporarily over the next few years. (See Exhibit 20.) The changes described above, especially the new production technologies, will also imply changes in personnel requirements. As expertise in electronics, mechatronics, software, and the processing of plastics and aluminum becomes increasingly essen- EXHIBIT 20 RELATIVE SPACE REQUIREMENTS IN AUTOMOTIVE PLANTS Relative size of plants (where size in 2000 is 100%) % Total plant SOURCE: BCG analysis. 25 Press shop +20 Body shop 50 Paint shop 15 Final assembly shop 27

30 tial, the availability of skilled engineers and manufacturing workers may be the key factor limiting potential production and growth. Plant managers must plan to allocate ample space for training facilities in each shop to support the need for constant learning. Another implication of decentralization is that, with so many companies working in close collaboration, each plant will need to allocate some space to accommodate personnel from other companies. In addition, collaborating companies may need to harmonize varying wage scales, as well as other kinds of personnel policies. Like the main plant, the satellite plants will have to provide space for sophisticated training facilities, as well as office space for people from other suppliers and collaborating companies. Customers will also need space in the plant. More and more buyers, particularly in Europe, are expressing the desire to pick up their new vehicles at the plant rather than from dealers, mainly because they enjoy seeing their cars produced. Auto manufacturers can use this contact with their customers as an opportunity to bind them to the brand. To do so, they will need to create attractive on-site customer relations centers and offer plant tours. The Press Shop In the next few years, press shops will become much more flexible and thus able to handle smaller batch sizes in order to accommodate the proliferation of niche models. (See Exhibit 22.) Rather than increase storage space to make room for all the different parts needed for so many models, press shops will make more die changes each day. Many of the parts they produce will be larger in order to decrease the number of parts and thus reduce complexity in the body shop. Some press shops will need to produce tailored blanks. In addition, press shops will need the flexibility to handle not only steel but also aluminum parts. The latter will slow the stamping process because aluminum is less ductile than steel and allows fewer hits per minute. While they become more flexible, press shops will need to expand to accommodate subassemblies of some modules, such as doors and hoods, to relieve the increasing crowding and complexity in the body EXHIBIT 21 A POSSIBLE NEW PLANT STRUCTURE IN 2020 Press shop Body shop Paint shop Final assembly shop In some cases, the plant of the future may assume a more radical and visionary design, in which the shared core will be a circular assembly ring and all body modules will be produced away from the main line at small preassembly shops owned and run either by the OEM or by suppliers. (See Exhibit 21.) In this design, each preassembly plant will comprise an integrated press/body shop, a paint shop, and a preassembly shop. The main building will house just one task: assembly of the different preassembled body modules into complete vehicles. This layout would allow manufacturers to divide the production process among small, more manageable production facilities, thus reducing complexity and paring down overall production time. Supplier Body module plant Body module plant Body module plant Body module plant Assembly parts Assembly ring Body module plant Body module plant Body module plant Body module plant Body module plant Let s take a closer look at the likely evolution of the individual shops over the next two decades. SOURCE: BCG analysis. 28

31 EXHIBIT 22 THE EVOLUTION OF THE PRESS SHOP Soon By 2005 By 2010 By 2015 By 2020 Greater flexibility Production of tailored blanks Replacement of some steel parts by aluminum and plastic parts Transfer of subassemblies such as doors and hoods from the body shop to the press shop Introduction of electronic transfer presses with dynamic orientation Possible introduction of cable railways to remove parts from the press lines Outsourcing of the production of blanks and tailored blanks Partial integration of the body and press shops, especially for the production of niche models Replacement of die benches by die transportation vehicles Central die storage, maintenance, and cleaning In-line quality control of the stamping process Possible replacement of tryout presses Production of body modules such as doors by satellite plants separate from the main line SOURCE: BCG analysis. shop. Until new, small satellite plants are built to make these modules, they will be assembled either in the press shop or in an integrated press/body shop and only then delivered to the main assembly line in the body shop. By 2005, new press shops will install transfer presses that offer electronic part transfer and dynamic orientation, which will allow parts to flow more flexibly among the presses and will occupy less space. At the same time, many shops may introduce cable railways to remove parts from the transfer presses and transport them to warehouses. By 2010, the production of blanks and tailored blanks will no longer be considered a core competence. Therefore, almost all plants will gradually outsource this step to suppliers in order to reduce the cost of managing the cutting waste. This outsourcing will allow the press shop to shrink slightly. In addition, the press shop will be partly integrated with the body shop, particularly for the production of niche models with small press runs. Small hydraulic presses and hydroforming presses will be installed close to robot cells, forming integrated subassembly areas. This integration will further reduce space requirements in the press shop and increase the need for space in the body shop. By 2015, the die benches in the main press shop will be replaced by die transportation vehicles operating on air cushions. This innovation will significantly shorten the minimum period needed between die changes from some two hours to as little as 15 minutes and will reduce the complexity of die logistics. It will also allow for centralized die storage, cleaning, and maintenance, thus freeing up space at the press lines. By 2020, press shops should be using in-line quality control of the stamping process, thus reducing errors to the point where there will be no further need for rework areas. Tryout presses (which today play a crucial role by testing dies before they are used in transfer presses) may be rendered unnecessary, thanks to in-line quality control, new simulation techniques, and a reduction in the number of parts produced on transfer presses. Mechanicalhydraulic press lines, in addition to producing car parts, may be able to handle any remaining need for die testing. Meanwhile, the removal of entire body modules will reduce space requirements in the press shop. Those modules, such as doors, will be stamped, painted, and preassembled at dedicated satellite plants, as previously described. Training facilities, by contrast, will expand year by year to support the growing need for continuous learning. Putting all these trends together, we expect that the space required for the press shop will increase temporarily over the next few years and then decrease until 2020, for a net shrinkage of some 25 percent. Exhibit 23 on page 30 is a schematic drawing of the main press shop as it is likely to look in

