By on April 12, 2013

Bernstein Research analyst Max Warburton thinks that the cost savings being anticipated by investors regarding VW’s MQB modular architecture will not materialize as planned.

MQB has been touted as a way to cut production costs by 20 percent via standardizing vehicle “hard points” like the pedal box and engine placement, while allowing for significant flexibility in other dimmensions. But Warburton remains a skeptic, telling the Detroit News

“We have long argued that the savings from MQB have been over-hyped and were inevitably set to disappoint. There is absolutely no way a new platform can save 20 per cent of the cost of a vehicle at VW’s level of scale,”

That assessment runs counter to estimates from banks like Morgan Stanley, which forecasts a savings of as much as $4,000 per car and as much as $10 billion in gross savings by 2016, once MQB has been implemented over 4 million cars. But the often touted benefits of scale don’t hold up for Warburton, who believes that returns are less significant beyond 1 million units.

From a product perspective, Warburton also believes that MQB’s extreme flexibility – from A to D segment cars – could be more of a hinderance than a help

“Either VW can engineer a Polo with Passat-level weight, rigidity and specifications, or a Passat with Polo-grade components. Most industry experts think VW will end up with a much too expensive small car platform…there are many reasons why VW may be able to resume profit growth in future years. It has great brands (Porsche now as well as others like Audi, Bentley and Lamborghini), products and technology, a unique position in China and one day the European car market will recover. But its margins are not going to expand magically just because it has a new platform,”

While TTAC has long been bullish on MQB and modular platforms in general, Warburton is a credible authority on the auto industry, and his concerns are not to be dismissed. Savings of 20 percent are indeed unprecedented for the auto industry, but with margins so thin and volume so critical, there is no doubt that MQB will be a significant technological advantage for VW. Nevertheless, TTAC has always been concerned about the possibility of cascading failures of standardized components that could lead to unprecedentedly large recalls. Only time will tell how these scenarios will play out.

 

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28 Comments on “Bernstein: VW Won’t Realize Big Savings From MQB...”


  • avatar
    Summicron

    God I love chassis views.
    How these beasts have morphed during my lifetime!

    If only the cabins still allowed room for our upper bodies.

  • avatar
    mike978

    Derek’s concern about cascading issues was borne out by the recent 3.4 million vehicle recall across 4 different companies for airbag issues.
    Certainly something to watch for in the future.

  • avatar
    Type57SC

    I’m not sure about the 20%, but 5% seems realistic. I would have thought the big savings would be in engineering costs.

    • 0 avatar
      cdotson

      I agree Type57SC, the 20% savings may have more to do with the cost of bringing a model to market than with the cost of actually constructing any one particular car. Given the extreme cost of engineering new vehicle models and submitting them for regulatory approval savings of that magnitude directly translates into lower amortized cost per vehicle sold.

      • 0 avatar
        fredtal

        There are some intangible cost benefits that accountants can’t put in their spreadsheets. Such as reduced inventory of components. That’s one problem I’ve run up against in our manufacturing.

  • avatar

    Fear, uncertainty, and doubt.

    So useful.

  • avatar
    Summicron

    “Fear, uncertainty, and doubt.”

    A cliche coined and adopted by smart people, yet containing a redundancy.
    A higher-income relative of “Fix Or Repair Daily”.

  • avatar
    tresmonos

    I would buy into the 20% savings if your manufacturing sites are close together. When you’re sourcing globablly from numerous suppliers to numerous final assembly locations, you’re introducing a significant amount of variability. The 5 M’s + E apply here. Which means the same workload on your D&R’s and tooling will be as costly as any other OEM platform(s) when you go to production. Early development is where you will see your savings.

    They will reap the benefits, no doubt. 20% margins? I don’t think so.
    I wish I knew more about this platform. The only thing revolutionary over it than say, the U38X/D47X/U502/D258/D358 would be the modularity of the body structure components, and the cross platform usage of the chassis components. Otherwise it’s just a standardized parts bin.

    I wish we had some VW people to law down some knowledge on my dumb ass.

    • 0 avatar
      Athos Nobile

      Some truck manufacturers have gone the modular way already.

      I remember I could build with the same cabin and roughly 50% of the components a RHD version.

      The sides used to be common and the centre sections and floor were different to accommodate wide/narrow or sleeper/non-sleeper options.

