In truth, it’s not as revolutionary as Winterkorn says. Scania, now a unit of VW Group, introduced in 1980 a range of modular trucks with almost an unlimited number of variants. It paved the way for industry-leading profitability and is one of the cornerstones of its corporate philosophy to this day. More recently, modularity was a key part of the business model for Michael Dell’s personal computer company, in contrast to Apple’s far more integrated approach in which swapping out a defective battery in an iPhone requires the whole phone to be replaced.
“The concept [of modularity] has been around for a long time, but the automotive industry is a little slow to embrace it, perhaps because the journey is a very difficult and challenging one,” Modular Management’s Johnson said.
Unlike other management principles such as Toyota’s kaizen, in which management continuously improves best practices, modular production initially requires a radical rethink that affects everything from design and engineering to production, logistics and procurement.
“You’ve got to bring the organization along with you,” said Justin Cox, a production expert at LMC Automotive. “People tend not to like change and this operational challenge you have to overcome is not so obvious until you ask the engineering and purchasing managers to execute. You need to consider these unidentified ‘X’ costs of organizational disruption globally.”
Considerable resources also are needed. Morgan Stanley estimated that VW shelled out the eye-watering sum of $64 billion in development costs and capital expenditure to launch the MQB architecture — a fortune given that VW targets a return on its investment of more than 16 percent in its core automotive business.
“Modularity is a bigger upfront investment and if you look at the automotive industry they’ve got a lot of built-up inertia with their platform methodologies,” Johnson said.
Rivals such as PSA, Renault and Fiat Chrysler that are still trying to emulate VW can take comfort knowing that it is still working out the kinks in the MQB system, and they can learn from their German competitor’s mistakes.
Despite Winterkorn’s claims that initial positive effects from MQB are already being felt, the VW brand’s first-half operating margin narrowed to just 2 percent — far below its target of more than 6 percent. Indeed, the CEO announced in July a $6.4 billion earnings improvement plan, which likely will include ditching convertibles such as the VW Eos, outsourcing some component production such as brake discs and eliminating superfluous options packages built into fewer than 5 percent of its cars.
For example, some 156 steering wheel variations are offered in VW brand cars, which raise purchasing costs, increase assembly time and require more warehousing even though many are only differentiated by the color of the thread stitched into the leather.
VW also suffered from line stoppages at its Wolfsburg plant when it integrated the MQB-based electric Golf into production, since the cars coming off the line were not meeting U.S. crash safety norms.
Reuters cited witnesses who saw workers improvise by handing metal sheets to robots working on the e-Golf to stiffen its frame.
“VW is pursuing ultimate scale yet they clearly haven’t really made that work for them at the moment and that’s the key investor frustration behind why the stock has underperformed over the last year or so,” Exane’s Pearson said. “To be fair they’re still ramping up and are nowhere near the full volume capability — but MQB hasn’t delivered the savings people have been hoping for yet.”