The internal combustion engine has been good to Illinois.
Over several generations, local entrepreneurs have built fortunes and local workers have made middle-class incomes in the industrial ecosystem surrounding gasoline-powered vehicles. From small, family-owned foundries to global parts makers and massive auto assembly plants, automobile production is a cornerstone of Chicago's manufacturing base.
General Motors CEO Mary Barra just put an expiration date on much of that. Barra said last week that the giant auto maker will stop making gas-powered cars in 14 years. Come 2035, GM will only produce all-electric vehicles. GM is joining Ford and others in phasing out a technology that has generated tremendous wealth while shrouding the planet in heat-trapping gases.
To a large degree, Barra's timeline only underscores what we already know. Car makers have been putting electric vehicles on the road for years now, led by Elon Musk's Tesla line. With regulatory pressure building—California has banned sales of gas-burning cars by 2035—the auto industry has little choice in the matter.
Still, Barra's announcement punctures the bubble of denial in an industry slow to embrace change. Extinction is coming for the internal combustion engine within a relatively short time frame.
The message for auto suppliers is clear: Get ready for the biggest change since Henry Ford pioneered assembly line production. Electric vehicles will upend the industry, threatening the survival of many longstanding players.
Suppliers should already have started preparing for the day demand disappears for a huge swath of components auto makers have been buying since the early 20th century. Electric vehicles require far fewer parts than gas-powered cars. An all-electric Chevy Bolt motor has three moving parts, compared with 113 for a traditional engine, according to a 2019 report by consultancy PwC.
Entire categories of parts become unnecessary when cars stop burning gasoline. Any component related to the engine, fuel systems, transmission or exhaust system is headed for extinction. Far simpler than gas-powered cars, electric vehicles need no pistons, no gas tanks, no alternators, no multispeed transmissions, no mufflers, to name just a few of the parts facing obsolescence.
Every one of those parts is a vital source of revenue for suppliers across the country, including in Illinois. Industry consultant Paul Eichenberg estimates "about 40 percent" of the dollars that auto makers spend on parts relate to the internal combustion engine.
Eichenberg figures as many as 75 of the 100 largest parts makers face irrelevance if they can't find a market niche related to electric vehicles. Locally, Tenneco and Illinois Tool Works are among the large global suppliers that rely heavily on parts for gas-powered vehicles.
Big companies have capital and access to technological talent, giving them a fighting chance to evolve with the shift to electric vehicles. Smaller and midsize suppliers face a tougher road.
As an example, Eichenberg points to forgings, produced by numerous auto suppliers here and elsewhere. Internal combustion engines account for 80 percent to 90 percent of forgings sales, Eichenberg says.
"EVs don't have forgings," he says. "You have a 90 percent reduction in the amount of capacity that's needed."
Falling demand for so many products will shake Illinois' economy. Some nearby states rely more heavily on auto production than Illinois. Still, a 2019 report by the Illinois Manufacturers' Association found the industry accounts for 36,000 jobs and $28 billion in economic output in the state.
Nearly 10,000 of the best-paid factory jobs in Illinois are at two giant auto assembly plants, a Ford factory on Chicago's South Side and a Stellantis (formerly Chrysler) plant in Belvidere. Although both likely could be converted to electric vehicle production, labor requirements may decline because the new powertrain technology requires fewer parts. Industry consultant Ron Harbour says job losses may not be as great as some fear, noting that electric vehicle assembly involves some delicate processes that can't be easily automated.
"There will probably be a little less labor," he says. "It will probably be 10-15 percent less, not 50 percent less."
Many other local auto industry jobs are in areas particularly vulnerable to the demise of internal combustion engines. According to a 2017 report by World Business Chicago, more than 11,000 people in metropolitan Chicago work in foundries, forging or stamping plants. Foundries and forging companies rely heavily on demand for internal combustion components.
As orders for those components start to fall, job losses are almost sure to follow. Harbour doubts new opportunities in electric vehicle production will fill the gap.
"Certainly there will be new jobs, but not to the extent they're going to be displaced," he says.
Finding footholds in electric vehicle supply chains will be difficult for traditional auto suppliers. Few have the capabilities to produce the most lucrative components of electric powertrains. So far at least, consumer electronics companies appear to have the inside track to supply auto makers with batteries, controllers and other equipment.
Harbour urges suppliers to seek opportunities not only in electric vehicle production but outside the automotive sector, noting that some process technologies are used in other industries.
"They've got to be really aggressive about looking for other applications of their process technologies," he says. "It's tough. It's strategy time for these suppliers. They've got to think about their future."
If they haven't started thinking about it, they're already running behind.