The PACE of Automotive Innovation

Suppliers are integral to new technology in the auto industry to an extent not true since the early years of the 20th century, when ventures such as Ford began as mere assemblers, not manufacturers. That will be highlighted on Monday, at the 21st PACE "academy awards" for supplier innovation. (For those not in the know, Monday's the opening night of the SAE [Society of Automotive Engineers] in Detroit.)

Caveat lector: your not-so-humble author has been a judge from the competition's beginning.

General Motors began as a conglomeration of existing firms, both suppliers and assemblers. As it grew – and as Ford stumbled – it added more suppliers while dropping brands. By the 1960s it was highly integrated, with suppliers relegated to trying to make parts to GM's blueprints. Now that strategy had unintended consequences, as the route to the top became finance, with other functions such as making and selling cars treated as an afterthought. Be that as it may, come the 1970s, first emissions controls, then fuel efficiency mandates, and finally safety regulations forced car firms to engage with non-traditional, outside suppliers. Meanwhile, new entry meant that the comfortable Big Three oligopoly could no longer ignore the challenge of actually making and selling cars. One response was to spin off internal parts operations, and with it the ability to do the relevant component-specific R&D. Finally, alongside this demand-side story were two technology revolutions, those of materials science and of electronics and sensors that enabled these suppliers to turn to innovation as a way to build their businesses and preserve margins. The bottom line was that suppliers became central to automotive innovation.

This supplier-centric industry has lots of implications. For one, it may facilitate new entry; Aptera, Fisker, BYD, Chery, Geely, Great Wall, Tesla, Bright Automotive, Edison2 and others could buy drivetrains, transmissions, sensors and controls from existing, auto-tech-savvy suppliers. Not all have survived, due to a combination of undercapitalization, poor product strategy and bad luck. However none could have started had suppliers not controlled – and built their businesses around selling – core technologies. Exploring such implications, including for investors, is however a topic for subsequent posts.

Here let me briefly note the role of suppliers, using engines are an example. (My apologies to Europeans for focusing on gasoline rather than diesel engines.) Drawing from among PACE award winners, we see the following areas dominated by suppliers: fuel tanks, fuel pumps, fuel vapor recovery, injectors, injector electronics, spark plugs, valves, camshafts, pistons, piston rings, bearings, seals, sensors of many types, turbochargers and turbocharger escape valve technologies. There are other areas (engine block castings, machining) where car companies continue to dominate, but even there suppliers provide the machine tools that are critical to these operations. In short, while car companies may work on the configuration of the engine and the integration of these various components, the advances come from supplier technology.

It's not just engines. A wide array of vehicle systems are dominated entirely by suppliers, such as clutch components, transmissions, differentials and driveshafts, HVAC systems, lighting, ESC systems, tires, tire sensors, suspensions, ECUs and most other sensors and vehicle electronics, airbags, seatbelts, hot stamping, hydroforming, paints, structural adhesives, sound-proofing materials, water pumps, radiators, headliners, instrument panel surfaces and underfoams, starter/alternator systems, belt and pulley systems, timing chains, windshields and glass, wiper motors, wiper blades, radar, lidar and ultrasound sensors, cameras and image recognition systems, infotainments systems, and on and on. More important for Monday, you can find examples among the two decades of PACE finalists and award winners.

I've been privileged to judge this competition since its inception, thanks to the entre provided by my own research (my PhD dissertation was on automotive suppliers in Japan). As a result I've been able to visit 2-4 suppliers a year for in-depth presentations on technologies and their business case, and to sit with the judging panel to hear their summaries of similar visits. Along the way I've earned my PE degree as well. [P.E = pretend engineer] Now the entire process is under NDLs (non-disclosure agreements) so I have to be careful, but I have tried my hand (with co-author Peter Warrian) at analyzing the finalists using publicly available information for lessons on technology. You can find our initial paper here and a more recent analysis (incorporating 2015 finalists) here. photo: Federal Mogul's IROX engine bearing

Anyway, watch Monday night for the stream of press releases from the winners, and the Automotive News coverage of the entire award ceremony. I'll be there, in my tuxedo, enjoying the food and drink, and the celebration of innovation. It's a fun and thought-provoking event!