32 EXHIBIT 23 THE MAIN PRESS SHOP IN 2020 Direct delivery of blanks and tailored blanks Low-bay warehouse for blanks and tailored blanks with offices on top Training center Expansion area Scrap disposal Blank delivery Multimode transfer press with dynamic orientation Social area Mechanical hydraulic press line Social area Tryout presses Social area Office Quality center Central maintenance Office Storage for measurement equipment Central die cleaning Expansion area Station Die transport station High-bay warehouse Central die storage Cable railway Delivery to body shop SOURCE: BCG analysis. 30

33 The Body Shop Like the press shop, the body shop will need to become increasingly flexible over the next few years to accommodate the growing number of models and model variations. (See Exhibit 24.) More assembly lines may be necessary, depending on the number of platforms involved and the degree of variation among models. New bonding techniques, such as gluing and laser welding, will partly replace spot welding. Modules such as doors and hoods will be produced in the press shop to reduce complexity and logistics in the body shop. Plastic-molding presses will be installed close to the body and paint shops to produce parts such as fenders. By 2010, small hydraulic and hydroforming presses will be installed close to robot cells to form integrated subassembly areas. These areas will be used primarily for the production of niche models. By 2015, the production of fuel cell vehicles will have expanded sufficiently to justify creating a new kind of vehicle platform rather than producing fuel cell vehicles on combustion engine platforms. This new concept in turn will require an additional assembly line in the body shop. As a result, the space needed in the body shop will increase significantly. By 2020, as described above, complete body modules will be fabricated in satellite plants removed from the main line, reducing the complexity of body shop operations. Meanwhile, training facilities in the body shop will expand continuously. As a result of all these trends, the space needed in the main body shop will increase by some 20 percent by A body shop of 2020 appears in Exhibit 25 on page 32. The Paint Shop We do not expect major changes in the paint shop much before 2020, although automation will increase by (See Exhibit 26, page 33.) By 2020, however, the painting process will have changed radically: preprimed sheet metal will have rendered both pretreatment and cathodic dip coating unnecessary. Furthermore, the filler coat will no longer be necessary. Its function will be performed either by preprimed sheet metal or by new base coats. Only four steps will remain in the painting process: body washing, body sealing, applying the base color coat, and applying the clear coat. The new painting process will make it possible to assemble plastic parts in the body shop rather than waiting for the paint shop or final assembly shop. Plastic-molding presses could be installed close to the main assembly line in the body shop. At the same time, true color matching will allow for off-site paint shops. These shops will function as one aspect of integrated satellite plants in charge of stamping, painting, and assembling body modules. Given the huge investments that paint shops require in buildings and process technology, manufacturers may not rush to introduce this new paint EXHIBIT 24 THE EVOLUTION OF THE BODY SHOP Soon By 2010 By 2015 By 2020 Greater flexibility Transfer of subassemblies from the body shop to the press shop Partial replacement of electric spot welding by laser welding and gluing Introduction of plastic-molding presses in a separate plastics shop Partial integration of the body shop and the press shop Installation of hydraulic presses close to robot cells to form integrated subassembly areas Additional assembly line for fuel cell cars with different vehicle concept Production of body modules such as doors by satellite plants Possible implementation of plastic-molding presses close to the main assembly line after the introduction of the new painting process SOURCE: BCG analysis. 31

