Wednesday, November 25, 2015

Development Cost of Cars - Efficiency Practices and Lean Product Development

January 2014
Maruti invested 5.7 billion rupees ($91.7 million) to develop the Celerio in the belief that Indians want an automatic car. 5.7 billion rupees is equal to Rs. 570 crore.

September 2013
Grand i10, which is built upon a new platform with a development cost of nearly Rs 1,000 crore, features India specific dimensions and is 100 mm longer than its European version.

May 2013
General Motors opened a new $130 million enterprise data center, which will serve as its computing “backbone” for its global operations. The facility is located at its Technical Center in Warren, Michigan.
GM Says the new IT Center Will Reduce Vehicle Development Costs. The company also plans to build another $100 million facility in Milford, Mich.

Tata Nano
Engine Management System for Tata Nano

Chevy Volt Development Cost $1 to 1.2 billion

Mahindra & Mahindra launched its multi-purpose vehicle Xylo
Xylo, with its competitive price ranging from Rs 6.24 lakh to Rs 7.69 lakh, is pitched against MPV (multi-purpose vehicle) market leader Toyota Innova . While Toyota’s low-end Innova E costs Rs 7.60 lakh, the low-end version of Mahindra MPV, Xylo E2, at Rs 6.24, comes with additional comfort features including power steering, power windows and central locking. Toyota’s high-end Innova G4 is priced Rs 9.29 lakh while Mahindra’s high-end variant Xylo E8 costs Rs 7.69 lakh and offers additional comforts including digital drive assist system and flatbed front seats.
Xylo, which was under development for four and a half years, has come out of an all-new platform called Ingenio. The entire product development has cost Rs 550 crore. According to managers of the company, the product development process has improved significantly in the last six and a half years. The development cost of Scorpio and Xylo is the same, even though Xylo was developed recently.

Ford spent an estimated six years and $6 billion developing its world car - the Mondeo/Contour/Mystique.
The Mondeo was launched on November 23, 1992, and sales began on 22 March 1993.
Instigated in 1986, the design of the car cost Ford US$6 billion. It was one of the most expensive new car programs ever. North American models were marketed as the Ford Contour and Mercury Mystique until 2000, and as the Ford Fusion from 2013 onwards.

Corvette 5 Upgrade - Budget $200 million


Product Development in the World Auto Industry
Harvard University
Harvard University
Harvard University

GM-10 Development Project - W-Body by General Motors - $7 billion budget

Ford Fiesta
Development Cost - $1 billion

Ford Management decides to study the possibility of producing a class "B" car, smaller than the European Escort Mk. 1,  The commitment: seven men, $100,000 and 8 months to create a firm proposal.

Lee Iacocca, then President of Ford, and Henry Ford II, Chairman, agree that the proposal looks promising,.

 Ford Fiesta project is code named "Bobcat." The Ghia design studio in Turin, under De Tomaso, produces styling model which is used in marketing studies. Other pre-prototypes studied are produced in England and Germany, and all are rated along side compeitors. $1.3 million total is spent in marketing studies, including showing prototypes and competitors to 900 customers from 7 countries.

Henry Ford II and Lee Iacocca introduce Bobcat prototype to Ford of Europe staff in Germany 1000 days before start of production. This prototype has styling almost identical to the final production version. Styling is later finalized, with a compromise between two similar Ford Europe design studio efforts approved.

Construction of an automobile production complex is started in Valencia, Spain to produce Fiesta. Annual capacity to be 400,000 engines, and 300,000 complete automobiles. First prototype Ford Fiesta driven by Henry Ford II and Lee Iacocca.

Ford Fiesta is upgraded in minor ways to exceed the new higher targets set by the latest competition. European pre-production engines produced, and the Ford Fiesta is transferred from the development to production startup stage. Board decides to produce federalized version of the Ford Fiesta at Saarlouis, Germany, for export to the United States. Plans are made to produce 1600cc 'Kent' engines at Dagenham, England, to be shipped to Germany and mated with transmissions made in Bordeaux, France. All to be assembled into Fiestas to be exported to the U.S.

Total Ford Fiesta production: 109,838 units (partial year).
Production is started of 957cc European version, which weighs approx 1650 lbs.

Total Ford Fiesta production: 440,969
Sales of U.S. Fiestas begin, 1978 model year designation. Four model variants are available: Base, Decor, Sport and Ghia. All have the same engine and four speed manual transmission, with interior trim and instrumentation being the primary differences. The exceptions are the Sport model, which includes stiffer shock valving and a 12mm. anti-sway bar at the rear, and the Ghia which includes servo assisted brakes.

Why does it cost upward of a billion dollars to develop a new car?

Car companies have to spend enormous amounts developing new models. The price tag to develop a new vehicle starts around $1 billion. According to John Wolkonowicz, Senior Auto Analyst for North America at IHS Global, "It can be as much as $6 billion if it's an all-new car on all-new platform with an all-new engine and an all-new transmission and nothing carrying over from the old model." $6 billion was spent by Ford in developing Monde model during 1986-1993.

Thousands of parts have to work every time one turns the key and every time one presses the accelerator and every time one presses the brake. And they have to do it for about 15 years. And they also have to pass all the government inspections.

When an automaker designs a new car, it has to identify consumer tastes a few years down the road, and  also it has to create a car that is feasible to produce on an assembly line and still make a profit.

A new car development team usually includes a few hundred of engineers, split into such groups as chassis and body, suspension, drivetrain, control systems and other major subsystems. Other teams may be dedicated to control noise, vibration and harshness, meeting government regulations, or finding the most ergonomically correct setup for the widest variety of differently sized humans that could get behind the wheel. With the rise of in-car infotainment systems, there are engineers working on the latest gadgets to include in the car.

Lot testing goes in the development process. They test, test, and test some more until they get it right. They test to meet performance requirements. They test for durability. They test for fuel mileage. They test for aerodynamics. They test for safety compliance. Testing costs money.

Today many tests can be done on the computer before prototypes are built, but those computers and the software cost more money and eventually, real-world tests must be done and unique prototypes must be built. Some of that real-world testing can take place at automakers' private proving grounds or closed test tracks, but the need to test in extreme weather conditions lures them to the roasting desert of Death Valley and the frigid winter of Lapland. The logistics of getting humans, prototypes and test equipment to these regions does not come cheap, either.

You will find designers (interior and exterior), model makers, marketing people, manufacturing specialists, assembly line workers, industrial engineers,  purchasing analysts, and number of outside consultants and also number of accountants -- working on new product development at any given time. You require many executive decision makers. There is also support staff assisting with human resources, IT and other essential services of a modern corporation. As a part of development assembly plants have to designed and tooling to stamp parts out has to be created.

At an average total compensation for each engineer, designer, accountant, marketing person and executive  in the neighborhood of $100,000 per year (counting benefits such as medical insurance, pensions, education, vacation and other perks) and a team of 1,000 people would mean $100,000,000 per year.  With four years to develop a car, that's at least $400,000,000 for compensation alone. Those employees need computers, office space, engineering laboratories and many  other resources required to design and engineer such a complex machine. The mobile bill alone is probably in the neighborhood of a million bucks a year for such a group. One billion dollars can be easily accounted for.

Re-tooling a factory can easily eclipse the human cost of developing a new car.

In the Book "The Machine That Changed the World" Womack et al. note that average American producer requires 60.4 months and 903 employees to come out with a new car design. The prototype lead time is 12.4 months and die development time is 25 months.

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To be updated

25 Nov 2015, 22 feb 2014

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