As the automotive industry pursues cutting-edge technological breakthroughs in autonomous driving and vehicle electrification, West Michigan suppliers must ensure they’re not left behind.
While suppliers in the region may not be directly involved with developing autonomous driving software, many are incorporating value-added niches into their operations as new technology is developed.
“It’s my experience that many of these suppliers, while they are farther down on the food chain, they’re still very cognizant of what’s going on and they’re trying to be pragmatic,” said Mike Wall, director of automotive analysis at IHS Automotive in Grand Rapids. “Many of them have a real sense of those areas where there may be a risk for the business. How do they differentiate their product or get into some other diversified categories?”
Wall points to companies expanding their product portfolios into sectors that touch advanced technologies, even if it’s outside of the components they normally produce.
For example, some suppliers are opting to manufacture battery trays and separators to accommodate electrication technology, while others are developing flexible seating that allows drivers to adjust their position in the cockpit. Tire manufacturers also are working to embed sensors into their products to measure barometric pressure and tire condition, Wall said.
“Obviously, with autonomous vehicles, flexible seating is going to be paramount,” Wall said. “You’re going to want seats that spin around so you can sit face-to-face with the people you’re talking to. You look at the Honda Odyssey and it had second-row seats that went side-to-side and front-to-back. That’s not the same thing as an autonomous set-up, but you’re seeing that flexibility, even in the area of components like seating.
“Those suppliers that are able to take advantage of that, there’s a very near-term aspect to technology deployment and new component activity.”
For Grand Haven-based GHSP, a division of JSJ Corp., advanced electrification technology has steadily transformed the organization over the years from a company primarily focused on mechanical components to one that’s integrating more and more electronics into its products.
“It truly has been quite a tremendous transition we’ve been going through over the last 10 years or so,” said GHSP President Jeff Smith.
Looking to the future, the manufacturer of shift-by-wire transmission components and electrical pumps plans to increase its exposure to advanced electrical technology.
“From an innovation strategy standpoint, we don’t want to limit ourselves to just the driveline or the driveline transmission,” Smith said. “We will be looking at the creation of technology in other applications and potentially other industries as well.”
While Smith declined to disclose exactly which markets and technologies GHSP was considering, he did note the company aims to increase research and development on products in the powertrain area.
“Being a smaller company, the skill set and the resources we’ve added over the last couple of years prepares us very nicely for the path forward with some of the new automotive technology that’s going to be introduced,” Smith said.
ROOM FOR DEVELOPMENT
For some West Michigan suppliers, advanced technologies play a significant role in driving growth.
“Currently, our advanced features account for approximately one-half of revenue growth, which is primarily driven by the growth of frameless interior mirror executions and electronic content,” Neil Boehm, vice president of engineering at Zeeland-based Gentex Corp., said during a conference call with analysts to discuss the company’s quarterly results.
Gentex (Nasdaq: GNTX) manufactures a variety automatic dimming rearview mirrors and electronics for the automotive industry. The supplier steadily has increased the technology integrated into its components over the years.
At the 2017 Consumer Electronics Show (CES) in Las Vegas, Gentex unveiled several products based on advanced driver assistance and connected vehicle technologies. The company plans to offer an integrated side and rearview camera monitoring system allowing automakers to shrink the physical size of exteriors mirrors, which Gentex says will shave weight and increase efficiency.
Moreover, Gentex also unveiled a biometric system installed in the rearview mirror that can identify drivers, start the vehicle and adjust the mirrors, seats and other components according to their preferences.
“This type of system would be perfect for new and evolving mobility solutions, such as car-sharing programs,” Gentex Senior Vice President Steve Downing said in a statement announcing the technology. “The biometric system would identify the driver, authorize vehicle use and allocate payment, including incidentals like tolls and parking, and eventually even gas and fast food.”
In its most recent earnings statement, Gentex said it expects to generate $1.78 billion to $1.85 billion in annual sales for 2017, driven by increased shipments of its exterior and interior mirrors. The company generated $1.68 billion in sales for 2016.