34 process. The timing of its introduction will differ from plant to plant, as current investments will have to earn depreciation before new technologies will be introduced. Meanwhile, as in the other shops, training facilities will expand. Once the new painting process is introduced, the space requirements of the paint shop will decrease by some 50 percent. A representative paint shop of 2020 appears in Exhibit 27. The Final Assembly Shop Final assembly in 2020 will be radically different from final assembly today. Manufacturers will have dismantled the current, highly complex finalassembly department and transformed it into a much simpler department whose task is to receive and assemble various preassembled modules from other departments. (See Exhibit 28, page 34.) This new format will require extremely precise production planning in which all the preassembly departments, as well as all suppliers, collaborate closely to achieve just-in-sequence deliveries. As in the other shops, flexibility will increase in the final assembly shop to accommodate the proliferation of models. In addition, new electronic brakeby-wire and steer-by-wire systems will call for additional assembly space. However, this space requirement will be more than offset by the decline in hydraulic-technical components, as well as by inline self-testing. Evolution toward this new final-assembly shop will reach a turning point by 2015, when the new vehi- EXHIBIT 25 THE MAIN BODY SHOP IN 2020 Decoupling Railway Transfer area Logistics Die cleaning Small hydraulic presses Social area Logistics: plastics Plastic-molding presses Expansion area Bottom assembly 1 Bottom assembly 2 Outerbody side panel Innerbody side panel Roof Outerbody side panel Innerbody side panel Maintenance Hood Office and social area Fender Finish Trunk lid Fender Quality center Paint shop with new painting process Logistics Rework area SOURCE: BCG analysis. 32

35 EXHIBIT 26 THE EVOLUTION OF THE PAINT SHOP Increased automation Automated interior painting SOURCE: BCG analysis. By 2015 By 2020 Replacement of cathodic dip coating and pretreatment by preprimed sheet metal Replacement of the filler coat by preprimed sheet metal or by integration into the base coat Production of body modules such as doors by satellite plants through 100 percent color matching cle concept for fuel cell cars will require a dedicated assembly line. The new assembly line will be simpler than the assembly line for combustion engine cars, because there will be no need for a preassembly area for joining the engine with the transmission. Nonetheless, it will still require additional space. By 2020, as we described above, body modules such as doors, trunk lids, and possibly hoods will be produced, painted, and preassembled in separate buildings at varying distances from the main assembly line. As a result, the main assembly building will need less internal space but will require several additional docking stations to accommodate the logistics of module deliveries and movements. Over the next two decades, we expect that final assembly should become increasingly automated as robots get ever smarter and are able to perform more tasks. However, human workers will remain EXHIBIT 27 THE MAIN PAINT SHOP IN 2020 Third level Repair buffer Office and social area Technology Technology Training center Buffer Cars go to final assembly Audit Rework Spot repair Buffer Preparation Second level Finish Finish Maintenance Drying Clear coat Base coat Flash off Cooling Drying Sealing Drying Used air First level of joints Body underseal Sewage Cars enter from the body shop Body washer Paint supply SOURCE: BCG analysis. 33

36 EXHIBIT 28 THE EVOLUTION OF THE FINAL ASSEMBLY SHOP Soon By 2005 By 2010 By 2015 By 2020 Greater flexibility Increased electronics Possible introduction of in-line self-testing of the vehicle A further increase in the level of automation Introduction of steer-by-wire and brake-by-wire systems Additional assembly line for fuel cell cars Production of body modules such as doors by satellite plants SOURCE: BCG analysis. essential. They will need sophisticated training to handle the new electronics systems and power-train concepts. As in the other shops, the training facilities in the final assembly shop are likely to expand over the next two decades. Taking these trends together, we anticipate that by 2020 the final assembly shop will require some 15 percent less space than it does today. As the shop evolves, plant management should be sure to build ample new docking stations to accommodate all phases of the shop s evolution. Exhibit 29 offers a schematic drawing of a final assembly shop as we envision it in EXHIBIT 29 THE FINAL ASSEMBLY SHOP IN 2020 Cars enter from the paint shop Road Transfer area Logistics: power train Technology Logistics Windows Logistics Dashboard Logistics Logistics Preassembly Front end Chassis power train Offices, social area, and training center Offices and social area Maintenance Quality/audit Doors Finish Logistics: body modules Logistics Seats Wheels Logistics Road Rework Cars leave for delivery SOURCE: BCG analysis. 34

