Warner Norcross & Judd attorney Tom Manganello understands that the automotive industry is making a push to incorporate more technology. Manganello, who represents automotive sector clients, thinks if companies are not participating in this industry-wide shift, they could be in for trouble.
How is technology driving investments, M&A and different kinds of partnerships in the automotive sector?
It’s the fasting growing sector, I think. If you look at the mix of products in vehicles going forward, the more traditional types of products, such as axles, are pretty static. Those are driven by sale lines and forecasts, but what you are seeing is a shift into (technology) and electric drive trains — those are the disruptors.
What should automotive suppliers be doing right now to embrace more automation?
It depends on your market. It depends on your product. Eventually, everything in the car could be condensed. A lot of parts do have sensors in them already. It’s the dilemma facing everyone in the auto industry right now, and you have to keep your eye on the ball as to what you are making. You have to figure out what you can do to improve the technology in your product, because if you can create technology that’s of value and properly protect it through patents or trade secrets or copyright, you would have better leverage for negotiating good prices and also be on the leading edge of new product changes.
How do you see technology changing the industry?
I think companies in all sectors are moving into technology. From companies that make door handles to companies that make door latches to companies that make seats, (they are) all getting involved. They are all moving into what’s next in the automotive world, whether it’s safety related or fuel system or electrification, and a lot of them are … opening offices in Silicon Valley, or are at least going out there and participating in events. Conversely, you have a lot of nontraditional players that are coming to Michigan. People like Google and Microsoft… they are all here now.
Is that trend sustainable?
Oh, absolutely. They have to be here. As much as we have to be exploring the resources of Silicon Valley, they have to be exploring our region because they don’t know how to make cars the way we do, and we don’t have the code writing and the number of people they have. It’s really an opportunity for each of those segments to exploit each other.
Given the current plateauing sales cycle, should suppliers brace for more price concessions?
Yes. Suppliers over the last seven or eight years — some of them learned a very hard lesson in the downturn, and some of them became disciplined in managing their supply chains, both their customer expectations and obligations to their customers. Others haven’t been quite as disciplined, and when volumes are up and margins are pretty good, a lot can be forgiven. But as the SAAR (seasonally adjusted annual rate of sales) goes from 17.5 (million) down to 14 (million) or even 13 (million) as an analyst predicted by 2021, you are going to see the less-disciplined members of the supply chain enter into distress situations. But that is also going to be driven by the continued increase in global platforms. If you don’t have a global footprint, you’re in trouble.
What’s changed in OEM/supplier contracts over the last five years?
I think the OEMs have not so much changed their contracts, it’s more of a change in their operations or modus operandi. They have become highly aggressive in recouping service campaign and recall costs.
What else should suppliers be watching going into 2018?
You have three factors to deal with: Most people think there will be a decline in volume, you’ve got a huge … change in technology, and you’ve got — for the traditional OEMs — all these new players coming into the industry, and I guess for the suppliers as well. These are nontraditional competitors. Because of the industries they are in — cell phones and other computer technology — (they) move faster. But their product is not entirely engineered as a car (is). Where a car is an internal combustion engine consumer product that’s expected to last at least 10 years, that’s not true for the cell phone I have in my hand right now.