Call for Entries: 2014-15 PACE Supplier Innovation Competition

Time for suppliers to apply for the 2014-15PACE COMPETITION! (Links to PACE web site)

Technological Surprises: PACE and PNGV at 20

I've test driven a number of cars the past week, and what I've seen is a cautionary tale on mapping technological trajectories. Two decades ago Automotive News launched the PACE Award to recognize innovation by suppliers. At the same time, the Partnership for a New Generation Vehicle (PNGV) set out to develop, well, the next generation of vehicles. What would be needed? Exotic materials, new propulsion systems, on and on. Yes, the steel industry came up with a light steel frame project, but the sense of the time was that aluminum, magnesium and fiber-reinforced materials would be central. On the drivetrain side, the future would lie with all-electric vehicles running on hydrogen fuel cells. Transmissions – well, electric motors wouldn't need one. For legacy combustion engines, however, the direction was CVTs (continuously variable transmissions).

Instead what we have are "standard" gasoline ICEs (internal combustion engines) that deliver 40+ mpg in a mid-sized car, with additional gains come each full model change. Turbos, direct injection, improved valve timing, all drawing upon sensor and computing power, have improved the combustion end. New bearings and friction materials complement that, alongside lots of little energy-saving steps – electric fans and eSteer that lessen parasitic losses are one example – cumulate to real savings. On the transmission side we will soon see 9- and 10-speed transmissions that use tried-and-true architectures and gear systems to deliver gains comparable to CVTs, enhanced by electronically-controlled shifts. Meanwhile metallurgy continues to advance, with hot stamping of "soft" steels into high-strength steel finessing the formability challenges to enable using lighter, stronger but still inexpensive steel. Finally, while not prominent in the US, at least for passenger cars, CNG and diesel (pervasive in Europe) and biofuels (ethanol in Brazil) provide greater flexibility and lower emissions alongside higher efficiency.

[Diesel, as a heavier product that needs less refining, should cost less than gasoline ... and in engines the new low-sulfur product can now run cleaner than gasoline. Sigh...]

Not all of this was wrong. What we see today is a greater palette of techniques and materials. The Ford F-150 will retain a steel frame, but shift to an aluminum body. Electrification of vehicles continues, as with eSteer. Start-stop systems bring much of the gains of hybrids at lower cost and complexity. Some companies have chosen CVTs over dual-clutch multi-gear automatic transmissions; they don't dominate, but haven't vanished. The one piece that seems wide of the mark is the (hydrogen) fuel cell, which with hindsight flies in the face of the economies of scale of electricity generation, while still requiring batteries: better just to use more batteries. At the same time, a totally new angle are connected vehicle and autonomous technologies that (as with adaptive cruise control) can perhaps improve traffic flow and save energy that way. Meanwhile, policies to lessen emissions and improve safety have gone much further than anyone imagined in 1993, when PNGV was launched. Both "cost" fuel efficiency, making the gains achieved to date surprising – in my Cruze I've peaked at 50.9 mpg over 25 miles.

Now in the long run I think battery electric vehicles will dominate. There has however been no breakthrough in battery technologies, only gradual improvements in power-per-weight and gradual reductions in cost. So as fossil fuel prices continue to rise – global growth dynamics are strong over the medium run, so higher demand will dominate improvements in extractive technologies – BEVs will gain traction. It will not however occur quickly. Meanwhile, as a perusal of PACE Award recipients demonstrates, lots of little steps continue that continue improving legacy ICE technologies.

The PACE of supplier innovation

GM just announced that it will begin selling a dual gasoline/CNG (compressed natural gas) version of its Impala – the first Chevy in years (decades!?) to get a top rating from Consumer Reports. Now such vehicles are standard in Brazil, allowing the country to take advantage of the widespread availability of natural gas. [In Brazil, such vehicles can also use any gasohol mix, from 100% gasoline to 100% ethanol – you put whatever's cheapest into your tank.] With natural gas running as low as $1.50 per gallon equivalent in the US, that's of considerable interest to fleet operators, and perhaps someday to regular consumers. And while the article makes no mention of the specifics of who supplies GM's system, the dual fuel technology comes from a supplier, Magneti Marelli. One item of note is that it is an example of the globalization of the supply base, as this is an Italian firm but the R&D was done in Brazil. The other is that this innovation – TETRAFUEL – was a 2008 PACE winner.

