Cole says auto industry future to be marked by change, uncertainty

TROY, Mich.—When it comes to preparing for the automotive industry's future, the best we can do is guess.

As auto makers and suppliers work to prepare for the next generation of vehicles and meet the demands of drivers and passengers, they also must do their best to react to factors beyond their control, factors that will impact the industry and its innovation.

David Cole, chairman emeritus of the Center for Automotive Research and chairman of both AutoHarvest and Building America's Tomorrow, explored some of the factors that impact the automotive industry's uncertain future. He presented the information in his keynote address for the second day of the Rubber in Automotive conference, held June 13-14 in Troy, Mich., and organized jointly by Rubber & Plastics News and Freudenberg-NOK.

"We are certainly in some very interesting times in the auto business, and I'm sure all of you are well aware of that," Cole said. "The surprises are coming pretty regularly and that certainly is behind the (presentation) title I have selected: 'The Auto Future: Fast, Furious and Uncertain.'

"In many ways," he added, "that is not the comfortable type of thing to be dealing with, this idea of surprises, but it is the reality of the world we are in today."

Throughout his presentation, Cole touched on several issues that affect the future of automotive manufacturers and suppliers, including the lack of qualified candidates for manufacturing jobs and changing business models, as well as foreign and domestic political factors.

"The Trump effect is another interesting issue," he said. "Every day we wake up and something new is going on. When you look at the uncertainties just related to the new administration, whether we are talking about trade, regulations—particularly things like CAFE—there are economics issues, tax policy and international relations, and I think we would all have to agree we are in an era where surprises are likely. It may not be bad surprises, but we are probably looking at factors that are going to change and be very difficult to predict."

Business model shifting

One thing that is certain is that the traditional business model in the automotive industry is no longer in play. It had bosses who told workers what to do, physical prototypes and focused on individuals. "All of those factors that are part of the old business model are shifting rather dramatically," Cole said. "It's now leaders that look like coaches. We're talking virtual prototypes. And it's the team and not the individual."

Being lean now isn't the end goal it used to be. It's being lean and agile. He said the leanest auto plant in North America for many years was a Ford plant south of Atlanta that made the original Taurus and Sable models. "It's now under a runway at the Atlanta airport," he said. "Why is that gone? It was not agile. It was not able to shift and change as the market shifted and changed."

Automotive also is becoming a business of haves and have-nots, both with OEMs and suppliers, said Cole. "There are some companies that are on board with about everything that is going on, whether it's mobility, autonomous vehicles, advanced powertrains or advanced materials," he said. "Other companies just can't play the game."

Defining success is another area of change. The key measurements used to be low cost and high revenue. But the AutoHarvest chairman said today you have to add innovation and agility to the list.

The world also is seeing boundaries vanish, in terms of national boundaries, access to technology and in terms of capital flowing freely around the world.

The same thing is happening between manufacturers and suppliers, particularly in terms of intellectual property. Four decades ago, just 10 percent of IP came out of the supply base, as the auto business was more "build to print," Cole said. Now more than half of IP is developed by suppliers.

"It's a very different structure than we saw in the past," he said. "It's important to recognize that's the reality of the new world."

Talent shortage

There are many "choke points" that can alter the auto business dramatically, and one of those is the projected shortage of talent to fill jobs across the industry. At a recent CAR conference on tooling, one topic was the problem in developing workers in the skilled trades that are part of the tooling industry.

"We are going to see a huge fraction of those people retire in the next few years, and the replacements are just not there," Cole said.

All jobs in manufacturing today require special skills, and the school systems are not properly preparing students for the kind of jobs that are part of manufacturing. A Chrysler official told him that the firm is short 2,000 diagnostic technicians in its dealerships today, jobs that can pay $70,000 to $80,000 a year. "How come we are not promoting the issues related to manufacturing across the spectrum of people: teachers, kids and parents?" he asked.

With the advent of new technology, Cole said production of big items like cars, washing machines and trucks can be done competitively in the U.S., but he's not sure the country has the talent to make those systems operate efficiently. "Manufacturing is not just an assembly line. It's from the earliest stages of concept and development of materials, all the way through sales and service."

It's projected that in the next few years there will be a shortage of 2 million people appropriately trained in manufacturing, and the industry veteran said that will have a significant impact on automotive and its related businesses.

Future landscape

CAFE regulations will be one of many factors that paint the future landscape of the automotive business. That's one of the uncertainties related to the new administration, and it weighs heavily in what products will be made over the next several years.

Cole said that as fuel economy improves, the value of the savings actually becomes progressively less valuable to the consumer. And if the cost of the product is significantly higher than that savings, the industry could see a marked disconnect in the marketplace for cars. "That is one of the reasons we should never forget about economics as part of any policy discussions," he said.

Uncertainty also comes with what the future fuels will be and what will be the predominant powertrain for vehicles over the next decade or longer, be it gasoline, diesel, hybrids, electric or fuel cells. He joked that fuel cells have been 10 years away for roughly 50 years.

These are critical issues that are tied partly to regulations and partly to technology. "The most significant factor for that question of future power plant is the cost of battery technology," Cole said. "If it gets somehow below $100 per kilowatt hour, we're into a whole new era of thinking."

Autonomous vehicles obviously have huge potential, he said, in terms of savings of lives and reduced accidents. But factors such as consumer behavior, technology, costs, liability issues and policy issues will play a big role in that future.

Right now, he thinks there's a little too much bragging going on among companies—especially the new players—saying they will have autonomous vehicles ready by 2021 that will change the world. He noted that the top two companies in terms of autonomous vehicle technology happen to be Ford and General Motors.

"Some of the old guys that have been around and might not talk as much as the new guys aren't dumb," he said.