Supplying the Volkswagen Group Supplierbusiness

IHS AUTOMOTIVE Supplying the Volkswagen Group SupplierBusiness

2015 edition supplierbusiness.com

Julian Buckley Principal Analyst Regional supplierSAMPLE reports are sponsored by IHS Automotive | Supplying the Volkswagen Group

Contents

Overview 5 Production Strategy 38 Global market overview 6 Production strategy overview 39 ––Financial data 6 Manufacturing network 40 Volkswagen Group financial overview 7 ––Germany 41 Product strategy 7 ––China 42 ––Company history and strategy review 7 ––Brazil 43 Major model programmes 9 ––Mexico 44 ––1. Volkswagen Golf 9 ––United States 44 ––2. Volkswagen Jetta 12 ––Czech Republic 45 ––3. Volkswagen Passat 14 ––Spain and Portugal 45 ––4. Volkswagen Tiguan 17 ––Russia 46 ––5. Volkswagen Polo 18 ––Slovakia 46 ––6. Volkswagen Lavida 20 ––Poland 47 ––7. Škoda Octavia 21 ––India 47 ––8. Audi A4 22 ––Future plants 47 ––9. Volkswagen Gol 25 Internal supply network 48 ––10. Audi A6 26 Modularisation strategy 48 Supplier parks 49 Vehicle Platforms 30 Cluster of reference 50 Platform strategy 31 Strategies for manufacturing efficiency 50 Major platforms 32 ––1. PQ35 - (including Audi A3, TT; SEAT Toledo, Leon, Purchasing Strategy 52 Altea; Škoda Octavia, Superb, Yeti; VW Golf, Passat, Purchasing strategy overview 53 Tiguan, Jetta) 32 Levels of vertical integration and outsourcing 53 ––2. PQ25 – (including VW Polo, Jetta; Škoda Fabia, Purchasing organisation 54 Rapid, Roomster; SEAT Ibiza, Toledo; Audi A1) 32 Purchasing offices 55 ––3. MQB A/B – (including VW Golf, SEAT Leon, Škoda Key purchasing personnel 56 Octavia and Audi A3) 33 ––Purchasing budget 57 ––4. MLB B/C – (including Audi A4, A5, A6, A7, Q5, Q6; Porsche Macan) 33 Supplier Selection 58 ––5. PQ34 – (including VW New Beetle, Lavida (China Supply base development 59 only), Golf; Škoda Octavia; Seat Leon, Toledo; Audi A3, Major and strategic suppliers 59 TT) 34 ––Supplier evaluation criteria 60 ––6. PL/PQ46-47 – (including VW Passat, Sharan, ––Working with the Volkswagen Group 61 Magotan (China only); SEAT Exeo, Alhambra; Audi A4) Global Sourcing 62 34 Policy and plans 63 ––7. PQ22 – (VW Gol, Voyage, Saveiro) 35 ––EMEA 63 ––8. PQ24 – (including VW Polo, Fox; Škoda Fabia; SEAT ––APAC 64 Cordoba, Ibiza; Audi A2) 35 ––NAFTA 64 ––9. PL71-72 – (VW Touareg, Audi Q7, Porsche Cayenne) ––LATAM 64 35 SAMPLE Component sharing 36 Pricing Policy 66 Volume planning 37 Cost reduction strategies 67

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Raw material price management 67 ––Middle of the ranking: OEMs push cost reduction 91 ––Payment terms 68 ––Bottom ranking: Cost overrules quality 91 Profit potential 92 Quality Management 69 ––OEM level 92 Quality level 70 Organization 92 Quality management systems 70 ––OEM level 93 Supplier integration into product development 71 Trust 93 Management of suppliers and sub-suppliers 72 ––OEM level 93 Supplier awards 72 Pursuit of excellence 93 ––OEM level 93 Technology 74 Outlook 93 Technological positioning 75 ––OEM Level 93 Areas of focus 75 SuRe by region 93 R&D organisation 76 ––North America 94 R&D spending 77 ––Europe 94 Access to supplier technology and process ––Asia 94 development 77 ––SuRe by company size 94 Approach to alternative fuels, electrification and fuel cells 78 SWOT Analysis and Production Locations 96 Special vehicle development 79 SWOT Analysis 97 Global footprint 97 Interviews 81 Matt Smith, Director of Falken UK 82 Global Vehicle and Component Sites 99 Alexander Kocher, President, Automotive Business segment, Elektrobit 83 Forward Model Program 103 Forward Model Program 105 Supplier Relationship Survey 88 Introduction to the SuRe Index 89 Major Suppliers 121 Methodology 89 AUDI Q7 (2015) 122 Executive summary 89 AUDI TT (2014) 125 Performance review – Volkswagen Group 90 Porsche 911 Spyder 127 2014 SuRe survey results 90 Volkswagen Golf (2014) 129 ––Top of the ranking: Trust and future potential drive Volkswagen Passat (2014) 131 harmony 90 Volkswagen XL1 135 Figures

