Product Variety, Life Cycles, and Rate of Innovation –

Trends in the UK Automotive Industry

Matthias Holweg
Lean Enterprise Research Centre
Cardiff Business School, Wales, UK
Tel: +44 29 20 87 45 44, Fax +44 29 20 87 45 56, Email: HolwegM@cardiff.ac.uk

Anthony Greenwood
Cap Gemini Ernest & Young
London, UK
Email: Anthony.Greenwood@cgeyc.com

Abstract

This contribution aims at predicting future trends in the automotive industry in terms of product
variety, model range and product life cycles in the UK automotive market. The analysis is based
on empirical data dating back to 1960, which is extrapolated into future trends.

The findings indicate no consistent trend in regards to product variety, which seems to be merely
driven by vehicle manufacturer’s policy, but could identify a clear trend towards shorter product
life cycles and increased model ranges offered in the UK market.

These trends in consequence will force vehicle manufacturers increasingly to design and
introduce vehicles that are far less dependent on economies of scale, as the overall volume per
model is predicted to decrease drastically. Current efforts of the vehicle manufacturers to meet
these requirements, the product platform strategy for example, could also be identified.

Introduction

The automotive industry, heavily constrained by its worldwide production over-capacity, not only
faces fierce competition in all its major markets, yet has to deal with a customer who is proven to
be more and more demanding (ICDP, 1998), both in terms of choice as well as model range.
It is often claimed that both competition in the marketplace and customer expectations have led to
an ‘infinite variety’ offered by the manufacturers and significantly shortened product life cycles -
which then in return provide even shorter ‘market time windows’ for the vehicle manufacturer to
achieve the sales volumes necessary to support the economies-of-scale induced by the
enormous development costs of a new vehicle.

However, neither in terms of product variety, i.e. the specification derivatives of a model, nor the
model range, i.e. the total number of different models offered, nor in terms of the development of
product life cycles over time, is comprehensive primary data available. Hence this paper sets out
to analyse the product variety, model range and life cycles of six major vehicle manufacturers
offered in the UK automotive market since 1960.

The objective of the research is to establish trends, extrapolated from historic data, to predict the
scenarios and market characteristics vehicle manufacturers (VMs) will have to meet in the future.
Life cycle and model range requirements dictated by the marketplace are key inputs for the
strategic model line-up policy, and product variety is a key factor in determining future distribution
strategies of the vehicle manufacturers.
Also, the effect of the new plate change system, which was a major cause of distortion in the UK
auto market, will be investigated.

The research questions in detail are:

1. What product variety has been offered by volume manufacturers in the UK since 1960, and
what trends can be observed?

2. What model ranges are offered to the UK customers, how did this offer develop since 1960,
and what trends can be seen?

3. Is the rate of innovation - in terms of product life cycles - increasing in the UK volume
automotive market?

The analysis is based on empirical analysis of secondary data from various sources: the product
variety data was obtained from private archives of historic motor vehicle information material, the
registration data was supplied by the Society of Motor Manufacturers, and various historic motor-
magazines were consulted, with issues dating as far back as 19601.

The research presented forms part of two major automotive research programmes, the 3DayCar
Programme2 and the International Car Distribution Programme3.

1. Product Variety
Product variety is defined as the number of vehicle permutations offered to the customer of a
particular model. This variety is generally market-specific, as all major markets have different
standard specifications (i.e. the air-conditioning might be offered as standard in the UK, but not in
Germany, etc.).

Product variety as such has not been studied in detail, although initial studies have been carried
out by MacDuffie et al (1996) or Clark and Fujimoto (1991), who proposed initial metrics on how to
assess variety and complexity in the auto industry. Their work mainly focused on the actual
assembly operation, although the real impact of product variety is on the vehicle distribution
strategies, as ICDP (1998) showed.

The main impact of variety is that the more variety is offered, the less likely the customer will find
the right vehicle amongst finished car stock. Hence the more variety offered, the less successful
sales sourcing from stock will work, or the higher the discounting risk, whereby the customer is
sold a vehicle which compromises on his original specification, using sales incentives.

To assess the trends in variety, the authors analysed the historic development of four major
volume cars offered in the UK market from 1964 / 1980 onwards – the Vauxhall Viva, Austin 1100
(BMC ADO16), Ford Cortina and VW Golf (introduced 1974) and their successors.

The variety is measured on the number of bodystyles, engines, paint colours, etc. offered, and
also shows the total number of permutations offered and the sales volume in the UK for that
particular year and model. (see table 1).
It may be noted that the Austin 1100 was produced under other brands in the UK - Morris, MG,
Riley, Vanden Plas and Wolseley. These variants, which added further complexity to the product

1
Autocar, Motor and UK Motor Show Reviews.
2
www.cardiff.ac.uk/3daycar
3
www.icdp.net
range, are not included in the analysis. It’s successor, the Allegro was also offered under another
brand in the UK, as a Vanden Plas model.

