Volkswagen is stepping into a complex situation that Ford and General Motors have already found themselves in: divesting their own parts manufacturing facilities. This move came just as GM was reeling from the fallout of Delphi’s bankruptcy. Such actions, while beneficial for shareholders, may not be in the best interest of the public.
For automotive executives, selling or separating parts operations is often seen as a smart business move. It can boost short-term profits, reduce costs by sourcing cheaper components from the market, and allow companies to focus more on branding and design—areas with higher profit margins. Additionally, this approach aligns with global trends, allowing automakers to leverage specialized suppliers and maintain an image of a modern, integrated enterprise rather than a traditional manufacturer.
In October last year, Volkswagen AG announced the sale of Gedas, its IT services subsidiary, as part of a broader cost-cutting initiative. The company now joins the ranks of top global automakers outsourcing non-core functions to third-party providers.
However, not all automakers are following this path. Companies like Ford, Toyota, Honda, and Peugeot still maintain substantial internal IT departments. Even BMW recently acquired an IT firm to strengthen its in-house capabilities, showing that some manufacturers see value in keeping certain operations under their control.
This isn’t the first time Volkswagen has faced challenges with outsourcing. The experiences of Ford and GM serve as cautionary tales. Once, the idea of minimal vertical integration—outsourcing as much as possible—was considered a silver bullet. But things didn’t go as planned. When Delphi and Visteon were spun off from GM and Ford, they lost their connection to the parent companies, leading to financial instability. GM, for instance, had to face its own bankruptcy protection after being dragged down by its former supplier, and Opel struggled to sell its factory in Kaiserslautern.
On the other hand, Porsche and Toyota offer successful examples of different approaches. Porsche outsources over 80% of its components, relying on external suppliers for most parts. Toyota, in contrast, maintains a high level of vertical integration, producing 70% of the components for its Prius hybrid. This strategy helps protect proprietary technology and ensures consistent quality.
Outsourcing isn’t inherently bad, but it’s not a one-size-fits-all solution. What works for niche players like Porsche might not work for large-scale manufacturers like GM. A well-run automaker should avoid making low-value, high-cost components such as exhaust systems or brakes, but it must also retain control over critical elements that define the brand—like seats, which directly impact customer experience.
When every car uses the same seat, steering wheel, and transmission system, they lose their unique identity. In an industry that once thrived on innovation and differentiation, many manufacturers are now stuck with generic designs, struggling to stand out. They build cars on the same platforms, using similar parts, and end up competing on price alone.
Outsourcing can be a smart move, but only if it's based on a clear understanding of the company’s strengths, market needs, and long-term goals. Differentiation should always be the priority. What works for Toyota won’t necessarily work for GM.
Back to Volkswagen, selling off its parts factories won’t solve the core issue: underutilized facilities and high labor costs. If the company continues to rely on outsourcing to fix its problems, it may find itself in the same difficult position as Ford and GM.
For Chinese automakers looking to grow and learn from global practices, it’s important to think carefully about the path they choose. Success requires more than just copying strategies—it demands a deep understanding of what makes a brand unique.
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