Volkswagen is stepping into a dilemma that Ford and General Motors have already been struggling with: divesting their own parts manufacturing operations. The news broke just as GM was reeling from Delphi’s bankruptcy, raising questions about the wisdom of such moves. It seems that for public companies, this kind of restructuring may be financially beneficial, but it often comes at the cost of long-term stability and control.
From an executive perspective, outsourcing components can seem like a smart move. It allows companies to reduce costs by sourcing cheaper parts from the market, focus more on branding and design, and leverage global supply chains to enhance their international image. In this way, automakers shift from being all-powerful manufacturers to integrated systems thinkers. However, this strategy isn't without risks.
In October last year, Volkswagen AG put its IT subsidiary Gedas up for auction, part of a broader cost-cutting initiative. This makes Volkswagen one of only a few top-ten automakers to outsource IT services. Yet, not all companies follow this path. Ford, Toyota, Honda, and Peugeot still maintain in-house IT departments, while BMW recently acquired an IT firm to strengthen its internal capabilities.
Volkswagen’s experience with outsourcing parts has shown mixed results. The lessons from Ford and GM highlight the dangers of over-reliance on third-party suppliers. For years, the idea of vertical integration—outsourcing as much as possible—was seen as a solution to many problems. Companies believed that by handing supply chain elements to external vendors, they could focus on R&D and marketing. But the reality is far more complex.
Delphi and Visteon, once GM and Ford’s own parts divisions, were separated and now face financial struggles. When Delphi filed for bankruptcy, GM was forced into similar trouble. Opel, GM’s European arm, couldn’t even sell its Kaiserslautern plant. These examples show that outsourcing can backfire when companies lose control over critical parts of their supply chain.
Not all outsourcing stories are negative, though. Porsche is a prime example of successful outsourcing, with less than 20% vertical integration. Meanwhile, Toyota takes the opposite approach, manufacturing most of its components in-house. For instance, 70% of the Hybrid Prius is made internally, ensuring quality and protecting proprietary technology. This model works well for them, but it might not be suitable for every company.
Outsourcing isn’t inherently bad, but it must be tailored to a company’s specific needs. A strategy that works for a niche brand like Porsche may not fit a large-scale manufacturer like GM. Some components, like engines or braking systems, require high investment and technical expertise, making them better suited for in-house production. Even something as seemingly simple as a car seat plays a crucial role in customer satisfaction. If all cars use the same seats, steering wheels, and transmissions, they risk losing their unique identity.
As the automotive industry becomes more standardized, some manufacturers have lost sight of their ability to differentiate through innovation and design. Many now build different vehicle shapes on the same platform, leading to homogenized products and shrinking profit margins. Outsourcing can be a valid strategy, but it should start with a deep understanding of a company’s strengths and market position. Differentiation must remain a top priority.
Looking at the public example, selling off parts factories won’t solve the core issue: underutilized facilities and high labor costs. If companies continue to rely on outsourcing as a quick fix, they’ll struggle to address these deeper challenges. Eventually, their financial health will suffer.
For Chinese automakers aiming to grow globally, the lesson is clear: they must carefully consider their path forward. Whether to outsource or keep things in-house depends on their goals, resources, and long-term vision. There’s no one-size-fits-all solution, but thoughtful planning is essential.
Electric Trikes
Electric trikes, also known as electric tricycles or e-trikes, are three-wheeled vehicles powered by an electric motor. They provide an alternative mode of transportation for people who may have difficulty riding a traditional bicycle or motorcycle. E-trikes are becoming increasingly popular due to their ease of use, stability, and eco-friendly nature.
Features of electric trikes may include:
1. Electric motor: E-trikes are equipped with an electric motor that provides power to the vehicle. The motor can be located in the front or rear wheel hub or centrally mounted on the frame.
2. Battery: Electric trikes are powered by rechargeable batteries, typically lithium-ion batteries. The battery capacity determines the range of the trike, with higher-capacity batteries offering longer distances per charge.
3. Pedal-assist or throttle control: E-trikes can be operated using pedal-assist mode, where the electric motor provides assistance while pedaling, or throttle control mode, where the motor is engaged by twisting a throttle grip or pressing a button.
4. Braking system: E-trikes are equipped with brakes to ensure safe stopping. Common braking systems include mechanical disc brakes or hydraulic disc brakes.
5. Cargo capacity: Some electric trikes are designed with cargo carrying capabilities, such as a rear cargo basket or a front-mounted cargo box. These trikes are often used for commercial purposes, such as delivery services or food vending.
6. Suspension system: To enhance comfort and stability, some electric trikes feature suspension systems. This helps absorb shocks from uneven terrain and provides a smoother ride.
7. Lights and indicators: Like other vehicles, electric trikes may have headlights, taillights, and turn indicators to improve visibility and safety on the road.
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