By on April 20, 2015

IROX Polymer-Coated Engine Bearing

Suppliers are integral to new technology in the auto industry to an extent not true since the early years of the 20th century, when ventures such as Ford began as mere assemblers, not manufacturers. That will be highlighted on Monday at the 21st PACE “academy awards” for supplier innovation. (For those not in the know, Monday’s the opening night of the SAE [Society of Automotive Engineers] in Detroit.)

General Motors began as a conglomeration of existing firms, both suppliers and assemblers. As it grew – and as Ford stumbled – it added more suppliers while dropping brands. By the 1960s it was highly integrated, with suppliers relegated to trying to make parts to GM’s blueprints. Now that strategy had unintended consequences, as the route to the top became finance, with other functions such as making and selling cars treated as an afterthought. Be that as it may, come the 1970s, first emissions controls, then fuel efficiency mandates, and finally safety regulations forced car firms to engage with non-traditional, outside suppliers. Meanwhile, new entries meant the comfortable Big Three oligopoly could no longer ignore the challenge of actually making and selling cars. One response was to spin off internal parts operations, and with it the ability to do the relevant component-specific R&D. Finally, alongside this demand-side story were two technology revolutions, those of materials science and of electronics and sensors, enabling these suppliers to turn to innovation as a way to build their businesses and preserve margins. The bottom line: suppliers became central to automotive innovation.

This supplier-centric industry has lots of implications. For one, it may facilitate new entry; Aptera, Fisker, BYD, Chery, Geely, Great Wall, Tesla, Bright Automotive, Edison2 and others could buy drivetrains, transmissions, sensors and controls from existing, auto-tech-savvy suppliers. Not all have survived, due to a combination of undercapitalization, poor product strategy and bad luck. However, none could have started had suppliers not controlled – and built their businesses around selling – core technologies. Exploring such implications, including for investors, is a topic for subsequent posts.

Here let me briefly note the role of suppliers, using engines are an example. (My apologies to Europeans for focusing on gasoline rather than diesel engines.) Drawing from among PACE award winners, we see the following areas dominated by suppliers: fuel tanks, fuel pumps, fuel vapor recovery, injectors, injector electronics, spark plugs, valves, camshafts, pistons, piston rings, bearings, seals, sensors of many types, turbochargers and turbocharger escape valve technologies. There are other areas (engine block castings, machining) where car companies continue to dominate, but even there suppliers provide the machine tools that are critical to these operations. In short, while car companies may work on the configuration of the engine and the integration of these various components, the advances come from supplier technology. [The photo is Federal-Mogul’s IROX engine bearing designed to withstand start-stop systems.]

It’s not just engines. A wide array of vehicle systems are dominated entirely by suppliers, such as clutch components, transmissions, differentials and driveshafts, HVAC systems, lighting, ESC systems, tires, tire sensors, suspensions, ECUs and most other sensors and vehicle electronics, airbags, seatbelts, hot stamping, hydroforming, paints, structural adhesives, sound-proofing materials, water pumps, radiators, headliners, instrument panel surfaces and underfoams, starter/alternator systems, belt and pulley systems, timing chains, windshields and glass, wiper motors, wiper blades, radar, lidar and ultrasound sensors, cameras and image recognition systems, infotainments systems, and on and on. More important for Monday, you can find examples among the two decades of PACE finalists and award winners.

I’ve been privileged to judge this competition since its inception, thanks to the entre provided by my own research (my PhD dissertation was on automotive suppliers in Japan). As a result I’ve been able to visit 2-4 suppliers a year for in-depth presentations on technologies and their business case, and to sit with the judging panel to hear summaries of their visits to another 30 or so suppliers. Along the way I’ve earned my PE degree as well. [P.E = pretend engineer] Now the entire process is under NDLs (non-disclosure agreements) so I have to be careful, but I have tried my hand (with co-author Peter Warrian) at analyzing the finalists using publicly available information for lessons on technology. Here’s our initial Warrian-Smitka paper and a more recent analysis (incorporating 2015 finalists), my presentation at James Madison University.

Watch Monday night for the stream of press releases from the winners, and the Automotive News coverage of the entire award ceremony. I’ll be there, in my tuxedo, enjoying the food and drink, and the celebration of innovation. It’s a fun and thought-provoking event!

JMU ISA 2014 v4.0

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10 Comments on “Suppliers Rule! The PACE of Automotive Innovation...”

  • avatar

    You present this as if it is something new. Automakers,among others, have relied on outside sources since the first internal combustion engine first felt the heat of actual combustion. Move along people, nothing to see here.

    • 0 avatar

      Did you read the article? It notes that the suppliers role has changed a lot over the last ten to fifteen years. Henry Fords idea about the River Rouge plant, raw materials coming in one end, and finished cars coming out the other, aka vertical integration, was what the industry did up until the seventies. Really, the modern turbocharged, direct injected gasoline engines which are going to be more prevalent would not be possible with strictly in-house engineering by the automakers.

      • 0 avatar

        Nothing has changed in the last three decades from what I can tell. Full service suppliers have and always will funnel solutions into vehicle integrators. Engine tech is still very much in house when compared to other components.

        That’s not to say each OEM has a designated subject matter expert in each realm. I have worked with OEM engineers who have jogged my ex employers plant back to knowledge that we first came up with but had lost in ownership changes and layoffs.

        It’s a symbiotic relationship. Innovation does frequently come from the supplier. As does DV / PV testing and all that.

        The integrator will always hold the keys to the programs castle.

