Defining the Automotive Product Development Process

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Defining the Automotive Product Development Process DETROIT, MI (Aug. 28, 2007) - As gasoline prices continue to breach the $3-per-gallon threshold and approach ever-high levels, a great deal of public discussion is focused on petroleum use and greenhouse gas emissions from automobiles. An inevitable response has been to call upon automakers to produce higher-mileage vehicles, resulting in policymakers considering regulations and laws to spur more fuel-efficient designs. Whatever the uncertainty about the future oil market, high fuel prices and related issues have already impacted the new-vehicle market. During 2006, sales of light trucks, including many SUVs, dropped notably. Although consumers did not rush to small cars as they did during the 1970s oil shocks, the market has shifted to models that are smaller and more fuel-efficient than in the recent past. Consumers, legislators and regulators are often "rear-view" people, who typically express their desires only in terms of what they already know. The U.S. auto market has become increasingly competitive, price-constrained and globally linked. Moreover, the car is becoming more of a commodity, with many vehicle attributes taken for granted by consumers who are often unwilling to pay more for features that once commanded a premium. Understanding the process by which automobile product planning and strategic business decisions are reached is a crucial foundation for developing sound approaches to meet the auto sector's unique challenges related to energy use and climate change. Yet little effort has been made to explain to policymakers and the public the intricate decision-making process entailed in changing vehicle designs or adjusting product cycle plans to meet new needs.The product planning process

Product planning in the automobile industry is a process that begins many years before a vehicle is ever seen in the marketplace.
(Photo: Kim Hill, Center for Automotive Research)The process of developing automotive business plans is incredibly complex, and often as reliant on intuition as it is on hard data. Many factors must be considered, including return on investment (ROI); surveys of market trends; forecasts of market size, sales, fuel costs and future consumer preferences; as well as technology availability and cost. Additionally, a new vehicle built at an existing assembly plant must mesh with the production cycle for other vehicles at that plant, as well as with the company's overall assembly capacity. These business plan decisions - which determine an automaker's major investments - entail many inherent uncertainties, not the least of which is the fact that market conditions can change dramatically, even in the midst of the process. Given such complexity, it is indeed remarkable when a company launches a new vehicle that consumers want at the exact time they want it. And for a vehicle program to be fully profitable, consumer demand must hold up throughout the vehicle's multi-year production life prior to replacement or redesign. Automobiles require long lead times for design, development and production planning (including tooling and supplier contracting). The process of developing a new program, whether for a new or redesigned vehicle or a powertrain, typically spans two-and-a-half years from concept to launch. Speed in product development confers a competitive advantage, with the best programs completing the process in 24 months while others struggle with timelines of 36 months or longer. The first six to 12 months is critical. During this strategy development phase, major parameters defining the program are decided and a business case is developed. Parameters set at this point include market segment and competitive positioning, expected sales volume and price, and key vehicle attributes including size, performance, drivetrain and other major technology options. The availability and utilization of production capacity also are critical elements, since poor capacity planning can be financially devastating. It is on the basis of such parameters, including capital and corporate resource needs along with profitability metrics, that a program is submitted for top management approval. This step, which typically happens about 24 months before product launch, is the point at which major funds for implementing the program are released. Any given product program is but one element of a company's full vehicle portfolio. An automaker's cycle plan is the resource allocation timeline that compiles the full set of business propositions for every product in the portfolio. Auto companies address product planning activities and development decisions broadly, and increasingly globally, covering all their products and all their markets. A complete cycle plan usually spans 10 to 15 years, but the plan is most detailed for the immediate five years, when the timing of major design efforts and capital investments are well defined. The Cycle Plan In automotive parlance, a "cycle plan" is the layout, along a multi-year time axis, of a company's plans for the design, engineering, tooling, launch and production life of all of its various vehicle lines and models. The life of a product line spans many years, and so does the cycle plan. For a given vehicle line, the time from conception to first production may span two-and-a-half to five years. The time from first production ("Job No. 1") to the last vehicle off the line ("Balance Out") may span from four to five years to eight to 10 years or more, depending on the dynamics of the market segment.