Model Year Bodystyles Powertrains Paint/Trim Comb. Options Total Variations UK Sales [year]
Vauxhall Viva I - HA 1965 1 2 17 1 59 n/a
Viva II - HB 1967 2 4 20 4 728 100,220
Viva III - HC 1970 3 5 23 8 15,848 76,338
Astra I 1983 4 10 28 10 1,495,104 62,570
Astra II 1984 4 11 22 26 53,575,680 56,511
Astra III 1993 4 11 30 15 76,972 108,204
Astra IV 1998 4 13 44 41 55,425,024 81,494
Austin 1100 MkI 1964 1 1 10 3 240 n/a
1100 MkII 1967 3 4 12 3 864 131,282
Allegro I 1973 2 4 n/a 3 448 28,713
Allegro III 1979 3 6 11 6 1,056 59,885
Maestro 1983 1 5 n/a 11 n/a 65,328
Maestro 1987 1 4 105 7 1,132 43,815
(Rover) 200 1991 2 8 44 17 21,792 68,122
200 1998 2 9 60 10 14,960 64,928
25 1999 2 8 106 18 2,742,656 1,170
Ford Cortina I** 1964 3 3 14 5 2,688 n/a
Cortina II 1968 3 5 n/a n/a 2,880 137,873
Cortina III 1972 3 7 28 12 702,464 187,159
Cortina IV/V 1982 3 6 275 28 219,576,000 135,745
Sierra 1983 3 9 110 35 1,278,852,000 159,804
Mondeo 1993 3 7 51 19 315,072 88,660
Mondeo 1999 3 8 92 16 171,584 77,183
VW Golf I 1980 2 6 26 7 7,216 n/a
Golf II 1985 2 6 29 8 2,192 31,145
Golf III* 1995 2 11 93 8 16,968 44,111
Golf IV 1999 2 9 211 22 154,964 63,715

Table 1: Historic Product Variety, four Major Volume Models

As can be seen, the data does not show a general trend towards increasing or decreasing variety.
In fact, each of the four models analysed show a different individual pattern.

Ford has been rationalising their product variety since the mid 1980s, as for example the 1982
Cortina offered more than half of the paint-trim combinations of the S-Class Mercedes today, yet
the 1999 Mondeo is available in only 0.013% of the number of permutations available on the 1983
Sierra.
Vauxhall also tried to rationalise their product variety by packaging of options, however with the
Astra IV, the large range of options has led to a sharp rise in variety, a total figure similar to the
Astra II.
For Rover, the variety over the last three decades has been below 25k, and only with the take-
over by BMW has a revised option policy exploded the range to 2m+ (this of course, may now
change due to Rover’s new ownership since May 2000).
For VW, as a non-domestic manufacturer, the variety offered has to be seen in context, as the
variety offered in Germany for example might be significantly higher. Nevertheless, VW has
steadily increased the variety, offering a wide range of paint-trim combinations and options.

The inconsistency of the historic trend also manifests itself in the current variety offered, as shown
for seven volume cars in the UK in 1999. Total variety ranges from 408 to 3.9*10^12, paint-trim
combinations range from 40 – 250, although no major differences in numbers of bodystyles,
paints and powertrains could be observed.
 Product Variety - UK Market 1999
No of Bodystyles
No of Powertrains
200 No of Paint-Trim Combinations
No of Options
150

100

50

20

10

GM Ford Peugeot VW Nissan Honda MB

Astra IV Focus 206 Golf IV Primera Accord E-Class

55m 1.1m 7.5k 155k 820 408 3,930bn

Total Variety in number of build specifications

Figure 1: Product Variety, UK 1999

In summary, no major trends on product variety could be established, as the variety offered
seems to be guided purely by vehicle manufacturer policy.

2. Product Life Cycle Dynamics

It has been frequently claimed that the life cycles in the auto industry have been significantly
decreasing over the last couple of decades. The analysis undertaken below shows the life cycles
of 20 volume model lines. The life cycle is defined as the time-span from market introduction to
model replacement or major facelift4. The shows the year of introduction (X-axis) and length of
model cycle (Y-axis).
As can be seen, the moving average of 5 years shows life cycles of 3-4 years during the 1960s,
which then increase drastically to 7 years in the early 1970s. The reason here is the fact that
vehicle complexity was comparatively low in the 1960s, hence development cycles were short,
and the successor models generally would share many components*, whereas the models
introduced from around 1975 onwards were stand-alone and individual developments.

