Revolutionary changes in the areas of autonomous vehicles, digital mobility and electrification, are rending traditional business models in the auto industry obsolete.
Industry analyst Michael Robinet says companies must figure out where they fit in the supply chain and in some instances re-invent themselves.
Changes in technology are happening so fast over the next 10 years, companies will have to make acquisitions and integrate them
“In the next decade, they won’t really be selling more volume,” said Robinet, managing director of automotive for HIS Markit. “The opportunity is in where they fit and being able to add value to the industry.”
Even the industry’s big carmakers can no longer outpace the rate of technological change, he said. Problem solving is going to require more partnerships.
“Changes in technology are happening so fast over the next 10 years, companies will have to make acquisitions and integrate them,” said Robinet, who forecasts North American with sales reaching about 17.2 million vehicles this year and gradually rising by 400,000 units by 2023. “The old days of internal growth being done organically are over. That’s why we’re seeing a higher pace of acquisitions.”
For suppliers, such as the French giant Valeo, it means more than just refining traditional product lines.
“We’re transitioning from a traditional supplier to more of a technology and development company,” said James Schwyn, chief technical officer of Valeo North America.
Schwyn said innovation is the buzzword in the industry, but it doesn’t necessarily mean tossing aside traditional product lines.
Along with developing award wining laser sensor systems and an air conditioning unit that uses only carbon dioxide as a refrigerant, Valeo has repurposed the products it made its reputation on — windshield wipers and cleaning systems.
“We’re all developing these sensor systems, but if the sensors get covered with dirt, they’re no good,” Schwyn said. “It’s created new uses for something we’ve long been known for.”
While talk of the future is filled with discussions on electrification, the sentiment at the Auto Parts Manufacturers’ Association conference held in Windsor last week was electric cars will still be a work in progress for about another decade.
“Electric is coming, but how to make money out of it is the difficult equation,” said Joseph Hinrichs, executive vice-president and president, global operations for Ford Motor Co.
“The vast majority of vehicles built in the next five years will have (internal combustion engines). That business is going to be substantial for some time. The transition time is uncertain, so flexibility is important to all of us.”
However, with Ford investing billions in electrification development and Hinrichs saying that even the F-150 pickup truck will one day be electrically powered is confirmation how mainstream electrification has become.
“It’s not a science project anymore,” Hinrichs said. “There’s no sacrifice in performance. It’s another powertrain option. You don’t have the range anxiety. With markets pushing for fuel efficiency and fewer CO2 emissions, we believe electrification will continue to grow.”
Robinet forecasts electrification will rise to 26 per cent of sales in North America and 38 per cent globally by 2025 .
Auto manufacturers are acknowledging that projection by spending more of their development dollars on creating new platforms that carry both internal combustion engines and batteries.
“The platform design from now to the next decade is more complex,” Robinet said. “We’re going to need innovative solutions. That’s where there is opportunity for suppliers.”
He said that for electrification to take off, there has to be a focus in getting the cost of electric cars down.
“Consumers are enamoured by technology,” Robinet said. “They are more willing to pay for this than electrification.”
Robinet said the high cost of electric cars leaves North America vulnerable to the growing Chinese auto industry. Last year the Chinese launched a two-seat, electric car available for less than US$10,000.
“When they come in from a content perspective, it’ll be a higher level of electrification at a lower cost,” Robinet said. “They’ll use this as leverage.”
A shared concern among companies is that during the transitional phase, the industry is also dealing with instability in the areas of regulation and trade.
Robinet cautioned that the North American industry cannot get out of step with the global community on fuel regulations
“If we flatten our regulatory standards, we risk becoming a technological island,” Robinet said of the U.S. government studying reducing fuel economy standards. “There will be a growing disparity between different vehicles, especially in Europe, China and Japan.
“It’s a global industry that’s a three-horse race — Asia, Europe and North America — and North America is the smallest market. It would limit access to those other markets.”