“Davos for auto execs,” it’s not. The Management Briefing Seminars, held in August by the Centre for Automotive Research, still shows its roots as an industry golf-fest, writes John Voelcker.
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Every year, automakers, suppliers, and others come together to meet and greet, wine and dine, and listen to luminaries opine on the state of the industry. The week-long event is held in Traverse City, a resort city in northwestern Michigan—250 miles and four hours from Detroit—known for boating, golfing, and cherries. And at $2,800 for the week, it ain’t cheap.
This year, the atmosphere was tense as perhaps never before. Six months of soaring oil prices and abrupt changes in consumer demand have left the US industry moving forward, but battered and whipsawed. No CEOs attended (Tom LaSorda, one third of Chrysler’s Office of the Chairman, was probably closest), and many conferees came early Wednesday, stayed for two days of presentations and the gala dinner in between, and left late Thursday. Organisers had scattered star presenters from Wednesday to Friday, but even three days—let alone five—may now be too long to spend away from the office.
For Detroit, 2008 offers twin centennials: GM was formed in 1908, the same year the first Model Ts rolled out of Ford’s factory. So it’s particularly ironic that the Detroit Three (the former “Big Three”) are suffering so dismally, as are their suppliers. The problems are based in North America, but their impact is global. Consider that GM’s market cap last week was $5.8 billion, and Ford’s $7.8 billion—against Hyundai at $16.8 billion, Volkswagen at $120 billion, and Toyota at $136 billion. And it’s the same for suppliers: Lear is at $1.1 billion, BorgWarner at $5 billion—but Denso is $34 billion, and privately held Bosch is estimated to be at $70 billion.
Tim Leuliette, the new CEO of supplier Dura Systems, summarised the week’s atmosphere best. “The scary part is that most Americans don’t care if the Big Three live or die,” he said. Leuliette gave perhaps the best and pithiest presentation of the week, pointing out that the North American industry faces a do-or-die moment. “This is the ninth inning,” he said, dividing the supplier industry into two groups, “the quick, and the walking dead.”
But for all the current gloom, an undercurrent held that “in chaos is opportunity.” When Toyota’s Bob Carter polled the audience on the state of the industry two years hence—better or worse than today?—the “betters” outnumbered the “worses” roughly five to one. It’s good to be Toyota, of course. After the vote, Carter quipped, “I’d like to offer any of you a job; see me afterwards.”
The week’s general themes shouldn’t surprise anyone who follows the industry worldwide. First and most resonant was globalisation, as both GM and Ford finally work toward the Toyota model of just a handful of global platforms to underlie the vast bulk of global vehicle sales.
And the effects of globalisation apply equally to the supplier industry, which if anything is even more shell-shocked than its customers. Dozens of US suppliers have been restructured, sold, bought, put into bankruptcy, shut down, and/or rescued or re-capitalised, often by private equity—and sometimes several of the above—just since the last conference.
Leuliette again: “We now hear OEMs asking for global quotes for a single product, with a single part number and a single engineering process, that we can deliver on three continents.” Those firms that can respond, he argued, will survive and compete another day. Or to put it another way, “We want to be where the customers and the supply bases are.” That came from Mary Ann Wright, formerly head of Ford’s hybrid program, now CEO of JCI-Saft, the joint venture between Tier One supplier Johnson Controls and French cell-maker Saft.
The drive for truly global suppliers neatly matches the rise of what Thomas Saeli, CEO of Noble International Ltd., called “mega-global platforms”—those architectures underpinning a total production of more than one million vehicles per year. His company’s analysis showed that volume for those platforms (think Volkswagen Golf and its many brethren) grew 7.3% annually, while lower-volume platforms grew only 2.4% a year.
Global suppliers are not the same as a global supply base, however. At least one speaker warned manufacturers not to “run to low-cost countries” without understanding all the costs and complexities. Laurie Harbour-Felax of the Harbour-Felax Group cited Chrysler’s contract for seat assemblies from an Indian supplier. “They didn’t look at the total cost,” she argued, “just the purchase cost”—without including such necessities as sturdy shipping crates, at $50-$60 per seat. Being large, expensive, and come in many colors and varieties, moreover, seats are customarily just-in-time inventory. Chrysler finds it challenging to ensure a steady flow in the right order, Harbour-Felax said, when parts come from halfway around the world.
After globalisation, the second major theme was collaboration—with examples of every possible stripe abounding. Mark Fields cited the benefits of collaboration between disciplines and regional groups within Ford, which has resulted from the single global product development process organised by group VP Derrick Kuzak. And a brand-new alliance, with the catchy moniker “US Auto PARTS”—standing for US Automotive Partnership for Advancing Research and Technology—launched with the goal of allowing collaborative pre-competitive research in new technologies that would let hard-pressed US suppliers get more bang out of limited R&D bucks.
