SEMA News — April 2009

 Paralyzed or Energized—The Choice Is Yours

The global automotive industry will experience more change in the next 10 years than it has in the past 50, and these business and technology changes will certainly impact the specialty-equipment aftermarket

Most economists are predicting a longer-than-usual recovery after a very sharp entry into the current recession. In conjunction, the auto industry is predicted to be in for drastic changes, not only in what it will look like and how it does business, but also in the technologies that will emerge in new vehicles. In a recent interview, SEMA Vice President of Vehicle Technology John Waraniak detailed not only where the automotive world appears to be headed, but what the association is doing to help its members ready themselves for the coming opportunities.

SEMA News: What are some of the challenges and trends SEMA members should start preparing for now in order to take advantage of the opportunities that will surface in the coming months and years?

John Waraniak: Let me start with the business challenges first: Don’t waste this crisis. Due to the financial meltdown on Wall Street and the speed of change, we are in a crisis environment. And the instinct during a crisis is to wait out the uncertainty and become paralyzed. That strategy is wrong. Now is the time to be energized, prepare, challenge conventional wisdom with nontraditional thinking and create the preferred future. Leading through uncertainty is tough. There’s no script for running a company in this historic downturn. The range of possible futures confronting specialty-equipment businesses is great; however, companies with flexibility and situational awareness are more likely to survive this financial crisis than those that choose to ignore the consequences of inaction.

Today is a different world. The U.S. auto industry is undergoing serious structural changes, and the decisions SEMA members make today—as well as their understanding and knowledge about advanced vehicle technology challenges, solutions and opportunities—will impact their immediate and long-term futures. The global automotive industry will experience more change in the next 10 years than it has in the past 50, and these business and technology changes will certainly impact the specialty-equipment aftermarket.

A123 Systems aftermarket Hymotion plug-in battery pack can be installed in Toyota Prius hybrids. The company claims that converting to its battery back can yield more than 100 mpg.

This crisis is agnostic. No one is immune. It has affected every stakeholder in the automotive value chain and nearly every sector in the economy. A combined 988 dealerships went out of business or consolidated last year. Although most recessions are V-shaped, we seem to have entered this one rather quickly. I believe this recovery will take several years and resembles more of a Nike swoosh. Past financial crises have had very different effects on the economy, but they do provide insights and observations on how companies can survive this current crisis and prepare for the eventual recovery.

Automakers and the aftermarket are certainly going to experience some tough times over the next 12–18 months, however, it’s not all doom and gloom. The automotive industry has long been and will continue to be one of the most important sectors in the U.S. economy. The automotive and motor-vehicle aftermarket parts industries also represent one of the biggest economic multipliers of any sector of the economy. There’s a little bit of the auto industry in nearly every congressional district. In many states, employment in automotive and automotive-parts manufacturing ranks among the top three manufacturing industries. I’m confident that there will be many new and exciting opportunities for SEMA members to continue making vehicles go farther and faster as the auto industry restructures and new technologies are deployed. Innovation does not come from the discovery of technology, but from being the first to use technology to meet customer needs.

Regarding technology trends and changes, I see four megatrends impacting the automotive aftermarket—driving green, driving connected, driving safe and driving cool—and vehicle technology is integral to all four. These four megatrends represent significant challenges, but even greater opportunities for SEMA companies developing products and services in the areas of aerodynamics, weight reduction, fuel efficiency, electronics, start-stop technology and personalization applications.

More than half of all new U.S. vehicles now offer iPod connectivity.

SN: What do you see these technologies and trends doing to vehicle systems and product-development processes and their impact on SEMA-member companies?

JW: Powertrain efficiency, vehicle electrification, software and electronics integration for infotainment and active safety have significant impacts on SEMA-member companies today and well into the future. More and more hardware systems are becoming commodities or are being replaced with electronic and software systems with higher reliability and lower cost. The electronics content of today’s vehicles has increased by 50% in the past five years. More than half of all new U.S. vehicles now offer iPod connectivity, and more than 80% offer Bluetooth connectivity. Consumers want seamless on-board vehicle connectivity with their homes, offices and the rest of the world. They want simple and intuitive ways to operate cell phones and entertainment systems, connect to weather and traffic reports, as well as access the information and content of electronic devices that are built in, brought in or beamed in to their vehicles. All three of these areas need to work together seamlessly to connect drivers to their world and the information they need. The challenges, opportunities and solutions for SEMA members lie in how effectively these features, devices and accessories can be integrated into the vehicle by OEMs, suppliers and specialty-equipment manufacturers, retailers and installers.