Despite the excitement in the industry over advanced technologies, automakers and suppliers have had some trouble marketing those advancements. Many automotive journalists were critical of the technology displayed at last month’s North International American Auto Show in Detroit, as automakers traded the high-horsepower and exotic concept cars for displays of technologies that may or may not be implemented in the years ahead.
“That is one of the transitions for the industry that’s going to be difficult,” said Dave Andrea, executive vice president of research at the Center for Automotive Research, an Ann Arbor-based industry group. “The auto shows historically have all been around the beautiful sheet metal or the exotic concept vehicles. Now it’s how do you show off the bluetooth connectivity, how do you show off an instrument cluster or what those instruments do.”
While dabbling in electrification or autonomous technologies isn’t for every automotive supplier, almost all of the components or systems manufacturers have growth opportunities through lightweighting.
As automakers strive to meet Corporate Average Fuel Economy standards, any weight savings suppliers can create — regardless of the components they produce — can help set their organizations apart, according to Wall of IHS Automotive.
“There are so many opportunities on lightweighting,” Wall said. “Suppliers don’t necessarily have to be in the materials business per se. I’ve seen suppliers look at their components over the assembly holistically and rip weight out of that, creating an assembly that removes an intermediate part or streamlines the construction of the assembly. That all counts in terms of pulling weight out of that vehicle.”
Despite the various opportunities to add value by lightweighting existing components or assemblies, one West Michigan company has built its automotive business solely on lightweighting technology.
Walker-based Plasan Carbon Composites Inc. produces carbon fiber hoods, rocker panels and other components for performance vehicles like the Chevrolet Corvette Stingray, Dodge Viper SRT and Shelby Mustang GT500KR.
“You can take 20 pounds out of a hood just going from aluminum down to carbon fiber, which is significant,” said Michael Newell, vice president of commercial operations at Plasan. “When you’re looking at powertrain components, they’re happy to get a half-pound out, where in the hood portion, if you can get 20 pounds, you have to take a look at it. That’s where we’re set up now and aggressively pursuing those opportunities.”
Plasan generates annual sales of approximately $85 million and employs 550 people in Walker, Newell said.
With automakers’ appetite for lightweight components increasing, Plasan plans to expand its products from performance cars into luxury vehicles and other segments. Newell notes that vehicles with sticker prices for more than $50,000 are “prime targets” for carbon fiber components.
Within the next 12 to 18 months, the company also plans to begin manufacturing structural carbon fiber for parts like door beams and bumper beams, Newell said.
Both of those initiatives are aided by the company’s approximately $40 million investment in automation technology, which has decreased the cycle times of an exterior cosmetic part from 17 minutes to as little as 8 minutes, Newell said. Non-cosmetic parts can be produced in approximately 3 minutes.
“Now as you start to get into the automation, that’s where you’re seeing the cycle time improvements which allow you to make a more consistent part, make them faster and free up capacity at our facility in Walker to add more revenue,” Newell said.
Beyond products, the push toward new advanced technologies could create opportunities for some suppliers through increased deal flow.
“We no longer see consolidation driving M&A activity,” Jeff Zaleski, U.S. automotive deals leader at PricewaterhouseCoopers, stated in the firm’s 2016 year-end M&A report. “Today M&A activity is about expansion into new technologies, new services and new business models.”
Globally, automotive companies closed on 583 deals in 2016, and experts predict that deal volume will remain strong in 2017, in part because of the “increased pace of innovation,” according to the report.
Wall of IHS agrees with that sentiment and notes that suppliers may have more opportunities to acquire technology as some larger suppliers begin to shed divisions to focus their organizations. Larger automotive suppliers also will undoubtedly search for acquisitions that will help them boost their technology development, he said.
“You could staff up a software team that’s massive and have them code until they’re blue in the face and build that up within,” Wall said. “Or do you buy that asset, those patents and all of that intellectual base and build it from there? … That’s on a mega scale, but I think you’re going to see (technology-based acquisitions) on more of a micro scale as it relates to smaller suppliers.”