37 Charting the Course to the Future OEMs and suppliers alike will need to chart a very careful course over the next two decades because the coming changes in the industry will require closely timed investment strategies. For each major change in vehicle concepts and production methods, the entire supply chain will need to gear up in unison. And in the case of new vehicle concepts such as fuel cell cars, not only must customers be ready to embrace them but an entire fuel-delivery infrastructure must also be designed and installed. A miscalculation will prove extremely painful: Introducing these new technologies too early will generate inadequate sales to cover fixed costs. Introducing them too late will squander potential market share and tarnish the brand. Furthermore, investments that appear to make sense today, or for the near term, could create obstacles to effective performance down the road. OEMs and suppliers will need to focus on both near-term efficiencies and long-term strategy. Sophisticated simulation systems can help and are well worth the investment. Decisions that companies make in the next year or two could determine their competitive position in Implications for OEMs Many of the implications for OEMs of the significant changes ahead have already been stated in this report: the need to plan the evolution of each plant in meticulous detail, to leave room for anticipated expansions of various shops, to enhance training facilities to support workers continuous learning. In addition, starting now, OEMs should encourage the R&D, marketing, and production departments to work together more closely than ever before in order to gain the full benefits from rapidly introducing new models and model variants. It would be useful to locate these departments close together and promote communication and understanding among them. Companies should encourage not only frequent meetings of relevant staff from all three departments but also job rotations among the departments. Automotive OEMs should also work closely with suppliers by creating task forces to address significant issues. For example, OEMs and suppliers need to become adept at handling new materials and complex new technologies. A task force could devise ways to test those materials and technologies in prototypes and niche models well ahead of introducing them into the production of high-volume models. Audi, for instance, tested its new bodyframe concept known as the aluminum space frame in its luxury A8 model before introducing it to its higher-volume A2 model. This approach would allow everyone concerned to make competent decisions about the degree of outsourcing, the timing of investment, and the dates of introducing new technologies into full-scale production. The OEMs should take the lead in orchestrating the change process. To do so, they must look outside the plant at the forces driving change and at competitors performance. And they must take a hard look inside the plant to see how their own performance measures up against industry best prac- 35

38 tices. In short, they must do rigorous benchmarking. (For a partial list of measures to benchmark, see Exhibit 30.) Naturally, in using benchmarking data to compare the performance of two plants, it is essential to make adjustments to reflect a number of variables, including the plants different degrees of vertical integration, product complexity, and net working hours per year. If these variables are taken into account, benchmarking exercises can be a powerful tool in identifying any gaps between current performance and best practices. Once the potential for improvement is clear, management can move to close the gaps by addressing one or more of the three drivers of productivity: the design of the product, the design of the production process, and the layout of the plant. Implications for Suppliers of Plant Equipment and Services In the future, new production processes will be simulated in advance of their adoption. Suppliers of plant equipment should be familiar with simulation techniques and should contribute to their development and refinement. They should also prepare to manage the coming changes in production techniques and materials by working closely with OEMs and material suppliers to develop state-of-the-art production technologies. In designing their products, suppliers of plant equipment should think in terms of the overall lifetime costs of ownership, including changes that will need to be made, tooling, and logistics costs. They should consider each individual machine in the context of the entire production chain to reduce interface problems. And they should design each machine to work with new and potential neighboring technologies. For instance, robots in the body shop should be able to handle new bonding techniques, such as gluing and laser welding. Suppliers of plant equipment might consider buying neighboring technologies as a possible growth opportunity. For example, suppliers of conventional welding techniques could expand their offerings to include new bonding techniques. This strategy would require a detailed understanding of new production technologies and their likely dates of introduction. Suppliers of equipment for press shops will need to offer presses that are flexible enough to handle aluminum as well as steel. They should also plan to offer new production technologies, such as small hydraulic presses, that support the cost-efficient production of niche models, as well as hydroforming presses and plastic-molding presses to handle lightweight vehicle construction. Suppliers of equipment for body shops should offer integrated solutions that can flexibly handle the new bonding techniques. They will also benefit by increasing the flexibility of their assembly lines to cope with different vehicle concepts and more model variations. Suppliers of paint shop equipment should collaborate with steel producers and paint manufacturers to develop new painting processes. They may want to consider building and managing small costefficient paint shops equipped to participate in the coming offline production of complete body modules. They might also consider offering conveyors and automation systems for final assembly. Logistics service providers should prepare to assume responsibility for mounting and testing parts, as well as transporting, packing, and storing them. These additional responsibilities will require more highly skilled workers with ongoing requirements for training. In addition, logistics service providers should think about new concepts to streamline their operations while maintaining justin-time delivery. Implications for Suppliers of Components, Systems, and Materials Components and systems suppliers will be significantly affected by the changes in car design. In general, these suppliers should further reduce the weight of components and systems by adopting lightweight materials and construction techniques. 36