Flexible systems, open platform architectures and OEM-aftermarket collaboration are the way forward. Open architectures, interoperability and accessory-friendly systems drive integration, and integration drives innovation and growth. As vehicle electronics get more connected, consumers are demanding more control, as evidenced by the iPod revolution, mobile video, Bluetooth connectivity and systems that offer fully integrated, voice-activated communication and entertainment systems. OEMs realize that commoditization will not allow for consumer’s personalization needs. Neither will old business models and product-development processes.

Vegistroke is a self-contained, heated, automated flexible fuel system for the Ford Powerstroke developed by Dino Fuel Alternatives in Portland, Oregon. The one-piece aluminum billet block Vegistroke has been designed and tested and has now been released as the V3.

Toyota’s Scion is a proven example of the power of profitable personalization, and Sync is a great example of Ford’s connectivity, collaboration and personalization strategy. Ford is working hard to be the automotive leader in infotainment and connectivity by working with the automotive aftermarket and consumer electronics industries. Alan Mulally, Ford’s CEO, recently stated that “…we are a car company, but we are learning to think like an electronics company when it comes to bringing fresh, new and innovative technologies and products to market.” Sync is a very successful competitive differentiator, but more importantly, it represents an electronic platform that is more capable than ever for integrating aftermarket products and applications into the vehicle faster, better and more profitably.
Product-development processes based on lean customization principles and open architectures are creating new opportunities as vehicle manufacturers are driven to commonize and reduce the complexity of vehicles while simultaneously developing the flexibility to build more models off fewer platforms.

Successful OEMs will rely more on flexible global platforms and the aftermarket to reach new markets and quickly address fragmenting market segments with increased personalization and lower costs. Lean customization can make the difference between built-in profits and reverse-engineered costs. Open architecture approaches recognize that the most valuable applications may not yet be apparent. Decoupled development, standard interfaces and open collaboration are reasons why SEMA formed an alliance with the Consumer Electronics Association (CEA) and created the Automotive Electronics Connectivity Committee (AECC).

Enlightened OEMs and SEMA-member companies need to work together to ensure that they can add future capability profitably. Open systems, standardization, authentication and collaboration are essential to getting infotainment systems safely integrated and installed in vehicles while simultaneously achieving increased consumer satisfaction and allowing for later system upgrades. The tipping point for the social utility of connected vehicles is the commercialization of these technologies, applications and services. I’m confident that specialty-equipment companies will play a key role in accelerating the commercialization, deployment and acceptance of connected vehicle technologies as well as alternative powertrain technologies.

SN: Do technologies exist now—or are there some under development—to enhance the performance of vehicles, such as the Toyota Prius and other hybrids and electric vehicles?

The Making Green Cool Zone at the 2008 SEMA Show featured displays and information about a multitude of technology developments, including this Corvette powered by cellulosic E85R ethanol made from wood.

JW: Lithium-ion batteries and hybrid vehicles are a very hot technology and an opportunity now and for the future of customization. Hybrid vehicle production will reach 1.7 million per year by 2012–2013 and reach a production rate of more than 50% of all new vehicles by 2015. SEMA companies, such as A123 System’s aftermarket division, Hymotion, recognize lithium-ion batteries as one of the most important technologies for powering electric motors in vehicles and announced at last year’s SEMA Green Performance Technology Briefing Program that it has teamed with Galpin Auto Sports to provide aftermarket battery packs for Prius cruisers, hot-rod hybrids and muscle electrics.

After years of development for automotive applications and use in cell phones and power tools, lithium-ion batteries are being readied for automotive mass production. The main advantage they offer over conventional nickel-metal hydride batteries is that they are compact and offer superior performance. Unfortunately, they are also quite expensive. The lithium-ion battery pack for the Chevy Volt, for example, will cost somewhere between $5,000–$10,000.