  • avatar
    The Doctor

    “Either VW can engineer a Polo with Passat-level weight, rigidity and specifications, or a Passat with Polo-grade components”

    This seems to be the nub of Warburton’s argument but it seems like a slightly spurious argument. If a platform is going to be used as widely as MQB then any increased cost resulting from over-specification will be diluted enough that increased material costs will be the real differentiator.

    Besides, engineering is getting to a point where perceived quality is the real differentiator between vehicles and that can be easily varied with interior materials and NVH measures.

  • avatar
    sirwired

    Maybe somebody can explain how MQB is fundamentally different from the “Platforms” that have been in use forever. I see repeated references to the axle-to-pedal box distance; is that really that big of a deal?

    • 0 avatar
      HerrKaLeun

      I was wondering the same thing, is that distance where the engineering is? :)

      Bernstein doesn’t seem to understand what a platform is. Polo being from the same MQB as a Passat doesn’t mean they get the same wheels, brakes, motors etc. Even with cars that nowadays share a platform they have different looking switches, bodies etc.

      20% saving seems optimistic and there are many advantages you can’t out a number on. If you can bring a new car to market 6 months earlier due to MQB, how do you quantify the monetary gain?

      I’m not too concerned about recalls. first, with fewer variations they actually could test the parts more thoroughly. Second, a solution to a problem can be implemented easier as well. Instead of having 10 different seatbelts that can be bad and require each a new recall solution, you only need to fix one problem.

      Recalls are here to stay. But not necessarily because more problems arise, but because the public and politics are more aware and manufacturers are forced to recall much more. 30 years ago it was accepted an engine fails after 100,000 miles. nowadays if some engine sludge is even under suspect to cause problems on a 250,000 miles car that never got an oil change, it gets recalled.

      Due to internet ec. manufacturers can’t downplay problems anymore. Years ago you would walk into the dealership with a problem and they would say: “we never saw anyone with that problem, must be your fault”. Today you google for a second and find out that this is a common problem and also everyone who researches for a new car purchase can see that and so the manufacturers are forced to recall.

  • avatar
    tedward

    I would agree with him except that VW launched the MKVII in Europe with multiple rear suspension setups and a dramatic price spread. It looks like his definition of chassis is what VW is challenging here.

    OTOH, if he is correct then VW is still in a plenty fine position. Say they need a lower cost chassis for the Up, etc… Well, then they just develop a separate chassis for those cars and still have the largest standardization of mounting points of any brand in the industry. I don’t see where they lose in that scenario. Who really cares if it is exactly 20%?

    As far as recalls go, I remain mystified why people are so upset by them. Every brand has them, and if you don’t know about yours it just means your car was sneakily serviced at the dealership or you don’t open your mail. Besides, I’d rather a company get in front of issues than let them fester at owner expense. I think a willingness to initiate huge recall batches in public (I know, most aren’t voluntary) is the best result of the old Toyota customers killing kids through incompetence outbreak we had a little while ago.

  • avatar
    MeaCulpa

    One might expect a link to TTAC being bullish and concerned. I smell BS.

  • avatar
    vcficus

    I’ve always thought this was overstated too… look at the issues Chrysler is having with their CUSW platform. Once the carryover items are frozen you can’t widen or lengthen so you get stuck when you need a significantly different vehicle. What works well for a Guilia doesn’t as well for a Jeep Cherokee and is useless for a RT sized minivan… also useless for a Fiat 500.

    I can see savings within vehicle classes, but not across them.

  • avatar
    Beerboy12

    Structural integrity requirements between the Passat and the Polo are perhaps not as big as one would think and then consider that both cars have to pass EURO safety standards that test structural integrity. The smaller car would benefit from the “extra” strength.

  • avatar
    Tom_M

    Lincoln called. They want to know if this is badge-engineering?

  • avatar
    APaGttH

    That’s a picture of the new US spec 2016 Jetta. Body panels and glass optional, base price $7995.

  • avatar
    adb12

    The analyst fails to mention Audi’s MLB toolbox, which has been around since 2008 and has helped get margins to the 11-12% range. Now, MLB isn’t quite as far reaching as MQB, but it seems to hve worked for Audi, right?

  • avatar
    mic

    so if they’re saving so much moola let’s see a dramatic sticker price reduction! I want to love vw, their cars are great to drive…..when they’re operational that is!


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