Figure 1: Global light vehicle production, 2009-2018 6 Figure 5: OEM Supplier Relations - North America 94 Figure 2: OEM Supplier Relations - Top of the Ranking Figure 6: OEM Supplier Relations - Europe 94 91 Figure 7: OEM Supplier Relations - Asia 94 Figure 3: OEM Supplier Relations - Middle of the Figure 8: Map for Volkswagen global assembly plant Ranking 91 locations 97 Figure 4: OEM Supplier RelationsSAMPLE - Bottom of the Figure 9: Map for Volkswagen European assembly Ranking 92 plant locations 98 Tables

Table 1: Key financial performance values for Table 3: VW Golf European sales and segment Volkswagen AG 6 competitors (by Sales brand, Sales nameplate) 2007- Table 2: VW Group Top 10 best-selling models 2017 12 worldwide (by Sales brand, Global nameplate) 2008- Table 4: VW Jetta North American sales and segment 2013-2018 9 competitors (by Sales brand, Sales nameplate) 2007-

2017 14 Table 12: VW Group Top 10 most-used Global platforms Table 5: Global sales for the VW Tiguan (by region) (by Strategic Group) 2007-2013-2015-2018 32 2007-2018 18 Table 13: Global OEM total annual vehicle output (by Table 6: W Polo Global sales and segment competitors Strategic Group) 39 (by Sales brand, Sales nameplate) 2007-2017 19 Table 14: Purchasing volume by brand (over 2013, in Table 7: Shanghai VW (New) Lavida - China national EUR billion) 57 sales (by sales nameplate) 2009–2017 21 Table 15: Automotive sales of SuRe Index survey Table 8: Škoda Octavia Global sales (by region) 2007- repondents 95 2018 22 Table 16: SWOT Analysis - Volkswagen Group 97 Table 9: Audi A4 Global sales and segment Table 17: VW Group Global vehicle and component competitors (by Sales brand, Sales nameplate) 2007- production locations. 100 2018 24 Table 18: AUDI Q7 (2015, SLOVAKIA, BRATISLAVA) 122 Table 10: VW Gol and Brazilian segment competitors Table 19: AUDI TT (2014, HUNGARY, GYOR) 125 (by Sales Brand and Sales Nameplate) ranked by 2014 Table 20: PORSCHE 918 SPYDER (2013, GERMANY, figures 26 ZUFFENHAUSEN) 127 Table 11: Audi A6 Global sales and segment Table 21: VW GOLF (2014, MEXICO, PUEBLA) 129 competitors (by Sales brand, Sales nameplate) 2007- Table 22: VW PASSAT (2014, GERMANY, EMDEN) 132 2018 28 Table 23: VW XL1 (2013, GERMANY, OSNABRUCK) 135

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CHAPTER TWO Vehicle Platforms

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Platform strategy start competing against each other, potentially in the same dealer showroom, and that is before other segment As each successive brand has been added to the Volkswagen competitors from other OEMs are factored into the picture. Group, there has been a broader effort to reorganize platform usage across all group companies building models Unlike many global carmakers, the Volkswagen Group has of the same segment and size. This process has generally largely managed to avoid this trap. While fundamentally taken two forms: where a single platform has been identical architectures are regularly shared across a series introduced across an existing segment as a new generation of brands, those individual carmakers have worked to has been introduced; or where a new model is developed create the brand-specific production, equipment and by one carmaker, other OEMs within the group are tasked pricing strategies needed to differentiate those models – all with developing their own version of that vehicle, using while highlighting the brand’s own core ethos, whether the same architecture. it is premium (Audi), sub-premium (VW), value (Škoda) or sporty (SEAT). Within this, suppliers play a key role in Sharing platforms can be traced back to the Type I Beetle, delivering that differentiation, producing components and which donated updated versions of its chassis to a variety parts which, while meeting key guidelines, have varying of later models, including the Karmann Ghia coupé and designs and characteristics needed to make those parts also the 1600 Variant and its derivatives – these compact unique to the brand. wagon models included the Brasilia, of which more than one million units were produced in Brazil and Mexico The Volkswagen Group is now well advanced in rolling out between 1973 and 1982. The first case of actual platform the various modular ‘toolkits’, platform systems which, as sharing, where models based on the same fundamental Volkswagen states, are expected to: ‘significantly reduce structure were in production at the same time, was the fuel consumption of our vehicles, producing them at between the Audi 50 and Mark I Polo; although the Audi globally competitive costs and simultaneously increasing was first to market, it was phased out only three years after profitability and productivity – these are the Volkswagen the launch of the cheaper VW. Group’s goals for its modular toolkits’.