Plug-in vehicle technology development is being accelerated by the major auto manufacturers, and all of them have working prototypes of both plug-in hybrid-electric vehicles and plug-in electric vehicles that have small backup gas or diesel generators. Plug-in vehicles offer drivers the fuel-efficiency benefits of hybrid cars with the added feature of being able to plug in to household electricity when the car is not in use. This leads to increased mileage and fuel savings. Plug-in hybrid-electric vehicles also offer extended electric-only propulsion. Drivers can use the electric mode for short trips and switch to a blended mode of combined gas and electric once the battery runs low or if higher engine performance is needed. Automakers are focused on providing electric vehicles that can travel 40 miles on a single charge since 78% of consumers commute 40 miles or less each day.

One important note for SEMA companies to recognize is that connected vehicles, green performance, hybrid and electric vehicle technology are not just about new vehicles. The aftermarket biofuel systems technology developed by Dino Fuel Alternatives and the Linc Volt are good examples. The Linc Volt—a ’59 Lincoln Continental Mark IV, the car of American dreams of old—has been re-powered by musician Neil Young and builder Johnathan Goodwin with a new-series hybrid system to run on biodiesel and electricity, enabling it to achieve up to 100 miles per gallon. Johnathan, who will be participating in our Making Green Cool Zone (MGCZ) and Green Performance Technology Briefing Program again this year, truly embodies the performance-enthusiast lifestyle. His goal is to inspire this generation as well as the next by creating a clean automobile propulsion technology that serves the needs of the 21st century and delivers performance that is a reflection of the SEMA spirit for years to come.

SN: Fuel efficiency and green technologies don’t center only on engine and powertrain development. What part do aerodynamics, new materials and other technologies play in aftermarket green technologies?

JW: Only 20% of the fuel energy is used to power today’s vehicles. There are many technology and process areas that offer reasons for increased optimism for SEMA members in the areas of new materials for weight reduction; body kits with reduced drag; lubrication systems; bearings and hubs that reduce friction; wheels and tires with less rolling resistance; optical systems and cameras that replace sensors; and batteries and energy storage devices with increased performance. SEMA-member companies focused on these technologies as well as developments that increase total performance, reduce and recover lost energy from, say, braking and convert it to electricity for storage or to power other vehicle systems will do well with consumers demanding increased mileage without sacrificing performance and the cool factor.

SN: SEMA has produced webinars, seminars and other presentations to help educate association members about the technological changes on the horizon. What programs does SEMA currently provide, and what new initiatives are in the works?

JW: Much of SEMA’s success through the years can be attributed to our members’, the industry’s and the association’s capability and willingness to adapt and change. Our Making Green Cool Zone this past year as well as our new-product program represent examples and opportunities for members to showcase their products and demonstrate that horsepower and green power can coexist. To better understand advanced vehicle technology and proactively respond to a number of external factors affecting our members’ future growth, SEMA is also conducting a comprehensive industry research study with the Center for Automotive Research (CAR) in Ann Arbor, Michigan. This study provides forward-looking information and strategic guideposts for vehicle technology and business planning support to SEMA members. The preliminary findings of the study were reviewed at the inaugural SEMA CEO Roundtable at the Council Summit last July and most recently in a nationwide webinar on January 15. The CAR study findings and forecasts provide critical and timely insights and input to scenario-planning processes to define potential challenges, opportunities and solutions, which can then be used by SEMA-member companies to develop their own technology roadmaps and business plans.

Johnson Controls will supply the new SmartGauge with EcoGuide product for vehicles produced by Ford Motor Co. The cluster helps hybrid owners attain better fuel efficiency by coaching them on how to optimize performance.

Due to the success of our inaugural MGCZ this past year, we are expanding it for SEMA 2009 and are offering three SuperSessions focused on green performance, connected vehicles and automotive electronics integration and vehicle dynamics as part of our Vehicle Technology Briefing Program. These three-hour sessions will feature leading experts from across the automotive engineering community and will focus on creating solutions and building relationships that benefit SEMA members. We will also be hosting the Mobile Electronics Industry Awards this year. The awards reception will host 400 attendees and will be integrated with our connected vehicle and automotive electronics integration SuperSession on that day as well as our AECC annual meeting.

