Today’s Turbulence: A Today’s Turbulence: A Foundation for Future SuccessFoundation for Future Success

David E. ColeEmeritus Chairman

Center for Automotive Research (CAR)

Leadership Detroit

November 18, 2010

David is to be returned to Italy A bit of cultural news for a welcome change!

His Proud Sponsors were Fast Food Chains…

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NASA

“Houston We Have a Problem”

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Auto

“We Have a Problem”

Mostly Revenue –

with Depression Level of Sales

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GM & Chrysler – Debt Reduction, Lean

Ford: Good & Bad News, No Bankruptcy but High Debt

Suppliers – The Struggle Continues

All Manufacturers & Suppliers are HurtingBut, Things are Looking Up

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Pillars of EconomyPillars of Economy

Mining

Agriculture

Manufacturing

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Manufacturing Like Rodney Dangerfield –

“Don’t Get No Respect”

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Across the Land –

Amazing Level of Ignorance on Auto Industry

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The Perfect StormThe Perfect Storm

Benefits

Hyper Competition

Competent New Players: China, India, …

Auto Industry

Tools

Materials

Policy

Money

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Auto Industry of the FutureAuto Industry of the Future

A World of

Vanishing Boundaries

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Economic Contribution of the Economic Contribution of the U.S. Automotive IndustryU.S. Automotive Industry

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Auto ManufacturingAuto Manufacturing

Manufacturers . . . . 313,000 + jobs

Parts Suppliers . . . . 686,000 + jobs

R & D Spending . . . $16 + billion

Source: BLS, NSF *includes NAICS 3361, 3362

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Economic Contribution Per JobEconomic Contribution Per Job

Auto Mfr. $329,000

Average Job $112,000

Source: U.S. Census Bureau Annual Survey Manufacturers 2005

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Economic MultiplierEconomic Multiplier

Auto Manufacturers – 10

Auto Parts Supplier – 5.7

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Auto EmploymentAuto Employment

2010 – modest gains

2011 – 2013 + 100,000 per Year

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We Are Swimming a River

That is Getting;

Faster, Deeper, & Wider

But!

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The Pot of Gold on theThe Pot of Gold on the Other Side is Getting Larger Other Side is Getting Larger

Labor Cost ReductionHousehold GrowthPent-Up DemandCapacity ReductionScrappageReturn of Pricing Power

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The Challenge:

Getting to the Other Side

PALE Meeting-March 19, 2009 20

However, Will It Come Back . . ?U.S. Light Vehicle Sales Forecast

Source: CSM Worldwide, J.D. Power

+4.4 M+6.8 M

+8.9 M+2.4 M

-9.3 M -5.2 M

-8.0 M

PALE Meeting-March 19, 2009 21

U.S. Light Vehicle Sales History and ForecastCombined J.D. Power and CSM Worldwide Forecast

2007 - 2014

16.1

13.2

10.0

11.6

15.1

16.516.1

14.1

9

10

11

12

13

14

15

16

17

2007 2008 2009 2010 2011 2012 2013 2014

Source: CSM Worldwide, JD Power, Inc.

Mil

lio

ns

Mil

lio

ns

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The New Break-even-

10 Million Sales

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Beware: The Aging of the Boomers.

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DemographicsDemographics

Consumer Behavior

Socio / Political

Health Care

Skilled Workers

World Issue

“Boomers go Boom”

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Auto Industry - Auto Industry -

Thousands of New Jobs – But OnlyThousands of New Jobs – But Only

for the Educatedfor the Educated

Automotive Communities Program17 April 2008

Kristin Dziczek, kdz@cargroup.org Bernard Swiecki, bswiecki@cargroup.org

Center for Automotive ResearchAnn Arbor, MI

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““This is Auto”This is Auto”

““Building America’s Building America’s

Tomorrow”Tomorrow”

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The Old Business Model

is Broken

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BureaucracyPaper Linear

Slow Lean

IndividualSequential

Regional

Physical Prototypes

Job for LifeKings

Talk

Competition StructuredAcquisitions

Vertical Integration

Legalistic

Old Business ModelOld Business Model

Control

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Anti-bureaucracyPaperless Collaboration

Fast Lean Agile

Teame-enabled

Global

Virtual Prototypes

People Flow Coaches

Listen

Coopetition

Parallel

FlexibleAlliances

Virtual Integration

Trust

New Business ModelNew Business Model

Empowerment

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TimeTime

Present Business Present Business ModelModel

New BusinessNew BusinessModelModel

RealReal

DesiredDesired

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Global Integration-Global Integration-

Platforms

Components

R & D

Plants

Everything

One Company World-wideOne Company World-wide

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Value of Global Economies of

Scale are Huge

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Lean / AgileLean / Agile

Investment

Engineering

Manufacturing

Everything

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Collaboration Driven by

Resource Shortage

Natural

Financi

al

Human

Time

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KnowledgeKnowledge

The Competitive Edge

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It’s nice to be smart and rich,

but smart is more

important than rich.

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Customer Pull

Cars and Trucks

Productand

Process

Technology Push

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TimeTime

KnowledgeKnowledgeApplicationApplication

KnowledgeKnowledge

Competitive Competitive AdvantageAdvantage

InnovationInnovation

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Coming Soon:Coming Soon:

“Auto Harvest”“Auto Harvest”

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Auto TechnologyAuto Technology

At the edge of a revolution?

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Future FuelsFuture Fuels

Petroleum

Bio

HydrogenNH3

The Answer – ?

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Coming Fast – Plug-in, Coming Fast – Plug-in, Series HybridsSeries Hybrids

ororExtended RangeExtended RangeElectric VehiclesElectric Vehicles

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Future Gasoline Price –

$ 1.50 – $ 5.00 /gallon

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Annual Mileage 15,000

MPG

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Old Carbon Fuels Will ContinueOld Carbon Fuels Will Continueto be Used if they are Economicto be Used if they are Economic

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2 Key Developments2 Key Developments

Lithium Batteries

Cellulosic Bio Fuels

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The Invention is HereThe Invention is Here

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Developments to WatchDevelopments to Watch

Vehicle/Infrastructure Integration

Auto/Utility Integration

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Future DirectionFuture Direction

It’s All a Matter of Economics

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World ClassWorld Class

is a Moving Targetis a Moving Target