Globalization brings flexibility to auto industry

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If you want the world at your doorstep, buy a new car.

These days, just about every car and truck has parts from companies in other countries, or even is built in other countries. Analysts say there really is no such "animal" as a completely American car or truck built with exclusively American parts.

For instance, a good number of the cars with "All-American" nameplates, such as Chrysler's 300, Dodge's Charger and Challenger, and several of General Motors and Ford's products, are built in Canada or Mexico.

"Globalization is being used to gain competitive advantage by individual companies over their competition," said Tom Libby, an independent auto industry analyst based in Detroit. It also opens up huge new markets for companies that might otherwise be limited to the size of their home base.

In the auto industry, globalization means that platforms -- the basic foundation or underpinnings on which cars are built -- can be shared with similar cars manufactured by the same company all over the world. This means greater flexibility, more varieties and types of vehicles, and greatly reduced time in developing and building them. Thanks in large part to globalization, it takes three years or even less to develop and design a new car compared to five years a decade ago.

But globalization can become a big problem if it isn't managed well. Just ask any of the Big Three or a number of the imported brands that have struggled to produce sales and profits.

Back in 1960, the Big Three managed the market by absolute domination, through the use of clever advertising that stroked egos, fed identities and nurtured dreams of many an American school child longing to buy a new car as soon as he or she grew up. Thanks to tailfins, striking designs, two-tone paint jobs, white wall tires and other niceties, the Big Three had 93 percent of the U.S. market.

There were imports, of course, with Volkswagen, an English brand called Hillman, France's Citroen and Renault, Datsun and many others long since taking up residence here.

But imports back then were considered the toys of the wealthy, the eccentric and single devil-may-care men and women -- not families.

At least two of the Big Three were bringing in imports during the late 1950s and early 1960s, including Pontiac with its British Vauxhall, Ford with its English Ford derivative, Chrysler with French Simcas and Buick with its German Opel.

Over the years, Detroit's failure to take changing American tastes seriously, along with charging higher prices for domestic vehicles saddled with high labor costs, fuel crises, poor quality and plenty of other woes resulted in a steady erosion of market share for domestic companies. The Big Three today have somewhere around 43 to 46 percent of the U.S. market, analysts say.

Although operators from other countries worked hard to compete here, to some extent the domestic brands made their own beds. All three tried their best to fool consumers over the years with badge engineering -- the practice of using the same body and parts for several cars with almost identical styling, and then charging more for them.

The days of badge engineering have largely come to an end.

Failure to differentiate among cars built on the same platform has been a losing proposition in the marketplace. Taking the safe, easy way out on engineering, ride, handling and other characteristics that give a car a distinct personality also is a killer.

To avoid that, "You change what's important and what's visible to the consumer," said Jeff Schuster, executive director of forecasting at J.D. Power & Associates.

There are many ways in which globalization has been implemented in the auto industry.

The easiest ones to spot are new factories built by companies headquartered overseas. Toyota, Honda, Volkswagen, BMW, Nissan, Kia, Hyundai and Mercedes Benz and Subaru already have done this or are planning to build one or more additional plants in the U.S.

Some companies are becoming global by partnering with one or more other companies and developing technology and components of cars. For instance, many cars sold in North America have engines, transmissions or other major parts that come from companies overseas.

Yet another form of globalization has taken place within Detroit's Big Three auto companies. For decades, both Ford and GM have had factories in other countries that make Europe, Australian or Asian versions of their products.

Rather than having each of those countries or regions go to the expense of designing and building their own versions, Ford and GM have assigned particular sizes or types of cars for all of their brands to a specific region.

"They will tell that region, 'OK, the designers and engineers in this region will be responsible for designing this size of vehicle globally," Mr. Schuster said.

Buick's glamorous new LaCrosse, due out this fall, was designed with input from GM units in China, Europe and North America. In a similar effort, Ford's upcoming Fiesta, along with its new Fusion due in a couple of years, will share platforms and parts with European models.

But there are challenges to making globalization work well.

"First, there's the communications challenges. And, as a result, there's potentially a larger margin for error. You have to communicate well to make sure the same product meets all the standards and takes into account all the differences around the world," Mr. Schuster said.

A car company must be thoroughly familiar with regional tastes.

"Things have to be done with some sensitivity to local markets. The manufacturers can't assume that the same products, including sheet metal, technology and other elements will be received in the same way in all global markets." Mr. Libby said.

Ford is especially adept at global operation, he said.

"They are doing it the smart way. [Ford CEO] Alan Mulally is having commonality in the company's cars wherever that is feasible, using the same platforms around the world. But they also are adjusting what customers sees to the individual tastes in each market."

But it took time and energy to get it right for Ford.

Years ago, Mr. Libby said, when the company introduced the Escort compact, "Ford did one in Europe and one for the U.S. and promoted it as a world car. But the two had very little in common. Anecdotally, I heard that the only shared part was the ashtray.

"That's not using globalization correctly. It's supposed to be to increase efficiencies through common parts, for instance."

When it comes to merging companies to encourage globalization, there also are cultural differences to be overcome.

Chrysler and Fiat, which are joining forces now, will have to be particularly mindful of cultural differences, analysts say.

Chrysler's already been through a "marriage" with a global partner that didn't work, in part, because of cultural differences. When Chrysler became part of Germany's Daimler Benz, differences emerged in everything from daily operations to how they viewed the auto industry and their roles in it.

And though it did so eventually, Daimler Benz reportedly was initially reluctant to share its engineering expertise and parts with Chrysler. Just as important, the idea of selling mass market products along with luxury cars didn't sit well with many at the newly global company.

"If there is discontent among employees, that can affect the culture at the company. They must work hard at having a smooth transition to a new culture," Mr. Libby said.

And they also have to respect the cultural differences in the products themselves, he added.

"Fiat is supposed to provide small car products to Chrysler but will Chrysler products now be rebadged Fiats? There's a risk to bringing in Chryslers to Italy and making them look just like Chryslers, too. They will need to create products with distinct sheet metal for all of their products, including Chrysler, Dodge and Fiat," Mr. Libby said.

To avoid problems, he said, "The environment has to be conducive to accepting suggests and input from employees. It cannot be dictatorial. There cannot be one side saying, 'This is the way this has to be done.'"

Don Hammonds can be reached at 412-263-1538 or .


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