Innovation Alive and Well in the Automotive Industry

by Lisa Reisman on March 9, 2009

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A former client of mine who used to run a Tier 1 automotive company involved in the production of emissions components and assemblies, and now a full virtual integrator handling the outsourcing of complete assemblies containing a number of products from diverse Tier 2 suppliers, recently told me about a rash of automotive activity currently underway.  This surprised me given the state of the automotive industry. However, some shifts in a series of underlying trends probably has a lot to do with the innovation occurring in this industry which will likely impact other industries too.

From an innovation standpoint, the move toward hybrid and electric vehicles has already driven massive changes throughout the power train supply chain and its web of companies. New awards such as this from SAE International highlight the new emphasis on this critical automotive system. Despite the economy, innovation here remains alive and well.

The trend of product substitution based upon soaring commodity costs last summer may seem irrelevant today. But history has shown that what goes up, comes down. And as is the case with many metals, they are too far down from their normal price range. Many metals currently under the marginal cost of production will not remain at current price levels indefinitely (e.g. aluminum).  Product innovation as we have previously reported will only continue. This press release by Nissan late last year suggests the company (one of many) seeks to improve efficiency, and limit the amount of precious metals used in catalyst converters.

We will make mention but not discuss in any detail here at the moment the shift in automotive navigation systems toward full automotive systems with a graphical user interface (GUI) and software.  This trend has spurred interesting partnerships and joint ventures with players such as Google vying for share.

Sometimes innovation comes as a result of public policy. Last week Obama hinted at some of the policies he is considering around automotive emissions. One of these measures will apply a national standard for all tail pipe emissions.  A second measure will mandate minimum miles per gallon. Both will spur new ways of doing things with different materials.  Both will impact the metals industry.

But perhaps the most interesting innovation play involves the convergence of several of these trends. As an example, the driver of a hybrid or all-electric car receives a signal that he/she is within 35 miles of the end of a battery charge. The navigation system immediately suggests battery re-charging way-stations based on the driver’s route. Automotive OEM’s originally pursued product substitutions as a means of cost reduction. Now, they become dual-purposed for cost reduction and energy efficiency.

As they say, necessity is the mother of invention¦.

–Lisa Reisman

  • LP

    Interesting…

    I’m all for this. I hope that the big O stops propping up failed banks and start supporting a new and revitalized manufacturing sector in America.

    I look forward to all the Engery and efficient automotive initiatives. Consider how much we can save as a country if LED bulbs become cheaper and cars can average 30 mpg. That in itself would save us maybe half a trillion dollars. I kid you not. Ok, I maybe off by a few bucks in my estimation.

  • admin

    Do you think we should let the banks fail?

  • LP

    I think we need to nationalize the bad banks, clean them up and then sell them.

    It will be much cheaper, quicker and cleaner than what we are doing. For example, Merill gave their employees 30 billion in bonuses a couple days before the closing date of the merger.

    Think of the AIG bailout. The first 50 billion was actually for Goldman, Deutsche Bank and few other. Not for AIG. How shady is that?

    What we are currently doing is much more expensive than nationalizing. So what if we have the stigma of socialists. Why head down the path of the Japanese.

    BTW, this is not all that different from letting them fail. In the event of a failure, the government takes over the assets and sells it off. By nationalizing it rather than pulling of a Lehman, we cut off any main street panic.

    So I agree with Shelby about the banks. I do disagree with his assessment of GM. I’m sure Mercedes, Honda, Hyundai and Toyota didn’t influence his opinion.

    GM is a national security issue. Imagine if we let a few of the big American industries fail? What happens when we enter WWIII. It’s not a matter of if, it’s a matter of when? Scary. In the past, companies like GM have been instrumental in manufacturing components needed in prior wars. I’m not saying that we can take over a Toyota plant but it gets more complicated.

    Not to mention GM employs a boat load of people. If those 335K go to the employment lines, it will cost us around 50 billion in Unemployment, plus re-training, maybe another 10 billion in other costs related to welfare for the people that are unable to find new jobs. What will happen to the 800K that rely on GM for their pensions? How will that affect medicare? What happens to the 1000s of companies that sell to GM? What about their retirees? GM is responsible for a portion of the GDP, how will that affect us. The strain placed on the government will be much more than just giving GM money to go work it out.

    If we nationalize and sell of the bad banks. I think the fallout will be a lot less than letting GM fail. Most of the branches will be absorbed by other. There will be some backoffice fall out but, I doubt it will be as bad as a GM fallout. Well I can bet you that it will not.

    If we are going to spend trillions, let’s not put good money after bad. Force these companies to restructure properly (including GM). Make the hard choices now and reap the benefits later. Unfortunately we only have 3 big autos. However, we have thousands of small and mid size American banks that can take over the business of a few big bad banks. Every time we give Citi and BofA money, we raise the cost of doing business for the small banks who refrained from giving out risky loans.

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