The ability to easily change the appearance of ‘sheetmetal’ (external body panels) and interiors
meant that in the 1960s and the 1970s the American owned manufacturers - Ford GB, Ford of
Germany, Vauxhall and Opel were able to replace models on a regular basis very economically,
and had far shorter model lifetimes, whilst the European manufacturers such as VW, Fiat and
Renault preferred to keep a model in production longer and then replace it with a ‘completely’ new
model with very different components. The best example of this approach was Citroen, with long-
lived models such as the 2CV, DS, GS/GSA and CX.

4
Major facelift is defined as substantial alteration of the vehicle, including revision of the bodywork and major
components or modules
* As an example the Ford Cortina II shared the engines, running gear and floorpan structure of the Cortina I.
As cars became more complex due to technical advances and the impact of legislation, and with
the more difficult economic conditions from the late 1970s onwards which affected the VM’s ability
to invest in model changes, the American owned companies began to lengthen their model
cycles, e.g. the Ford Escort III/IV ran from 1980 to 1990 with one major facelift in 1986. These
firms are now forced to shorten their model life cycles due to competitive pressures.

However – as shown below - across all manufacturers, since the 1970s, the product life cycles
have decreased steadily from 7.5 years to 5 years, and it is predicted that the average age of
production for the European volume manufacturers will decrease from 4.2 years in 1994 to 3.1
years by 2005.

Product Life Cycles for the UK Market 1965-2000

New Product Introduction to Major Facelift / Replacement
12

11
Toyota Corolla
Honda Civic
10
Honda Accord
Nissan Micra
9 Nissan Bluebird-Primera
VW Polo
VW Golf I-V
8
VW Passat
Peugeot 104 - 206
7 Peugeot 304-406
Peugeot 504-607
Ford Fiesta
6
Ford Escort-Focus
Ford Cortina-Mondeo
5 Ford Zephyr-Scorpio
Vauxhall Viva-Astra
Vauxhall Victor-Vectra
4
Austin1100 -Rover 25
MB 'Fintail' - E class
3 AVERAGE
5 per. Mov. Avg. (AVERAGE)

2
1955 1960 1965 1970 1975 1980 1985 1990 1995 2000

Figure 2: UK Product Life Cycles 1965-2000

Summing up – life cycles are decreasing across all manufacturers, and the trend analysis
suggests an average life cycle of 5 years in the year 2000 for the models analysed.

This trend is backed up by the findings of J.D.Powers LMC (2000), who calculated an average
age of production for the European vehicle manufacturers of 3.1 years by 2005, with individual
product lives ranging from 2 to no more than 5 years for volume cars.
3. UK Model Proliferation
Considering product variety on its on however neglects another element of the offer to the
customer – the range of models offered per manufacturer. Whereas in the past a saloon, an
estate and possibly an economy or sports car were offered to the customer, nowadays the model
range has expanded into many diverse niche segments, such as sport utility vehicles (SUV),
multi-people vehicles (MPV), etc.

Model Range offered in the UK Market

1960 - 2000
14

12
Toyota
10 Nissan/Datsun
No of Models

Honda
8 Peugeot
Volksw agen
6 Vauxhall
Ford
4
2 per. Mov. Avg. (European)
2 per. Mov. Avg. (Japanese)
2

0
1960 1965 1970 1975 1980 1985 1990 1995 2000

Figure 3: Model Range offered in the UK Market

This trend clearly can be seen in figure 3, which shows the number of independent models offered
by 6 VMs. The moving averages over 10 years show both for Western, as for Japanese
manufacturers, a strong trend towards diversification.

The Japanese VMs started off with a very limited offering in the late 1960s, however overtook the
Western manufacturers in the 1970s, and now offer on average 3.5 models more than their
Western competitors, the majority of which are imported from Japan5.

5
UK built vehicles: Toyota: Corolla, Avensis (prev. Carina), Nissan: Micra, Almera and Primera (prev. Bluebird), Honda:
Civic, Accord and CRV (From mid 2000).
UK Production Sourcing

The trend towards a greater model range offered by the vehicle manufacturers in return influences
the sourcing of production. Figure 4 shows the total volume and origins of the UK new vehicle
registrations. The total volume is averaging at 2m vehicles / year, although it is suspected that up
300-500k vehicles are pre-registered in the UK every year.

