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ProductVariety PDF
ProductVariety PDF
Also, the effect of the new plate change system, which was a major cause of distortion in the UK
auto market, will be investigated.
The research questions in detail are:
1. What product variety has been offered by volume manufacturers in the UK since 1960, and
what trends can be observed?
2. What model ranges are offered to the UK customers, how did this offer develop since 1960,
and what trends can be seen?
3. Is the rate of innovation - in terms of product life cycles - increasing in the UK volume
automotive market?
The analysis is based on empirical analysis of secondary data from various sources: the product
variety data was obtained from private archives of historic motor vehicle information material, the
registration data was supplied by the Society of Motor Manufacturers, and various historic motormagazines were consulted, with issues dating as far back as 19601.
The research presented forms part of two major automotive research programmes, the 3DayCar
Programme2 and the International Car Distribution Programme3.
1. Product Variety
Product variety is defined as the number of vehicle permutations offered to the customer of a
particular model. This variety is generally market-specific, as all major markets have different
standard specifications (i.e. the air-conditioning might be offered as standard in the UK, but not in
Germany, etc.).
Product variety as such has not been studied in detail, although initial studies have been carried
out by MacDuffie et al (1996) or Clark and Fujimoto (1991), who proposed initial metrics on how to
assess variety and complexity in the auto industry. Their work mainly focused on the actual
assembly operation, although the real impact of product variety is on the vehicle distribution
strategies, as ICDP (1998) showed.
The main impact of variety is that the more variety is offered, the less likely the customer will find
the right vehicle amongst finished car stock. Hence the more variety offered, the less successful
sales sourcing from stock will work, or the higher the discounting risk, whereby the customer is
sold a vehicle which compromises on his original specification, using sales incentives.
To assess the trends in variety, the authors analysed the historic development of four major
volume cars offered in the UK market from 1964 / 1980 onwards the Vauxhall Viva, Austin 1100
(BMC ADO16), Ford Cortina and VW Golf (introduced 1974) and their successors.
The variety is measured on the number of bodystyles, engines, paint colours, etc. offered, and
also shows the total number of permutations offered and the sales volume in the UK for that
particular year and model. (see table 1).
It may be noted that the Austin 1100 was produced under other brands in the UK - Morris, MG,
Riley, Vanden Plas and Wolseley. These variants, which added further complexity to the product
1
range, are not included in the analysis. Its successor, the Allegro was also offered under another
brand in the UK, as a Vanden Plas model.
Vauxhall
Austin
(Rover)
Ford
VW
Model
Viva I - HA
Viva II - HB
Viva III - HC
Astra I
Astra II
Astra III
Astra IV
1100 MkI
1100 MkII
Allegro I
Allegro III
Maestro
Maestro
200
200
25
Cortina I**
Cortina II
Cortina III
Cortina IV/V
Sierra
Mondeo
Mondeo
Golf I
Golf II
Golf III*
Golf IV
Year
1965
1967
1970
1983
1984
1993
1998
1964
1967
1973
1979
1983
1987
1991
1998
1999
1964
1968
1972
1982
1983
1993
1999
1980
1985
1995
1999
Bodystyles Powertrains
1
2
2
4
3
5
4
10
4
11
4
11
4
13
1
1
3
4
2
4
3
6
1
5
1
4
2
8
2
9
2
8
3
3
3
5
3
7
3
6
3
9
3
7
3
8
2
6
2
6
2
11
2
9
Paint/Trim Comb.
17
20
23
28
22
30
44
10
12
n/a
11
n/a
105
44
60
106
14
n/a
28
275
110
51
92
26
29
93
211
200
150
100
50
20
10
GM
Ford
Astra IV Focus
55m
1.1m
Peugeot
VW
206
Golf IV
7.5k
155k
Nissan
Primera
820
Honda
Accord
408
MB
E-Class
3,930bn
Major facelift is defined as substantial alteration of the vehicle, including revision of the bodywork and major
components or modules
* As an example the Ford Cortina II shared the engines, running gear and floorpan structure of the Cortina I.
As cars became more complex due to technical advances and the impact of legislation, and with
the more difficult economic conditions from the late 1970s onwards which affected the VMs ability
to invest in model changes, the American owned companies began to lengthen their model
cycles, e.g. the Ford Escort III/IV ran from 1980 to 1990 with one major facelift in 1986. These
firms are now forced to shorten their model life cycles due to competitive pressures.
However as shown below - across all manufacturers, since the 1970s, the product life cycles
have decreased steadily from 7.5 years to 5 years, and it is predicted that the average age of
production for the European volume manufacturers will decrease from 4.2 years in 1994 to 3.1
years by 2005.
11
Toyota Corolla
Honda Civic
10
Honda Accord
Nissan Micra
Nissan Bluebird-Primera
VW Polo
VW Golf I-V
VW Passat
Peugeot 104 - 206
Peugeot 304-406
Peugeot 504-607
Ford Fiesta
Ford Escort-Focus
Ford Cortina-Mondeo
Ford Zephyr-Scorpio
Vauxhall Viva-Astra
Vauxhall Victor-Vectra
Austin1100 -Rover 25
MB 'Fintail' - E class
AVERAGE
5 per. Mov. Avg. (AVERAGE)
2
1955
1960
1965
1970
1975
1980
1985
1990
1995
2000
3. UK Model Proliferation
Considering product variety on its on however neglects another element of the offer to the
customer the range of models offered per manufacturer. Whereas in the past a saloon, an
estate and possibly an economy or sports car were offered to the customer, nowadays the model
range has expanded into many diverse niche segments, such as sport utility vehicles (SUV),
multi-people vehicles (MPV), etc.
