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Sourcing or building parts: What happens behind the scenes

Earlier, we described roughly how the ideas for cars come to life. That is all well and good, but how do companies start the incredibly complex of actually building a vehicle with thousands of components that must be put together with incredible speed and accuracy?

First, for each component (or assembly — group of pre-assembled components, which can include transmissions, suspensions, braking systems, etc.), the company does a “make/buy study,” if it is approved by the head of the vehicle segment (e.g. minivans).

There are various other people who seem to have veto power over the study, but if it is approved, a team is assembled, including the person asking for the study and representatives of engineering, source planning, program planning, logistics, and purchasing. They supply the information needed in a spreadsheet which lists different options and the costs for each, with the credibility of different vendors included. (This is also how plant robotics and tooling are sourced.)

At that point, the study results are validated by the head of the segment and the person who requested the study, and estimators are assigned for tooling, manpower, materials handling, procurement, facilities, and other groups.

Each estimate must be approved within the department before a summary is created; it must then be approved by the heads of program planning, finance, industrial engineering, the vehicle segment, and the source planning department. At any point it can be rejected for redevelopment; if it is approved, it’s entered into the database and sent to the heads of manufacturing engineering, vehicle manufacturing, union relations, source planning, strategy, and program planning.

As one example, we can look at transmissions. With, say, the Chrysler 300M, the company looked at numerous choices, including buying five-speed ZF automatic transmissions, adapting their own four-speeds, creating new transmissions, buying from Borg-Warner or other automakers, or building transmissions under license. Spreadsheets were no doubt created to look at each possibility, and to keep costs in line, sacrificing acceleration and fuel economy, the existing company four-speeds were adapted for use. This kept factories running, preventing shutdown costs, and prevented extra costs (profit for suppliers, licensing fees, engineering and development) from coming into play. How much the company saved, we can’t say.

Another example would be the choice of transmissions for current rear wheel drive vehicles. All sorts of possibilities were aired by sources, including the winner — building ZF automatics under license (buying some unusual configurations, and buying while new plants were set up to make more). This was an expensive solution but it put Chrysler into the forefront and increased fuel economy and acceleration for popular V6 cars and the Ram diesel. Sources told Allpar they also looked at the Mercedes automatic, in seven-speed form, since the company was already familiar with building the five-speed; and developing their own. Presumably, there were other options as well (keeping the five-speed was probably discussed but quickly rejected, though it seems suitable for the V8 cars).

With Dart, again, the company could either retool their six speed automatics or buy from Hyundai, knowing they intended to switch to nine speeds. In this case, the engineering costs and already large ongoing changes to transmission plants probably outweighed the benefit of staying in-house.

Leaders can assign different weights to quality, cost, and other factors. Daimler preferred to outsource, so many components were sent to suppliers, and Wrangler was built in a “supplier park” (Hyundai does a large chunk). Daimler sold off the Huntsville automotive electronics facility, and Chrysler became dependent on others for auto computers, radios, and such. Cerberus opted for cost, buying batteries and other parts from China which were dead on arrival, and outsouring other key parts to low-bid suppliers as well, likely costing more than they saved.

Under Fiat, has generally opted to bring things back in-house, partly to have greater control over production investments and quality; it is highly unlikely that Fiat would have sold off Huntsville or chosen to shut down their own axle plant in favor of a ZF-owned facility (though they do use ZF-designed axles and transmissions). Many components that had been outsources, including key engine components, are now built in-house, providing Americans with thousands of jobs that had moved to China and Mexico.

Thus, while the process appears to be rigorously oriented against bias, the weighting of particular variables and overrides by executives may well by the key factors in parts sourcing, in some cases.

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