Friedemann Strasser, CEO of Getrag Transmission Corp., sketched out an unusual 85/15 joint venture set up between Getrag and Chrysler. Getrag invested $500 million in re-equipping a Chrysler-owned plant in Kokomo, Indiana, to build dual-clutch transmissions, retaining and retraining the unionized workforce. Getrag got a new customer, and Chrysler got advanced transmissions for its 2009 minivans that it might not have been able to develop on its own.
Automotive 2020, a widely publicised report from IBM Global Business Services, said simply, “Collaboration throughout the automotive value net will be a necessity for those intent on succeeding. Automakers will need to develop alliances and partnerships aggressively, both within and beyond the traditional boundaries of the industry.”
Even Toyota’s Carter underlined that his historically inward-facing company was “fully open to new ideas” from suppliers and others. He cited the search for unique features to distinguish the new Tundra full-size pickup truck. The supplier Multimatic volunteered a unique damper system for the heavy tailgate, worked with Toyota engineers to revise it, and even applied the Toyota Production System to its own manufacturing—all before getting the contract.
Finally, presenters and most conferees acknowledged—some grudgingly—the reality of environmental regulation. “Climate change is the biggest policy challenge facing our industry,” said Mike Stanton, CEO of the Association of International Automobile Manufacturers. He’s the industry’s head lobbyist in Washington; his job is to work toward minimal regulation of the industry and its products—or at least sway inevitable legislation in ways that favor the industry’s interests.
Stanton admitted that both automakers and consumers are frustrated at the lack of a coherent national energy policy. “What do we know?” he asked. “We know the new President will support climate-change legislation; that the EPA will support California’s ability to set its own emissions standards; that the states will act on climate change if the Feds don’t…and that it will be a bumpy ride for our industry.”
(It’s worth noting, mind you, that the session in which he spoke, “Energy, Efficiency, and Climate—What Role for Auto?” was held at the same time as the popular and overbooked golf tournament. Attendance was notably down on the morning’s session.)
Emerging BRIC markets attracted nods as well. Tom LaSorda highlighted Chrysler’s sales growth and ambitions in Russia and other locales with such gusto that cynical reporters might wonder whether the company plans to give up on North America and peddle its wares in markets with higher growth rates and less demanding populaces. Why look so far afield? LaSorda offered bank robber Willie’s Sutton response when asked why he robbed banks: “Because that’s where the money is.” In this case, it’s where 80% of the global industry’s sales growth to 2016 is.
It was left to speakers from Honda and Toyota to suggest a long-term view, sometimes verging on Zen while doing so. Richard Colliver echoed Honda’s corporate view in suggesting that attendees “be guided by a clear vision … and lead with a positive spirit“ and promised success from “careful planning based on core values, with a steady focus on the customer.” Similarly, Toyota’s Bob Carter gently chided doomsayers. “Our attitude about the future makes all the difference,” he said. “We can’t control the government, the economy, our consumers—but we can control how we respond, and focus on our best.”
But for all the talk of globalisation, the Briefings are still very North American, and some moments rang distinctly odd to Europeans and Asians in attendance. Major domo David Cole often referred to his eight grandchildren—I counted five times by Thursday noon—and one moderator tossed in the evangelical church attended by a panelist during his bio. Language used by several presenters blithely assumed the whole audience was made up of US citizens working for US companies, neither remotely true.
The Wednesday night gala dinner highlighted the divide. At the open-air buffet on a nearby hole’s putting green, perhaps a third of the tables remained underpopulated or empty. My tablemates—from a venture-funded Silicon Valley lithium cell startup—were baffled at the polished GM, Ford, and Chrysler vehicles ringing the tables. At least half were shiny new sport utilities or crossovers, of two tons and more.
Some conference attendees in turn had seemed equally baffled by Californians, a handful even openly contemptuous of the California Air Resources Board’s mandate to regulate the state’s CO2 emissions. The standard fear, “a patchwork of regulation,” was heard regularly during talks on legislation. Culturally, Michigan differs not only from Stuttgart or Tokyo, but from its own country’s largest single auto market (yes, California).
The most surreal moments came with the entertainment, from a singing political satirist group called The Capitol Steps, who adapt well-known pop tunes to comment on political matters. Two songs suffice: On the topic of a presidential ticket of Barrack Obama and Hillary Clinton, the group morphed Paul McCartney’s soppy Eighties ballad into “Ebony and Ovary”. And a cheerful ditty about the travails of Idaho Senator Larry Craig, who pled guilty to cottaging (in another state) without bothering to mention it to his staff, repeated the chorus, “Knock Three Times on the Tile if You Want Me.” Half the audience sat utterly stony-faced (a few walked out); the other half laughed uncontrollably.
Of course, local stress levels weren’t helped by a headline about a foreclosed home (stripped of its plumbing, in a dubious Detroit neighbourhood) sold by its lender for one single dollar—at a loss in the five figures.
But traffic on the Traverse City roads underlined how different Michigan is from other automotive centres. Civilians really do tow 25-foot-long, three-ton boats behind four-door, twin-axle pickup trucks, and full-size Chevy Tahoes and Suburbans are considered practical family transport. We’ll have to see what the road mix looks like next year.
John Voelcker