The PACE supplier innovation competition is now entering its 20th year; finalists for the 2014 awards were announced Saturday morning at the Society of Automotive Engineers "Global Leadership Conference" at the Greenbrier in West Virginia.^{Note 1} I've commenced a project analyzing PACE winners. I hope that will provide a window on what I believe is a gradual shift in the nature of automotive innovation (I gave a presentation on "technology roadmaps" at the Industry Studies Association in May 2013.) Another component is to see whether we PACE judges [yes, I'm one] have done a reasonably good job in evaluating which innovations matter. Of course we can't give awards to firms that don't apply, so we don't have a complete set of innovations to work from. But my sense is that we do pretty well.

Flexible fuel systems are an example of that. What Magneti Marelli did was really clever, starting from problem solving in the Brazilian context, where ethanol is cheap [unlike in the US]. Now other suppliers have to make sure that their hoses aren't soluble in ethanol, that their fittings are robust, as it's chemically different from gasoline. MM's focus was engine controls. How does the air-fuel mixture need to adapt, or ignition timing, or ... in the presence of different mixtures? And how do you measure the fuel mix? They discovered that the information they needed was already being gathered by sensors present in the burn and emissions systems; they didn't need additional sensors in the fuel line to figure out ethanol content. TETRAFUEL took it one step further: how did engine controls need to respond to natural gas? Solvable. (Again other suppliers did the work on lines and fittings; CNG storage and handling is a mature technology.) How to switch fuels? Some clever engineering utlimately led to a low-cost system that could be fitted to existing engines.^{Note 2}

You can peruse past PACE winners on the competition's web site, along with the list of 2014 finalists that this year ranges from Korea and Japan to Sweden and Germany, with a global customer base. I'll make site visits to a few as part of the judging process. Until the announcement of the winners at a black-tie event in Detroit in April 2014, though, I won't be able to say much more.

Note 1: SAE is recovering from a near-death experience, the two-plus-century-old Greenbrier resort is also recovering nicely under the ownership of a local WV businessman.

Note 2: All the detail that I provide on PACE innovations is from public sources. We judges are very careful to adhere to non-disclosure rules, which not only includes engineering, customer and financial data from suppliers relating to their innovation, but the input of customers and other outside references on an innovation relative to alternative approaches and systems from rival suppliers.

mike smitka

Click on the logo for information on the Automotive News PACE "Supplier of the Year" Award

The Award Ceremoney will be Monday, April 15th at the Fisher Theater in Detroit, on the evening of the first day of the Society of Automotive Engineers. The focus of the competition is innovation among automotive suppliers to the global motor vehicle industry. Award winners have included firms from Australia, East Asia, Europe, NAFTA and South America. Over the years this included software suppliers, machine tool and other process suppliers, materials innovations, and parts suppliers to other suppliers, to passenger car and commercial vehicle manufacturers and the (repair) aftermarket.

Each finalist, selected from the pool of applicants in early fall, is visited in the November-January period by a team of 2 independent judges, who include individuals from a wide array of backgrounds, from OEM assembly plant managers to engineers to a race car driver and even (gasp!) a couple economists and a banker. The 20-plus judges meet in a closed door session in February to select winners. This past year I visited:

• BorgWarner with its compact brushless actuator for emissions control
• Brose with its kick-to-open hands-free rear lift gate opener
• Continental with its LocSync tire pressure monitor system that uses software rather than additional sensors to associate the correct tire gauge with the correct location
• Visteon with its MSF zero-leak HVAC connector

If you're not one of the roughly 300 attending the award ceremony, look for a late evening flash story on the Automotive News web site and corporate PR releases for the winners.

...mike smitka...