The AECC consists of members from CEA, Mobile Enhancement Retailers Association (MERA) and SEMA and acts as a catalyst to accelerate collaboration, integration and interoperability between consumers and automotive electronics. Having the AECC annual meeting and Mobile Electronics Industry Awards presented at the SEMA Show will provide additional value for members and reinforce SEMA as the premiere go-to place for aftermarket mobile-electronics integration and business innovation.

We are also working on several exciting initiatives that combine Hardware-in-the Loop (HIL) testing with math model simulation through our CarSim software license for vehicle dynamics performance that incorporates actual SEMA-member product data directly into a vehicle’s body and chassis control modules. It’s the closest thing to physical testing, but at a fraction of the cost. This initiative supports our vehicle-technology strategic goals, the ESC Work Group, Suspension Task Force and ProPledge efforts. Current plans are to have an HIL demonstration at the SEMA Show as part of our vehicle dynamics SuperSession on November 5, along with an electronic stability control simulator provided by Mechanical Simulations. We are also part of a new program with Michigan International Speedway and the Michigan Department of Transportation that will allow SEMA members to road test their connected vehicle products and electronics solutions.

The financial crisis has some companies questioning the value and relevance of trade shows and auto shows. The SEMA Board of Directors and the association staff understand this very well and are working hard to ensure that SEMA and the SEMA Show continue to provide exceptional value and relevance to members.

Vehicles are more than products. They represent who we are. They are works of art, fun, power and access. The Detroit Auto Show focuses on the automotive business. The Los Angeles Auto Show focuses on automotive green technologies. The SEMA Show showcases, celebrates and focuses on the automotive enthusiast lifestyle and the future of customization.

SN: We’ve heard the term “scenario planning” in conjunction with new technologies and business planning. What is scenario planning and how can SEMA help with it?

SEMA Vice President of Vehicle Technology John Waraniak details where the automotive industry appears to be headed as well as four megatrends impacting the future of the specialty-equipment market and what SEMA is doing to help its members ready themselves for the coming opportunities.

JW: Scenario planning is the bridge between strategic thinking and business plans. It is a critical step toward developing an adaptive set of actions that can allow your organization to survive and even grow in nearly any future market environment. Scenario planning can give your company a competitive advantage as the auto industry struggles with overcapacity, increasing market complexity and ongoing uncertainty.

The purpose of scenario planning is to describe what potential futures may occur. The result is a comprehensive set of scenarios or possible futures that provide a framework for understanding the challenges and opportunities that are coming down the road as well as an increased awareness and a knowledge base for determining how to deal with each of the scenarios. Think of scenario planning as both a business planning dashboard for monitoring what’s currently happening as well as an organizational compass to determine which direction to drive your company. Let me give you an example.

One of the biggest challenges facing automakers today is that the global automotive OEM industry is way too fat. It has the capacity to build 94 million vehicles a year, which is 34 million more vehicles than consumers want to buy and equivalent to nearly 100 assembly plants too many. With the U.S. market bouncing around 10–11 million vehicles this year and 12–14 million for the next few years, that creates a lot of uncertainty and risk that scenario planning can help manage.

Managing risk and uncertainty does not mean making your organization more risk averse by simply reducing your forecasts by a random 20% over your competition. Scenario planning enhances coordination, communication and collaboration across an organization. It helps you better understand industry and market dynamics as well as your competitive strategies and positioning. Most importantly, it helps you create or seize opportunities that your competitors either don’t see or don’t have the capabilities to capitalize on.

It’s interesting to note that 65% of executives believe that their companies are high performers when actually only 5% to 20% are top performers. A recent survey also indicated that 88% of organizational missteps are controllable and only 12% are uncontrollable. Scenario planning is a powerful tool to help SEMA companies control what they can and react quickly to what they cannot. Scenario planning cannot predict the future, but it certainly can help shape it.