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.

Automotive Futures: High Tech or High Dreams?

In the online NBR Japan Forum (and in a chat with a retired vice miniser of METI – the Japanese Ministry of Economy, Trade and Industry [経済産業省]) – I hear about how electronics, hybrids, and yes, fuel cell vehicles will turn around the [domestic] Japanese auto industry. (The US, too, has its advocates of industrial policy.) After all, the Prius has been a huge success.

This is wrong on three counts.

First, it relies upon a mistaken definition of the industry. As Klier and Rubenstein show in their 2008 book, Who Really Made Your Car?, the vast majority of employment – 3 jobs to 1 – is in parts manufacturers, not the car companies. Twenty-five years ago the Detroit Three sharply reversed their vertical integration, with GM and Ford spinning off Delphi and Visteon. In Japan, though, that process of dis-integration began circa 1950, when Toyota as part of its de facto bankruptcy spun off Denso. According to its Census of Manufactures [工業統計表] in Japan the employment ratio is on the order of 4:1.

Furthermore, while high-tech is sexy, it is not the name of the employment game. Mundane-seeming items such as wire harnesses and seats are the most expensive individual items purchased, and while I've sat through engineering presentations on new technologies they incorporate, they remain comparatively labor intensive in their manufacture. As bulky items seats are almost universally made within a short truck drive of an assembly plant, but harnesses come from the Philippines (where they are the biggest single source of manufacturing jobs), China and Mexico. In addition, even if Japanese parts firms were to dominate the high-tech end of the industry (they don't at present), it wouldn't halt the shrinkage of the domestic car market, thanks to demographics, as outlined in my August post, The Decline of the Japanese Auto Industry. Success in high-tech parts won't stem the erosion of domestic jobs.

...high tech won't stem the erosion of domestic [Japanese] automotive employment

Second, to me it is not clear that Japanese suppliers are ahead of the game. There are certainly individual suppliers (and particularly specialized sub-suppliers) that dominate their particular niche. When it comes to transmissions, or headlights, or turbos, or many other items, Japanese firms may be major players, but in the [confidential] "benchmarking" competitive analyses that I see as a PACE judge, they seldom appear on the leading edge. One reason may be that, despite 30 years of Japanese assembly operations in the US, suppliers remain parochial: when I visit firms I am the only non-Japanese in the room, unlike in the US or Europe. Yes, the better firms have R&D outposts around the globe, but careers are made or broken at headquarters, recruitment from the outside is highly unusual, and a "not invented here" attitude is all too common. Let me caution that this is based on a small set of personal observations. I hope I'm wrong: there are many talented people in Japan, but their value is best realized when they're embedded in the global network of automotive engineers.

Third, while eventually electric cars or fuel cell vehicles may be a big share of the market, it's unclear that they warrant effort today. That's not the perspective of Toyota Chairman Uchiyamada, as conveyed for example in Bloomberg. Yes, Toyota has sold 3 million Prius (is the plural Prii??) over 15 years. But with 75 million vehicles on the road in Japan and 250 million in the US, strict hybrids are a scant 1% of the fleet. The share is growing, and if we include vehicles that aren't marketed as hybrids (such as those with start/stop alternators robust enough to boost acceleration and recapture braking energy), the share is larger. Nevertheless, the reality remains that hybrids have not been a market success.

Quite simply, putting two complete, interconnected drivetrains in one vehicle drives up cost and weight. They must be sold at a premium to make a profit, while offering only a modest performance improvement. They also face a moving target, as "standard" gasoline and diesel engines continue to get better – thanks for example to turbos that permit downsizing. Hybrids don't offer sufficient benefits to be a strong value proposition. In some markets, such as Europe, almost none are sold; efficient, tried-and-true diesels dominate. In Brazil, with the wide availability of ethanol and CNG, new cars are designed and assembled to use any mixture of gasohol at minimal incremental cost, and to switch seamlessly to/from CNG and gasohol. Who needs a hybrid to save money? Hybrids likewise fare poorly in China. So far, however, global markets are diverging, not converging, undermining the business case for hybrids, battery electrics and fuel cells.

markets are diverging, not converging

I'm left with a feeling of deja vu from encounters with the "magic bullet" mindset that prevailed at GM 25 years ago. At that time executives, including the visionary Roger Smith who brought us $19 billion in robot-ridden factories that promptly closed, and the Saturn venture that neither made money nor drove the Japanese from our shores, were searching for the "secret" of Japanese management. Once they had that miracle cure in hand, GM with its high-powered MBAs and PhD engineers would in short order leapfrog the competition.