  • avatar

    Da Bearsz… brats… Smitka…

  • avatar
    schmitt trigger

    It is true that automakers have always relied on external sources.

    But nowadays the completely and absolutely rely on the suppliers on the basic research, actual design and development, manufacturability, developing their own suppliers, answering for reliability…the list goes on and on.

  • avatar

    When I wrote this post last week the 2015 winners were not yet public. You can find them now on the Automotive News PACE website at Much more useful (actually, pretty neat) are the videos introducing the various technologies, with a link that may work (nope, I can’t insert a link, so here’s the URL:

    Not all OEs are good at purchasing new technologies, and different parts of a company can have different degrees of openness. That also evolves over time; today we see far less evidence of the “not invented here” mindset. To be a PACE winner the supplier innovation has to have commercial uptake. As part of our finalist vetting, we judges confirm that with customers. Most of the time the citations of finalists and winners note the first adopter. For a stretch of time the Detroit Three in general (and one company in particular) were seldom that firm. When they were, the judges would not infrequently hear of an internal champion at their customer who went outside of normal channels to shepherd the innovation into the marketplace. That has changed; in the last several years of judging visits I have been in technical presentations made jointly by a supplier and (variously) GM, Ford, Chrysler, Honda, and BMW (and I may have forgotten one). In some of these, that was despite the supplier having already sold the part/innovation/technology to rival OEs.

    One interesting point is that some technologies are controlled by a small set of suppliers, far fewer than car companies. The market for turbochargers is dominated by BorgWarner and Honeywell; structural adhesives are Henkel, Sika and Dow; paints by BASF, PPG and Axalta; diesel fuel injectors are Delphi, Denso, and Bosch (Continental is a player for gasoline injectors). There are other players, but these and other technologies have 2-3 dominant firms.

    If you look at the strategic challenges, such as light-weighting, then Land Rover and thence Ford did a lot of work on aluminum, but the new steel alloys and the related forming technologies (tubular hydroforming, sheet hydroforming, hot stamping) come from suppliers. Yes, the OEs have to learn how to incorporate them into vehicles, and that design know-how is not trivial and as know-how not easy for others to copy. The OEs build the (digital) crash test models. They are enablers of technology; they are less and less originators of technology.

  • avatar

    Mike, why is Honda, generally speaking, capable of designing and manufacturing more durable/reliable engines, even those targeting an aggressive cost-of-production price point, than so many other automotive companies?

    I’ve asked this question of at least a half dozen automotive engineers over a stout or ale and have gotten a variety of responses over the years.

    • 0 avatar

      One word. ‘Attitude’.
      Everyone has some sort of quality control, ties to suppliers, and designs and engineers things that they believe will work, but it seems like they have to have a ‘better’ attitude at Honda that makes sure that (nearly) everything that goes through their factory has the quality they expect it to. No one gets lazy and let things slip, and no one pushes the responsibility away to avoid extra work.
      Having worked a little on all my own cars, Hondas are also designed and engineered to keep manufacturing costs down, to a point where almost anyone with between 1 and 10 thumbs can assemble it quickly, and correctly, without ncessary adjustments afterwards.
      Also they have a slight stubborness as to how they want to do things compared to the ‘mainstream’. This can kick both ways though (automatics…)
      They also spend a lot less money on stuff that the germans are famous for spending time and money on, so you end up with a reliable car with near awful seats, sqeeky interiors and barely decent enough door lines.

  • avatar

    In the days of yore suppliers did dominate many systems.

    Bendix, Motorola, Kelsy-Hayes, Borg Warner, Prestolite, TRW, Dana-Spicer, Holley, Carter are just a few of the names of brands that dominated a particular segment back in the day.

    GM also dominated the supplier market for many decades. Saginaw, Delco-Remy, Guide, Rochester Products, Harrison and Packard Electric items showed up on many brands of non GM automobiles. In the 70’s every US mfg and many foreign mfgs used at least some parts from at least one GM division. Ford used the lowest number of GM division parts, while IH used more parts supplied by GM than ones they built themselves.

    • 0 avatar

      If we go even further back in time, the early Ford’s (pre-Model T) involved no manufacturing, only assembly, with virtually 100% of parts purchased. Oh, and suppliers were paid in arrears, while vehicles had to be paid for up front. Almost no equity was required. Of course things fell apart quickly if sales didn’t increase, but then Henry could just walk away, plans in hand, and start again. As he did twice.

      Vertical integration followed, with the Rouge complex in Dearborn, and similar plants elsewhere (Dagenham in England). Neither structure necessarily changes the ability to bring new technology to market; in today’s world, OEs who establish ongoing working relationships with suppliers can use roadmapping and other tools to coordinate (say) new technologies on an engine program that involves multiple suppliers.

      However, during the vertical integration era the multidivisional structure pushed finance people to the corporate top, and organizations became rigid, and up-front numbers dominated every decision. In addition, in the US there was a stable oligopoly, as long as GM didn’t bring a new technology to market, well, why go to the expense? In Japan there was intense rivalry, 20 or so players disappeared during the 1950s and early 1960s, and firms knew they were backward so they knew that not only it was possible to improve, but worked under the assumption that if they didn’t improve, their rivals would. Honda was the last entrant (if you don’t count Isuzu’s subsequent failed attempts to make passenger vehicles). Technology — engines — was their only strength, as they lacked dealers. That echoes today in institutional structures, if you’ve not spent time in Honda R&D you’re not executive suite material….

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