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WHO’S GOING WHERE, AND WHEN?

OEMs struggle to meet customer expectations and legal demands

Column by ANDREW MARSH

 

The automotive industry is in an almighty mess, even though millions of people around the globe are working very hard to fix the many issues. Let’s look a little deeper into the product development chaos, and the effect on the collision repairer, insurer and all the support services.

This has become an emblem—on the one hand, the first major OEM in nearly a century born in the USA (Tesla), and on the other the ‘big three’ continue to shrink. The pattern is no less confusing internationally as ‘new’ OEMs appear from the Far East in legions. Of course, many of these ‘new’ OEMs are really a combination of networked Tier 1 suppliers and State-backed bank investment vehicles. Slowly, we are waking up to the dubious benefits of offshoring.

For more than four decades, the European OEMs exported technology East to valued partners—comprising initially of out-of-date products—before migrating to much more recent technology. Meanwhile, the largest producer of Li-Ion batteries—China—together with a rapidly maturing automotive high voltage power electronics business, have in parallel, created a dominant source of components, battery packs, motors and controllers.

Further, in spite of underlying financial difficulties, China’s population has become demonstrably better off in the past decade, and that disposable income has headed into property (a whole other story) as well as vehicles.

Imagine now a mere five years ago being courted as a ‘foreign manufacturer / importer’ where the public would willingly pay the asking price including immense taxes to buy their vehicles? The domestic-made vehicles were seen as cheap, poor quality wannabe products. Fast forward to now. Whilst doubts still remain over domestically built internal combustion engine reliability (unless a foreign OEM is involved), the pure electric vehicles deliver good build quality, design fashion in line with the domestic market, and some sort of reliability.

The effect? Decades of high profit activity evaporated for the European OEMs in less than two years. The Stellantis Jeep division importer to China was forced to close in 2023. Worse—thanks to questionable strategy from the European Union, the same thing could now happen on their door step. The combination of centralised government policy and a major automotive powerhouse being ready to exploit this is only now understood by politicians.

There have been other head winds too.

The pattern of NGO lobbying for additional safety, reduction in emissions, removal of certain powertrains, building / investing in certain locations and more have made manufacturing vehicles of all kinds much more difficult than even two decades ago. The result:

• Fast-tracked retrofit engineered solutions—especially for hybrid and PHEV—leading to unusually high levels of recalls. This was done to mitigate penalties ranging from taxation to market access, but at the expense of rushed solutions.

• Doubling or more the rate at which new models are introduced, since the body requirements for a battery electric vehicle are 100 percent different to all other powertrains, due to the storage of the battery underfloor, protection from side impact and less difficulty in managing frontal impacts. Most OEMs and their suppliers have struggled to meet the internal demands of this product deluge.

• Inevitably mistakes have been made, and consumers get to find out.

• Huge ‘follow the leader’ incentives, which stifles innovation as well as profitability.

Previously well-regarded quality systems, such as those used by Toyota, are under immense load. Meanwhile, the international finance community dance on the internal combustion grave as they look forward to a pure electric autonomous ‘transport as a service’ future. This is a premature celebration.

Some uncomfortable points:

1. Internal combustion engines have delivered immense wealth through mobility over the past century, and the replacement system is not really in place—although the technology demonstration shows such systems are viable.

2. A vehicle manufacturer, in spite of the questionable motives of the infamous ‘ESG’ score, know they can build internal combustion engine-based powertrain vehicles at a profit, whereas it is far trickier to do so with pure electric powertrains.

3. So, the wisest way forward for most OEMs is to continue to build all types of powertrain, so that they hedge government policy in any location around the world. This includes many China OEMs too.

4. Autonomy is stuck at SAE level 2, with mass market adoption of SAE level 3 or 4 due by 2030. The financiers need SAE level 5.

THE UPSHOT

North America was founded on free market economics. So, the best way forward is to serve consumer choice, and that includes more than a single type of powertrain. Regardless of government bans, this is the likely trajectory for the vehicle parc over the next decade or so.

Currently the doubling of product introduction rate leads to fewer of each type being sold. Whereas in the past, a few nameplates dominated the volume sales, this is no longer the case. In Europe, for example, Tesla Model Y came top of the sales chart in June 2023 (125,444 units sold in the first six months). Yet, the model Y sales were dwarfed by the 6.229 million units sold across all brands in the same period. That’s the warning.

Lots and lots of product variation, leading to a greater difficulty in getting special parts due to lower production volumes—and in Europe—product support ceasing five years after the last production of a model. That issue does not show up in fast-moving parts—it shows up in trim items, unique panels, and all the parts typically used in collision repair.

This is an exciting time, but be aware, OEMs as well as their suppliers are struggling to survive, and some of the things they do are a bit erratic. We have to take that into account during vehicle repair, and help ourselves. There may not be a cavalry to call upon.

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