This early example reveals an inherent flaw in the Specifically, the group of systems is as follows: systematic sharing of vehicle platforms, in that models which are too similar to each other can cannibalize sales of NSF New Small Family Serving the A00 and A0 segments the less-popular variant. Reasons for customers favouring MQB Modular Transverse Toolkit A0 to C segments one model over the other are myriad, and include (in no MLB Modular Longitudinal Toolkit B through D segments particular order): brand preference; quality; style and MSB Modular Standard Toolkit D and E segments sometimes it just comes down to available colour choices. But beyond these, a major driver can be a perceived value While vehicle size is the primary difference, the primary for money and in this case, the majority of customers distinguishing factor between these platform types thought the Volkswagen offered more car for less cash in are the drivetrain layouts – although other elements, comparison to the Audi. such as a modular infotainment toolkit will see related componentry (screens, switchgear, wiring harnesses, Although platform sharing offers OEMs the combined etc.) carried between brands and model ranges. The VW advantages of cutting engineering budgets and reducing Group has stated that it plans to produce over 40 models project development timeframes (which combine to on the MQB toolkit, and this might even prove to be a support faster introduction of next-gen models), rampant conservative estimate. As it stands, the platform toolkits sales cannibalization is the downside of platform will allow all group brands to leverage standardization to sharing. As the platform structureSAMPLE is generally a rigid, achieve improved levels of finished vehicle quality, while inflexible base on which to build a new car, in many also delivering the flexibility to make region-specific cases vehicles sharing that structure will have the same adjustments to suit customer tastes. In the language of a overall appearance. If care is not taken to differentiate global automotive production, this is perhaps the greatest in other areas, vehicles sharing the same platform can of win-win situations.

Major platforms increase to where in 2012, 3.455m units were assembled on the same fundamental structure. This, though, was the Based on data from IHS AutoInsight covering most-used pinnacle of PQ35 output, as the following year, the VW vehicle platforms (by Strategic Group) across the VW Group starting rolling out the replacement MQB platform. Group in 2013 The older platform is expected to remain in production

Table 12: VW Group Top 10 most-used Global platforms (by Strategic Group) 2007-2013-2015-2018 Platform 2007 Platform 2013 Platform 2015 Platform 2018 PQ35 2,081,940 PQ24 1,101,239 PL/PQ46-47 788,321 PL22 377,881 PQ34 300,779 PL56 243,964 Excluded from sample. Available in the full report A2 209,867 B2 203,956 PQ75 202,526 PQ25 201,382

Source: IHS Automotive

1. PQ35 - (including Audi A3, TT; SEAT as the switchover to the new architecture continues, but Toledo, Leon, Altea; Škoda Octavia, numbers will continue to slide until it is removed from the Superb, Yeti; VW Golf, Passat, Tiguan, market in 2019. Jetta) 2. PQ25 – (including VW Polo, Jetta; According to data provided by IHS AutoInsight, the Škoda Fabia, Rapid, Roomster; SEAT Ibiza, platform most used across global production within the Volkswagen Group over 2013 was the PQ35. Introduced in Toledo; Audi A1) 2003, the PQ35 is primarily used in production of models Compared to the PQ35, the PQ25 is a relatively recent using a transverse-mounted front engine and front-wheel addition to the VW Group family of platforms, having first drive powertrain. Although in far fewer numbers, it also been launched into production in 2006 with the Škoda supports production of all-wheel drive variants, badged Roomster. Like its earlier contemporary, the PQ25 is a 4MOTION (VW), Quattro (Audi) and 4x4 (Škoda). For primarily steel unibody architecture which incorporates its part, there have been comparatively few SEAT AWD a series of parts formed from high-strength and ultra models, such as the Altea Freetrack and Alhambra 4x4, but high-strength steel grades. The platform is used across as of 2014 the new Leon X-Perience wagon is expected to production of B- and C-segment models (with an exception be the first model in a new AWD sub-brand. being the D-segment Santana), which use a transverse- mounted front engine layout. Most examples have a The PQ35 is a predominantly steel architecture, although front-wheel drive powertrain, although the PQ25 can also the proportions of steel type, ranging from mild steel support a part-time all-wheel drive powertrain which uses through to ultra high-strength steel (UHSS), have a Haldex clutch to direct power to the rear axle. increased in favour of the latterSAMPLE as development of the platform has continued over its lifetime. Although the The PQ25 follows on from the ‘24 and ‘23 versions, which architecture is primarily used across production of C- and themselves are renamed versions of the A04, A05, etc. D-segment models at the group’s four volume OEMs, The new naming convention breaks down as follows: P – it is the platform’s flexibility which has driven total passenger car; Q – transverse engine; 2 – model segment; production figures. The PQ35 is used across almost all 5 – generation. Although the PQ25 is being used across major bodystyles, including: hatchback; saloon, wagon, production of all-new models, such as the Škoda Roomster, convertible, MPV, LCV and CUV crossovers. the fifth-generation refers to the VW Polo version which was introduced with this new architecture. The PQ35 was already used across production of more than one million vehicles by 2004, just one year after its Total global production based on the PQ25 has been introduction and total year-on-year output continued to increasing since it was launched, as more models have

