Meet VW's secret weaponApril 19, 2012: 11:36 AM ET
Volkswagen leads the global auto industry in profitability and is on the hunt for the No. 1 spot in sales. In part, it has its PQ35 platform to thank for that.
By Doron Levin, contributor
FORTUNE -- Consumers know cars by names like Malibu, Corolla, Jetta and Fusion. Engineers and financial analysts, by contrast, think of cars by the sometimes less friendly designations given their underlying architectures: Epsilon, MCM and PQ35.
As bland as the latter may sound, it has been music to many at Volkswagen, the auto maker that produces PQ35-based vehicles. The Volkswagen Group, which owns brands such as Audi, Bentley and Porsche, leads the industry in profitability and is aggressively striving to become the top car manufacturer in the world in terms of sales. A principal reason for the Wolfsburg, Germany-based firm's success is the PQ35 and its siblings, highly efficient architectures that underpin a broad range of car models.
So-called common architectures have been a Holy Grail of sorts of car manufacturers for decades. Developing new vehicles can cost billions. The key to recouping such costs is selling a range of cars that -- while as drastically different to the eye as a posh Audi from an entry-level VW -- share many components and benefit from economies of scale.
That is easier said than done, particularly as auto companies aim to sell vehicles to customers across the globe. General Motors (GM) a decade ago struggled with scores of vehicle platforms worldwide, a cause of uncontrollable costs and a contributing factor to its eventual bankruptcy in 2008. Today, GM's global Epsilon platform is sold in the U.S. as the Chevrolet Malibu and Buick Regal, the Opel Insignia in Europe, and the Daewoo Altheon in Asia. Toyota's (TM) MCM architecture, meanwhile, is the basis of its Camry and Prius models, while its MCC is used for the Corolla.
But among the world's high-volume automotive architectures, the PQ35 accounts for more annual sales than any other. Dr. Ulrich Hackenberg, a member of VW's board of management and responsible for research and development, is the erstwhile godfather of the PQ35 strategy. The 61-year-old engineer has a long, storied career with VW having had a hand in some of the company's most imaginative concept vehicles as well as bedrock engineering strategy. Last year, the PQ35 underpinned about 3.5 million of the 8.4 million cars sold worldwide. It was sold as the VW Golf, Audi A3, Skoda Octavia, and Seat Leon for instance.
Now, the company is preparing the PQ35's successor. VW's new Golf, which goes on sale this fall in Europe and may appear in the U.S. by 2014, is based on the automaker's new architecture, named MQB. MQB also will be used to manufacture smaller VW models. "VW was already at the top of the pile with PQ35," said Tracy Handler, principal analyst for IHS Automotive in Northville, Michigan. "They're building on that expertise. VW has so many brands, and it doesn't go out on a limb chasing" market niches with too few potential sales."
VW's MQB system establishes fixed points for where the engine is mounted and a fixed distance from the center of the front wheels to the control pedals. The distance VW chose from pedals to front axle allows a very short front overhang, which facilitates sporty styling. "Using these proportions as the base, we can adjust other variables, such as the width of the car," said Rainer Michel, VW's vice president of product marketing and strategy in the U.S. "And since so much of the car is the same we can standardize manufacturing processes around the world, buy tools much cheaper and lower our investment in plants."
Michel said the new architecture will be extended on smaller VW models now in development, including the VW Polo and Skoda Fabia. VW, throughout the 1980s and 1990s, acquired Seat, a Spanish automaker, and Skoda, a Czech automaker. It also owns Bentley, Lamborghini and Bugatti. Another MQB advantage, he said, will be its ability to accommodate a number of new alternative engine options, such as plug-in gas-electric hybrids and battery-powered electrics, in addition to a range of gas and diesel engines.
This kind of flexibility is insurance of sorts for unpredictable factors auto makers must contend with over the span of years. "The increasing requirements of better fuel economy, tougher crash standards, body rigidity and over performance create a hell of cost," said Michel. "And we can't recover those costs through pricing so we have to find ways to economize. Without modular [architecture] we couldn't be profitable."