One way in which next-generation manufacturing is impacting the automotive industry is the movement toward modular architecture. These designs use common underpinnings for various models across a variety of vehicle segments, minimizing the variation between parts needed for these models. Volkswagen says their MQB architecture will eventually underpin roughly 40 models, ranging from subcompact hatchbacks like the Up! to larger sedans like the Passat, and a range of Volkswagens, Audis, Skodas, and Seats in between. While questions about cost overruns on the program (which was already estimated to cost Volkswagen $70 billion over four years) have cropped up in recent weeks, there are no signs that this trend will slow down, with GM and PSA Peugeot planning to base an array of future vehicles on the EMP2 (for Efficient Modular Platform), and Renault-Nissan developing the CMF (Common Family Platform). Even automakers outside of the mass market, like Jaguar, are developing their own scalable platforms.

While these modular platforms promise cost savings and efficiencies of design and manufacture, they also raise questions that management and legal departments across the industry should be aware of.  These issues include:

  • Consolidation of suppliers. As modular platforms become more prevalent, and vehicles across a manufacturer’s lineup share more and more components, we are likely to see fewer suppliers entering into larger agreements with auto manufacturers.  Instead of contracting with a supplier for parts for one vehicle, and another supplier for a similar part for another vehicle, manufacturers may look to one supplier to provide the identical part for both. Depending on how far this consolidation goes, suppliers should be aware of the potential for heightened antitrust scrutiny as market share for individual suppliers increases. Given the extent of antitrust issues already roiling the automotive supplier industry, this may be an issue to watch as supply chains consolidate. The increased burden on a few suppliers may also combine with the increasing demand for automobiles to exacerbate parts shortages, a problem that is already looming for 2014.
  • Increased impact of quality issues. Along with the first point above, auto manufacturers may find that while fewer part design problems arise—because they are dealing with a smaller catalog of parts for their vehicle lineup—the impact of any problems with a part will be magnified. A safety-related part failure, rather than impacting one or two vehicles in a manufacturer’s lineup, may instead impact all of a manufacturer’s entries across each of its brands in several segments. This affects how a manufacturer will need to address both voluntary recalls and government investigations of safety issues (an area in which automakers’ obligations were already getting more complex). For this reason, the cost-benefit analysis of the degree of rigor put into quality control and parts testing may change as modular designs become the norm.
  • Intellectual property issues. Much as supply chains may be consolidated as modular platforms become the norm, the value of individual patents and processes protected as trade secrets may increase, as those patents and processes may apply across several segments of vehicles instead of only applying to components for a narrow class of vehicle. This is especially true as some automakers look to partner to craft new platforms, as GM and PSA Peugeot have done—the importance of protecting intellectual property in these arrangements may increase as the application of that intellectual property broadens.

Even as modular platform development is becoming the norm in the industry, manufacturers enjoying the benefits of those platforms—and suppliers working those manufacturers—need to be aware of the consequences of this shift in manufacturing strategy.