39 They should also prepare to meet OEMs new justin-sequence requirements and resulting location needs. A close interaction with OEMs will become more and more crucial. Toward this end, suppliers may need to establish facilities in supplier parks close to OEMs. Suppliers of car electronics must plan to integrate more safety, comfort, and entertainment features into their modules. All these features have to be compatible with one another, and the module itself should be capable of self-testing during the production process. Because hydraulic components will be less important in the future, suppliers of brakes should push the development of brake-by-wire systems. They should also work with OEMs to develop brake systems for fuel cell cars that will support the recovery of kinetic energy. Transmission suppliers will face a shrinking market in the long run because of the introduction of fuel cell cars, which will have small transmissions or none at all. Most of these suppliers should explore additional business opportunities along their valueadded chain, despite the fact that some are currently enjoying significant growth as the result of some OEMs outsourcing their transmission production. For suppliers of electric engines and drives, by contrast, fuel cell cars represent an opportunity for significant growth. EXHIBIT 30 SELECTED MEASURES TO BENCHMARK The press shop The body shop The paint shop The final assembly shop Input/output Number of direct workers (person-years) Number of indirect workers (person-years) Net working time per worker per year Effective output per year (tons) Percentage of parts produced in-house (tons) Cutting rate (percentage wasted) Number of direct workers (person-years) Number of indirect workers (person-years) Net working time per worker per year Initial investment Effective output per line per year (car bodies) Number of direct workers (person-years) Number of indirect workers (person-years) Net working time per worker per year Initial investment Effective output per year (car bodies) Number of direct workers (person-years) in main assembly in preassembly Number of indirect workers (person-years) Net working time per worker per year Effective output per year (car bodies) Degree of vertical integration (percentage) Number and type of internally or externally preassembled components Process structure Number of parts from double-part production Throughput time per body (minutes) Throughput time per body (minutes) Throughput time per body (minutes) Core transfer-press setup time (minutes) Cycle time (seconds) Time the shop is running (percentage) Finishing time per body (minutes) Time the shop is running (percentage) Cycle time (seconds) Number of assembly stations Time the shop is running (percentage) Product complexity Average number of hits per part Number of welding points per body Number of regular paints Number of assembled parts per vehicle Number of tailored blanks per body Length of laser weld seams per body (millimeters) Length of pasted seams per body (millimeters) SOURCE: BCG analysis. 37

40 The removal of complete body-module production from the main line to separate preassembly departments will offer new opportunities to systems integrators. These companies should prepare to assume responsibility for manufacturing complete body modules, including stamping, body shop, painting, and preassembly. To this end, they will need to deepen know-how in the different shops over the next few years perhaps by partnering with OEMs and recruiting experts from different shops. Steel suppliers should postpone the coming displacement of steel by aluminum and plastics by offering new high-tensile steels. In addition, they should help OEMs further reduce vehicle weight by promoting the use of lightweight steel forms and new production techniques. They may want to consider taking on the production of blanks and tailored blanks close to their steel production facilities in order to reduce the costs of transporting and recycling cutting waste. Additionally, they should collaborate with paint suppliers to speed up the development of preprimed sheet metal. This type of sheet metal, which can easily be stamped, will represent a unique and powerful selling proposition. Conclusion The changes that are already under way in the automotive industry and will continue to unfold over the next two decades will be extensive and costly. They will affect every participant in the industry and every step in the value chain. But they will also offer unprecedented opportunities for rethinking business as usual, for pushing back the boundaries of conventional manufacturing assumptions and processes, for creating excellent cars and radically more flexible and efficient manufacturing facilities. To seize this opportunity and to position themselves to compete effectively in 2020, industry participants must begin today. Their first challenge is to arm themselves with a solid understanding of both current best practices and the forces conspiring to drive change. Then they need to develop a clear vision of where and how they want to be operating in Finally, they must plot a detailed migration path that will carry their companies successfully through the next two decades. Aluminum suppliers should immediately work with OEMs to anticipate the timing and extent of their increasing demands for aluminum. In addition, they should try to develop new aluminum alloys that offer better ductility and are easy to recycle. Today s aluminum alloys still have limited ductility and thus are difficult to stamp. Plastics suppliers, meanwhile, should focus on developing plastics that are easy to recycle, as well as techniques for recycling them. They should also work closely with paint suppliers to develop colormatching techniques. 38

41