UK Market 1995-1999 Total Registrations -

Domestic and Import
2,500,000 100.0%
90.0%
80.0%
Total
70.0% Registrations
Domestic
60.0%
2,000,000 50.0% Import

40.0%
EU (excl UK)
30.0%
Japan
20.0%
10.0%
1,500,000 0.0%
1995 1996 1997 1998 1999

Figure 4: UK Market Volumes and Sourcing of Production

Considering the increase in model range, the content of UK sourced production is declining, as
the sales spread over an increasing number of models - with only a limited number being
produced in the UK.
Hence the reason why the UK domestic sourcing has been constantly declining since 1995 is
partly due to the fact that the model range rate of innovation has been greater than the rate at
which more models were produced in the UK.
Conclusion
The outcomes of the study show that, despite frequent claims of ‘infinite variety’ offered by the
vehicle manufacturers, no coherent trend on the number of derivatives could be established. For
some manufacturers in fact the research findings reflect their efforts to reduce variety, which often
is disguised using option packaging, yet the figures indicate that product variety is solemnly driven
by individual VM policies and does not follow a coherent market trend.

In terms of model range and life cycles however, a clear trend towards shortened life cycles could
be established, complemented by a trend towards increased model variety per vehicle
manufacturer, fostered by the trend to expand into niche markets, such as the multi-purpose
vehicle (MPV) and sports-utility vehicle (SUV) for example.

Model Proliferation and Platform Use

in the European Auto Industry
350 4.5

4
300 Ratio
Bodytypes/platform
3.5

250
3

200 No. of platforms in use (all Europe)

2.5

No. of body types offered (all Euope)

2
150
Av. Volume by platform ('000)

1.5
Av. Volume by body ('000)
100

1 Av. No. bodytypes/platform

50
0.5

0 0
1990 1992 1994 1996 1997 1998 1999 2000 2001

Figure 5: European Model Proliferation and Life Cycles, Source: Smith, Salomon & Barney

The conclusions that can be drawn from the data are that the rate of innovation is clearly
accelerating, with more models offered, that remain on the market for shorter periods than in the
past (Figure 5).
This puts high pressure on the VMs to:

! Develop and launch vehicles within a shorter timeframe, as current product development
times of 3+ years would not permit to compete in a market which innovates every 2-3 years

! Produce vehicles profitably at lower economies of scale. As the life cycle decreases and
sales spread out over many models, the average volume per vehicle decreases sharply (also
Figure 7). Hence the breakeven point needs to be achieved much earlier on than previously.
The common way of achieving this is to deploy a platform strategy, and the predicted average
volume per platform shows this trend clearly. Current platforms will host more models than
previously, as for example the current VW A4 platform, which hosted nearly 2m vehicles in
19996.

! Align the distribution strategy to the product variety offered, as a misalignment inevitably
leads to high discounts needed to sell the vehicles. In effect a VM offering high variety would
need to embrace a build-to-order strategy, whereas a low-complexity manufacturer might be
able to utilise central vehicle stocks efficiently.

The rate of innovation in the automotive market has increased significantly, and the VMs will have
to face the challenge of responding to customer demand and competitors’ action in an ever more
responsive fashion in the future, whilst being constrained at the same time by much shorter sales
windows and lower overall volumes per model to cover their costs.

References

Clark, K.B., and Fujimoto, T. (1991), ‘Product Development Performance’, Harvard Business School Press

MacDuffie, J.P., Sethuraman, K., and Fisher, M.L. (1996), ‘Product Variety and Manufacturing
Performance’, Management Science, Vol 42, No 3

ICDP (1995), ‘Supply and Stocking systems in the UK Car Market’, Solihull, UK

ICDP (1998), ‘European Supply and Stocking Systems’, Solihull, UK

J D Powers – LMC (2000), ‘European Model Life Cycle Dynamics’, Oxford

NN, ‘Autocar’, Various historical issues, now published by Haymarket Motoring Publications

NN, Historical Sales Brochures published by Ford Motor Company, Vauxhall Motors Ltd, Rover Group Ltd
(and predecessors), Volkswagen AG and Daimler-Benz AG.

NN (1975), ‘The Future of the British Car Industry’, Central Policy Review, London, HMSO

NN, ‘Observers book of Automobiles’ Various years, published by Frederick Warne and Olysager
Organisation.

Ward, A., Liker, J.K. and Christiano, J.J. (1995), ‘The Second Toyota Paradox: How Delaying Decisions
Can Make Better Cars Faster’, Sloan Management Review, Vol 36, No 3

Womack, J, Jones, D, and Roos, D (1990) ‘The Machine that changed the World’, Rawson Associates, New
York

6
1,904,755 vehicles were produced on the VWA4 platform in 1999. The platform included VW Golf, Beetle, Bora/Jetta,
Audi A3 and TT, Skoda Octavia and Seat Toledo and Leon. (Source: Automotive World, June 2000)