started being assembled on the platform. According to Looking at individual areas of the platform, Volkswagen IHS AutoInsight, production peaked in 2014 at marginally states that 85% of the floor structure is constructed using more than two million units (2.005m). Although the hot-formed UHSS, which has resulted in an 18kg weight PQ25 will ultimately be phased out in favour of models saving. At the same time, the crash performance of the using the MQB modular platform system, the relatively structure has been improved and now meets all related recent introduction of the platform within the VW Group global regulations. Future examples of platforms produced manufacturing network will mean that the architecture using the so-called Modular Transfer Matrix are likely remains in widespread use over the remainder of the to replace some steel floorpan parts with aluminium decade, but total output will fall below 700,000 units in to achieve further weight gains. Optimization of the 2020, and by the mid-2020s only VW JV factories in China electrical system components (harnesses, etc.) used across will be producing models on the structure. the MQB has saved a further 3kg.

3. MQB A/B – (including VW Golf, SEAT According to Morgan Stanley, since the project was started in 2007, VW and the group OEMs have invested Leon, Škoda Octavia and Audi A3) approximately USD70 billion in development of the MQB The MQB A/B (Modular Transfer Matrix) is the platform system. The group will look to recoup this cash cornerstone of the new platform sharing programme outlay through related economies of scale – it is estimated across the Volkswagen Group. Based around a transverse- that the MQB will help reduce production costs by mounted front-engine powertrain, which can have either USD1,000 per vehicle. This will only be wholly successful if front- or all-wheel drive, the MQB can support a variety of the four volume OEMs take maximum advantage of MQB, global and regional powertrains, including: petrol (TSI); and they are not wasting time in doing just that. By 2013 diesel (TDI); CNG; LPG bi-fuel; flex fuel (ethanol); plug-in output had already exceeded one million units per annum and e-DRIVE. and as of 2015, the MQB will be the most-used platform across the VW Group (2.554m). By 2018, total output is In Volkswagen speak, the MQB modular platform system forecast to exceed five million units, and it is possible is described as a ‘tool kit’, which in the most basic of that by 2021, the MQB A/B will be used in production of terms implies that the architecture is intended to support 6.15m units worldwide. The only way the VW Group could development of a vehicle platform from a set number of amortize the MQB investment any more rapidly would be pre-made, mutually-compatible parts. Yet the MQB system to license usage to another OEM – but as yet there is no has a far greater reach than this, and adoption of the potential of a deal being made. system will have a direct impact on all aspects of vehicle production. Looking at the basic structure, the MQB has 4. MLB B/C – (including Audi A4, A5, A6, A7, one fixed, uniform area located between the front axle Q5, Q6; Porsche Macan) and the engine bulkhead, which is common between all models. Beyond this, the overall length (including the As the name of the Modular Longitudinal Matrix (MLB) wheelbase, front and rear overhangs), width and height suggests, this platform is also part of the ‘Modular Matrix’ can be adjusted as necessary to produce the desired model suite of platform tool kits now being used across the type. At first this may appear too loose of a programme Volkswagen Group. The MLB (also sometimes referred to classify as a system, but according to Volkswagen the to as MLP, Modular Longitudinal Platform) is the basis platform, powertrain and related structures represent 60% for models with longitudinally-mounted engines driving of the production cost of a given vehicle, while the top hat either the front wheels, or with all- or four-wheel drive. As makes up the other 40%. Audi is the single volume manufacturer in the VW Group SAMPLEwhich uses this engine layout, it produces the vast majority The MQB uses a high proportion of high-strength and of MLB-based vehicles. The Porsche Macan, positioned hot-formed ultra-high strength steel across the structure beneath the larger, full-size Porsche Cayenne, is related – approximately 30% of the structure will be UHSS. Using to the Audi Q5 SUV, although most aspects of the donor these materials in place of mild steel has reduced the model have been reworked by Porsche engineers. required sheet thickness, resulting in a final part which both weighs less and (in many cases) is stronger. That said, As with the MQB, the MLB has a series of fixed points, VW has placed a high priority on only using material where including the front axle and engine bulkhead/A-pillar it is required, optimizing the geometries of part profiles placement, which further offers standardized engine and surfaces to reduce overall material usage. Average mounting points to allow the sharing of drivetrain and weight reduction of the MQB over those platforms it transmission combinations across a variety of segments. replaces is 37kg (dependent on model). Other common parts include the steering system and