Neon, meet Dion.
As a centerpiece of the turnaround plans outlined by DaimlerChrysler executives in Stuttgart, Tokyo and Auburn Hills, Mich., last week, Chrysler group and Japanese partner Mitsubishi Motors Corp. will begin joint development and engineering of small and mid-sized cars.
The details have to be ironed out. But platform sharing - for example, between the compact Chrysler Neon and the similar-sized Mitsubishi Dion minivan, which is not sold in the United States - would generate huge savings for the financially troubled partners.
Under the restructuring, Mitsubishi also plans to slice the number of light-vehicle platforms to six or seven from 12.
Although definitions vary among automakers, a platform generally is defined as a vehicle's primary load-bearing assembly. It determines a vehicle's basic size and links a driveline and suspension components.
The potential savings from building several models of cars and trucks off the same basic platforms and from sharing many parts among vehicles are enormous.
Mazda Motor Corp. President Mark Fields, for example, has estimated that joint product development with Mazda's parent, Ford Motor Co., has cut per-unit engineering expenses by between 10 percent and 50 percent, depending on the vehicle program.
`A different game'
David Cole, director of the Center for Automotive Research at the Environmental Research Institute of Michigan in Ann Arbor, Mich., said he never saw much potential for cost savings in the merger between Chrysler Corp. and Daimler-Benz AG that created DaimlerChrysler.
Until now, that is.
'With Mitsubishi in the mix, it's a different game. It offers a much higher level of cost savings,' he said.
That's because there is almost no potential for sharing development or major components between Chrysler, a volume carmaker, and the upscale Mercedes brand. DaimlerChrysler executives have made it clear that protection of the Mercedes brand's purity is a higher priority even than cost-cutting.
But with Mitsubishi in the mix, immediate candidates for consolidation include the next-generation Chrysler Sebring and Dodge Stratus sedans with the new Mitsubishi Galant platform, and the next-generation Neon with the new Mitsubishi Lancer sedan, which shares a platform with the Dion.
Down the road, analysts point out, even a merger of some light-truck platforms is possible.
Both Mitsubishi Motors COO Rolf Eckrodt, outlining the company's restructuring plan in Tokyo on Monday, Feb. 26, and Chrysler CEO Dieter Zetsche, speaking in Stuttgart on the same day, said platform sharing will begin in 2004. Two days later, Mitsubishi President Takashi Sonobe met with DaimlerChrysler product czar Juergen Hubbert at the Geneva auto show to discuss product strategy.
A merger of Chrysler's and Mitsubishi's small and mid-sized car platforms could offer suppliers potential contracts worth 500,000-plus vehicles a year per platform. That compares with an estimated volume last year of only 275,000 units for the two companies' highest volume car platform, Chrysler's NLH platform. The smallest, Mitsubishi's YR/VP platform, accounted for 7,500 units.
'Most supplier companies out here would be pleased as punch to get business for 600,000 units per platform,' said Stephen Usher, Tokyo-based auto analyst at Jardine Fleming Securities (Asia) Ltd. 'That's significantly larger than anything they've done up until now.'
Higher volumes would be a boon for Tier 1 suppliers, all of whom have invested heavily in a multicontinent strategy and in developing complete assembly modules for automakers.
Consultant Craig Fitzgerald said the winners will be module and system suppliers with the ability to support programs on several continents. Strong engineering contacts and program management capabilities on each of the continents will be required, said Fitzgerald, a partner with Plante & Moran LLP in Southfield, Mich.
He said potential winners from platform consolidation include Johnson Controls Inc., Delphi Automotive Systems Corp., Lear Corp., Robert Bosch GmbH, Visteon Corp. and Magna International Inc. Japanese suppliers Denso Corp. and Yazaki Corp. also are likely candidates,
They have a global footprint, a strong balance sheet and the human resources to take over from less qualified local suppliers, he said.
Johnson Controls, for example, is well positioned with DaimlerChrysler, where it generated 16 percent of its $17 billion in sales last year. The supplier last year made its first major automotive beachhead in Asia through the purchase of Japanese seat maker Ikeda Bussan Co., a Nissan Motor Co. affiliate.
Eckrodt made it clear last week that he's prepared to break up the Japanese automaker's existing supplier relationships to get better prices and a higher level of integration.
'Global sourcing at MMC is nearly nonexistent. Clearly, this must change,' Eckrodt said in Tokyo, where he unveiled highlights of the company's restructuring plan. That plan calls for cutting procurement costs by 15 percent over the next three years.
'If we can find (a good part with the right quality and cost) from Europe, South Korea, North America or Japan ... we will buy it.'
Henceforth, Eckrodt said, each Mitsubishi supplier will have the chance to qualify as a systems supplier.
'But,' he said, pointing to a long-standing limitation of Japan's keiretsu suppliers, 'some don't have the skill or the financial strength to qualify.'
In today's shifting Japanese landscape, said Jay Kunkel, managing director of PricewaterhouseCoopers Financial Advisory Services Co. in Japan, the 'keiretsu supplier needs a global partner to protect the business' and help with module and system capabilities.
That's because most design development in Japan has been controlled by the automakers, Kunkel said.
'With a few exceptions, much of the supply base here has been `build to print,'' he said.
'That is why there are opportunities in Japan for the Western Tier 1s. They're further down the road to integration. They need the foreigners here.'