Ford of Europe hopes to cut 6 to 8 percent from the cost of making cars by introducing a pay-on-production contract for suppliers of manufacturing equipment.
The new Fiesta, due for launch at the end of 2001, will be the first car to benefit from the new approach.
'Never before has this been done in our industry, although it has been talked about for a long time,' said Rolf Zimmermann, vice president for manufacturing at Ford of Europe. 'Our industry has too many assets. I want to change fixed costs into variable costs, and I want to invest less.'
The new contracts mean suppliers of production equipment such as body-welding machinery will only receive pay ment once the assembly plant is fully functional, and producing cars of satisfactory quality. The size of the payment to suppliers will depend on the number of vehicles of acceptable quality Ford builds.
For Zimmermann, it is the way of the future. 'This is the standard we are using for all upcoming models,' he said.
Ford expects the new contracts to encourage higher quality, while cutting costs. Zimmermann wants suppliers who accept pay-on-production contracts to bring their own ideas on how to achieve 'world class' quality.
Zimmermann says he has given no guarantees of production volumes to the first pay-on-production suppliers in the Fiesta project.
'Equipment suppliers now have to share the risks we face in launching a new model,' he said. 'The value of the per-unit payment could vary as demand rises and falls.'
Production capacity for the new Fiesta at Ford's Cologne plant will be 270,000 units per year. Any variation in output more than 10 percent up or down will require a new rate to be negotiated. The duration of the contracts is not guaranteed either - although they will remain in place at least for the lifetime of the model, generally six to eight years.
Ford's first pay-on-production contracts for the new Fiesta have been awarded to body-welding machinery makers Kuka and Comau, and to Eisenmann for the trim and final assembly line equipment.
Comau is now ready to consider a similar approach with other customers, says Paolo Egalini, sales director at the Turin company.
The risk does not entirely fall on Comau, he added, since Ford will be responsible for the part of the investment relating to model-specific tooling - about 50 percent of the total - and Comau will share the remainder with a leasing company.
However, to satisfy Ford's needs and reduce the model-specific content, Comau was driven to develop new technical solutions which would maximize the flexibility and re-usability of the equipment.
Cologne's paint shop is relatively new and does not need to be replaced. Otherwise, it too would have been the subject of a pay-on-production contract, Zimmermann said.