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Bad Breaks

Once I interviewed the U.S. business manager for an overseas brake manufacturer.

Once I interviewed the U.S. business manager for an overseas brake manufacturer. During the course of the conversation, I asked about the wide variety of brakes found on some platforms, and whether this didn't cause more confusion–and add more cost–than it was worth. Almost immediately the conversation became very animated.

Apparently, this gentleman had recently tried to make the very same point to his biggest OEM customer. "They have a new small car coming," he said, "and five different brake systems, for the five different body styles." There were two four-wheel disc systems and three disc/drum combinations. Each was slightly different. And their inclusion depended upon whether you ordered the three-door, five-door, sedan, wagon, or the proposed small van. In short, the brake supplier told me, the multiplicity of parts would increase costs all down the line. Yet ironically, cost containment was the reason the automaker insisted on this scenario.

"Their purchasing department told us that drum brakes cost less than discs," he said, "and that's true on a strict part-for-part basis." Unfortunately, that view ignores the development costs, production costs, storage costs, assembly costs, warranty costs, etc. associated with offering multiple braking options. It also ignored the brake supplier's simple solution: making four-wheel disc brakes standard on each model. Braking performance would be altered by using different pads and changing the settings on the proportioning valve, but the foundation brakes would stay the same. A simple cost analysis done by the brake manufacturer showed significant savings from this approach, but the OEM wouldn't listen.

Further conversation highlighted the true concerns of the OEM's purchasing department. It seems the OEM had no way to meaningfully track, measure, or quantify savings arising from a systems approach to cost. Parts were parts, and far easier to count than savings in complexity, variability, or time. And, perhaps most importantly, the purchasing bosses were evaluated on piece costs going down, not up.

Unfortunately, little has changed since the interview–10 years ago. Sure, BMW used the systems approach to validate that using a modular front structure on the Mini wouldn't increase costs, but examples like this are few and far between. More common are cases like GM's recent decision–apparently supported by Bob Lutz–to remove anti-lock brakes from some car models as part of a program to pare costs by $1.3 billion. I may be wrong, but isn't this a false economy? Won't ABS become more expensive for both the company and the consumer?

Instead of the current steady order bank, GM's ABS suppliers will have to depend on the company's forecasted take-rate for the option, and adjust as needed. The assembly line also will be affected with some cars taking the parts, and others not. This will add complexity–not to mention variability–to the process. (GM needs less of both, not more.) And the list goes on. These pressures will push the cost of ABS up, and GM will pass the increase along to its customers–at a suitable multiple, of course.

If GM wants me to believe that it didn't charge enough to cover the cost of standard ABS and make a profit, they'll have to try again. Of course, if GM's point is that it has to sell ABS-equipped cars at the same price as a competitor's (e.g., Hyundai or Kia) non-ABS models, that's a slightly different story. Either GM hasn't sold the benefits well enough to recoup the cost, or this is the easiest place to make quick but significant cost cuts in an aging and uncompetitive lineup. Whatever the reason, the whole exercise, I predict, will cost GM more in bad press and customer trust than it saves per vehicle, and be one of the biggest mistakes Bob Lutz ever makes. 

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