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April 5, 2005

Automotive Musings

Recently, I had the opportunity to engage in an interesting dialogue with an auto industry Group Vice President, and the conversation was quite insightful. I expected to get a great deal of diplomatic rhetoric, instead I was pleasantly surprised by what appeared to be honest and frank feedback.

The discussion took many different paths and touched upon a variety of topics.

  • Fragile state of North American auto engineering

  • Commoditization of the hardware

  • Close follower vs. Adaptability

  • Value added engineering

  • Legacy costs associated with healthcare

A recurring theme was leveraging technology to enable your firm to become an innovator and market leader. He acknowledged that there is a dearth of innovation in the US automaker segment.
He specifically compared the Chrysler 300C sedan and the Ford 500 sedan. He admitted that the uniqueness of the Chrysler product gives it the nod over the newly released Ford. He insisted that the culture must change, to help foster innovative ideas and breathe new life into the US market segment.

He also stated that the 'players' in the US market will be very different in 5-10yrs. Toyota has already begun to mark territories on US soil. Hyundai and very soon a new Chinese competitor will be encroaching on the US market.

Regarding the hardware commoditization..

It has become clear that the Japanese can manufacture and bring to market, major vehicle facelifts and minor freshenings with relative ease. In fact, Toyota's development cycle is roughly 18-24 months. In contrast, the US automaker vehicle product development cycle is 36-48mths. The VP suggested that we utilize common use parts wherever possible. For instance, wheel covers, undercarriage hardware, any area which the customer views as non-value add.

Accomplishing this task would begin to help reduce the incessant design churning and huge blowout vehicle launches. I've always noticed that the Honda Accord typically does a minor body style refreshening on four year cycles. Most US automakers, typically have huge launch cycles every two years, as they have to bundle so many changes to the powertrain, body, electronics, so that they can remain competitive. Very tough to gain market dominance employing this sort of design strategy. Inevitably, you are going to have miscues that will prevent a flawless vehicle launch.

Close follower vs. Adaptability.
We discussed the overwhelming frustration that is shared amongst many US product development engineers. In particular, the idea that the risk is greater than the reward, as it pertains to being the 'first' to add a feature to a vehicle. My observations have been that Ford is notoriously slow at aggressively striving to lead in the area of innovation. Actually, it seems to be engrained in the corporate culture. He was asked, "What should we do about this behavior amongst senior leadership ?" Basically, the response was that upper management culture is in a state of flux. Unfortunately, it is unknown when the paridigm will occur, but it must take place soon.

It is not possible to adapt to the ever changing global marketplace, and also be fearful of failure whilst taking a leadership role in your industry.

Non-value added engineering -
I fervently oppose non-essential paperwork and 'flavor-of-the-month' process related activities. It seems that with every new initiative or acronym there usually follows two or three more reports or boxes that need to be checked to satisfy a program milestone. Perhaps the worst part of running to meet these checkpoints, is the fact that you have to explain and defend your product design every step of the way. Sometimes, reporting out the same information to different people two or three different times.

Lately, the instead developing exciting products, I've become a 'cost-reduction' engineer. Certainly not very interesting, nor is going to be the absolute best method to leapfrog tenacious competition. Actually, the VP agreed with idea and shared the pain and frustration expressed in our discussion. He laid out a method that if executed properly would help place more human capital in the areas of product creation and less manpower in the areas of cost reduction. The plan would also drastically reduce the product development cycle. I suppose we'll have to take a wait and see approach.

Legacy costs associated with health care -
Because the US automakers have collectively been in business for hundreds of years, there are many retirees that are receiving pensions. Moreover, they are supported by a very powerful UAW labor force, who boast an extremely well structured medical plan. Whereas, they do not have any co-pays for medical visits. Obviously, this makes it a very coveted health plan.

Actually, some of the local press believe that these healthcare costs could eventually bankrupt one of the major US automakers in the next 5-10yrs. Certainly, not inconceivable considering that the Japanese competition has a relatively younger workforce and newer business structure.
They simply don't have these huge labor unions and thus are not responsible for large payouts.
He mentioned that retiring workers affiliated with Japanese firms, typically receive a lump sum payment as opposed to the US model, where the retiree receives continuous stream of income.

Lastly, he stated the following technologies would define the new vehicles of the future.

  • Light-weight combustion
  • Crash Worthiness
  • Infotainment

It was certainly a thought provoking discussion. Clearly more work needs to be done to steady the rocky ship, which is the US automobile industry. It really is taking on much water.

Posted by AG at April 5, 2005 11:59 PM