Toyota
10
Nissan/Datsun
Honda
Peugeot
Volksw agen
Vauxhall
Ford
2
0
1960 1965 1970 1975 1980 1985 1990 1995 2000
Figure 3: Model Range offered in the UK Market
This trend clearly can be seen in figure 3, which shows the number of independent models offered
by 6 VMs. The moving averages over 10 years show both for Western, as for Japanese
manufacturers, a strong trend towards diversification.
The Japanese VMs started off with a very limited offering in the late 1960s, however overtook the
Western manufacturers in the 1970s, and now offer on average 3.5 models more than their
Western competitors, the majority of which are imported from Japan5.
UK built vehicles: Toyota: Corolla, Avensis (prev. Carina), Nissan: Micra, Almera and Primera (prev. Bluebird), Honda:
Civic, Accord and CRV (From mid 2000).
UK Production Sourcing
The trend towards a greater model range offered by the vehicle manufacturers in return influences
the sourcing of production. Figure 4 shows the total volume and origins of the UK new vehicle
registrations. The total volume is averaging at 2m vehicles / year, although it is suspected that up
300-500k vehicles are pre-registered in the UK every year.
UK Market 1995-1999 Total Registrations Domestic and Import
100.0%
2,500,000
90.0%
80.0%
70.0%
60.0%
50.0%
2,000,000
40.0%
Total
Registrations
Domestic
Import
EU (excl UK)
30.0%
20.0%
Japan
10.0%
0.0%
1,500,000
1995
1996
1997
1998
1999
Conclusion
The outcomes of the study show that, despite frequent claims of infinite variety offered by the
vehicle manufacturers, no coherent trend on the number of derivatives could be established. For
some manufacturers in fact the research findings reflect their efforts to reduce variety, which often
is disguised using option packaging, yet the figures indicate that product variety is solemnly driven
by individual VM policies and does not follow a coherent market trend.
In terms of model range and life cycles however, a clear trend towards shortened life cycles could
be established, complemented by a trend towards increased model variety per vehicle
manufacturer, fostered by the trend to expand into niche markets, such as the multi-purpose
vehicle (MPV) and sports-utility vehicle (SUV) for example.
Model Proliferation and Platform Use
in the European Auto Industry
350
4.5
4
300
Ratio
Bodytypes/platform
3.5
250
3
200
2.5
150
100
1
50
0.5
0
1990
1992
1994
1996
1997
1998
1999
2000
2001
Figure 5: European Model Proliferation and Life Cycles, Source: Smith, Salomon & Barney
The conclusions that can be drawn from the data are that the rate of innovation is clearly
accelerating, with more models offered, that remain on the market for shorter periods than in the
past (Figure 5).
Develop and launch vehicles within a shorter timeframe, as current product development
times of 3+ years would not permit to compete in a market which innovates every 2-3 years
Produce vehicles profitably at lower economies of scale. As the life cycle decreases and
sales spread out over many models, the average volume per vehicle decreases sharply (also
Figure 7). Hence the breakeven point needs to be achieved much earlier on than previously.
The common way of achieving this is to deploy a platform strategy, and the predicted average
volume per platform shows this trend clearly. Current platforms will host more models than
previously, as for example the current VW A4 platform, which hosted nearly 2m vehicles in
19996.
Align the distribution strategy to the product variety offered, as a misalignment inevitably
leads to high discounts needed to sell the vehicles. In effect a VM offering high variety would
need to embrace a build-to-order strategy, whereas a low-complexity manufacturer might be
able to utilise central vehicle stocks efficiently.
The rate of innovation in the automotive market has increased significantly, and the VMs will have
to face the challenge of responding to customer demand and competitors action in an ever more
responsive fashion in the future, whilst being constrained at the same time by much shorter sales
windows and lower overall volumes per model to cover their costs.
References
Clark, K.B., and Fujimoto, T. (1991), Product Development Performance, Harvard Business School Press
MacDuffie, J.P., Sethuraman, K., and Fisher, M.L. (1996), Product Variety and Manufacturing
Performance, Management Science, Vol 42, No 3
ICDP (1995), Supply and Stocking systems in the UK Car Market, Solihull, UK
ICDP (1998), European Supply and Stocking Systems, Solihull, UK
J D Powers LMC (2000), European Model Life Cycle Dynamics, Oxford
NN, Autocar, Various historical issues, now published by Haymarket Motoring Publications
NN, Historical Sales Brochures published by Ford Motor Company, Vauxhall Motors Ltd, Rover Group Ltd
(and predecessors), Volkswagen AG and Daimler-Benz AG.
NN (1975), The Future of the British Car Industry, Central Policy Review, London, HMSO
NN, Observers book of Automobiles Various years, published by Frederick Warne and Olysager
Organisation.
Ward, A., Liker, J.K. and Christiano, J.J. (1995), The Second Toyota Paradox: How Delaying Decisions
Can Make Better Cars Faster, Sloan Management Review, Vol 36, No 3
Womack, J, Jones, D, and Roos, D (1990) The Machine that changed the World, Rawson Associates, New
York
6
1,904,755 vehicles were produced on the VWA4 platform in 1999. The platform included VW Golf, Beetle, Bora/Jetta,
Audi A3 and TT, Skoda Octavia and Seat Toledo and Leon. (Source: Automotive World, June 2000)