Industry analysts at CSM Worldwide are calling attention to a critical and fundamental initiative that is fast becoming a key differentiator between profitable and unprofitable automakers: margin diversification.

Simply put, margin diversification means making money in as many different market segments as possible. While that may seem obvious, it has not been the case with the traditional domestic automakers that have long been dependent on profits from just a few vehicle segments. Margin diversification will be critical to the success of the restructuring efforts under way at General Motors, Ford and DaimlerChrysler as they transform themselves into smaller, more profit-focused and competitive organizations.

"As the transformation builds at the Detroit Three, their immediate task must be to leverage the core building blocks of diversified profitability: global platforms that ideally span a range of passenger car and light truck categories," said Mike Jackson, director, North America Vehicle Forecasts at CSM Worldwide. "With these building blocks in place, domestic automakers will begin to take advantage of economies of scale and scope, which reduce unit cost with increased production volume and by sharing costs across multiple product segments."

Toyota's plans for expanding production in North America illustrate the economies of scope trend, in which automakers build products for multiple segments from a single platform. Using this metric, Toyota's current production performance reflects an average of 1.6 segments per platform in 2007, which is similar to the averages for their competitors. By 2013, however, Toyota production is set to achieve an average of 3.5 segments per platform, which will set the standard by a clear margin.

"The leading OEMs have strategies in place to diversify profit streams," said Jackson. "Those lagging behind will remain overly dependent on a narrow range of product and will face increased risk as a result."