Japan has lots of great engineers and competent managers. I hope they aren't forced to devote themselves to the Sisyphian task of making money from fuel cells.

mike smitka

Japan has a monthly survey of manufacturing [生産動態統計] that provides output data on 42 separate components. As is inevitable, definitions are about what was made, not what will be made, and so do not highlight "high tech" from commoditized parts. The only new items included are airbag modules and electronic braking systems, but plain vanilla frong airbags and antiskid braking systems are now comparatively mature technologies. No electronics per se are listed, and while car audio, car navigation systems, and automotive lighting appear under electrical equipment, semiconductors and sensors are broken down by type and not end use, so there are no data specific to (for example) engine and stability system electronics.

Fuel Cells Still a Viable Option?

Based on an original post by Daniel Tomm on the Econ 244 course blog

By chance there is a CNN Money story today (Aug 15) on fuel cells, Has the fuel cell car's time finally come?by Brian Dumaine, senior editor-at-large @FortuneMagazine, which will appear in the September 2, 2013 issue of Fortune. This post was written prior to seeing that story.

Automotive News reported here on May 13th that Hyundai, Mercedes, Nissan, and Toyota have been working with the U.S. Department of Energy to prepare hydrogen fuel-cell powered cars. This public-private partnership – if successful – will lead to a new class of alternative fuel vehicles. These would cut point-source emissions to zero, because the only on-vehicle byproduct is water. At present the underlying hydrogen source is natural gas; fuel cells thus likely have a low overall greenhouse gas emissions burden.

...specialized applications may develop ... passenger cars won't be one of them...

As of now only the Honda FCX Clarity and the Mercedes-Benz B-Class F-cell are used in certain U.S. markets as test vehicles. With the help of the DOE there are hopes of increasing the number of car options using fuel cells. One problem is that there are not many fueling stations, making them impractical for most vehicle users. New partnerships may help shift this chicken and egg dilemma, as Nissan, Mercedes-Benz and Ford unveiled a joint venture with the intent of bringing fuel cell vehicles to market by 2017.

The Prof drove an experimental Ford fuel cell vehicle a decade or so ago. The fueling barrier noted above seems no lower than before. Hydrogen, however, is widely used in industry so given demand, stations could be set up, as we're seeing with natural gas and with fast electric vehicle recharging stations. Critical issues remain. The fuel cell membrane uses platinum as a catalyst and is hard to manufacture, on-vehicle storage is both expensive and requires large tanks that eat up space, and the fuel cell system doesn't like cold weather. I'm very skeptical that fuel cells will ever be viable – particularly as the alternatives keep improving so that the competitive hurdles are getting higher, not lower. Reflecting that, Dr. Chu as Secretary of Energy did not push hard for fuel cell research.

If there's been a breakthrough to change such commercial calculations – as opposed to political calculations coming from Congress – I've not heard of them. Media coverage [August 14, 2012 on Daily Tech and a Feb 4, 2013 note on Fuel Cell Today] of the modest continuation of research pointedly avoided details of fuel cells themselves, and instead noted the improved potential low-cost availability of hydrogen thanks to natural gas discoveries. The Department of Energy Fuel Cell Vehicle web site says nothing to the contrary, and FuelCell.org contains the normal news of incremental improvements – and of non-passenger car uses. Fuel cells will continue to get better. But to reiterate, so will the alternatives – and those alternatives are already far superior. While specialized applications may develop, my continued belief is that passenger cars won't be one of them.