The Curse of Higher Automotive Quality
Back in the day (late nineties) I used to work in the purchasing, import and warehouse distribution of the largest automotive aftermarket import and distribution business in the US. Part of my job was to deal with suppliers like Mahle, ZF, Brembo, Lucas, TRW, etc. complaining to me every year about three things:
- OEMs are requiring them to reduce prices despite inflationary trends
- To shift part numbers from their competitor to them, e.g. from a Goetze OEM head gasket to the Elring Klinger aftermarket version
- That material science and OEM requirements increase part durability requiring gasket changes increasingly later in the life of the vehicle
So if you maintained your car in dealer or independent installer garages, your car could last well beyond 200,000 miles. That was problematic for the new car sales division of OEMs but it was gold for the aftersales side of the house, which included importers like my employer and repair shops. It also drove the development of component, not individual part, replacement jobs, e.g. the complete brake system (caliper, pads, springs, rotors) not just pads. Just to give you a sense what this looked like in the late nineties, here you go.
Quality Killed the Cat
This meant many OEMs started to focus on quality to compete, which was not always the case. Prior, some manufacturers’ mission centered on quality, cost to buy and maintain in order to appeal to mass markets. When the BRIC nations’ middle classes became wealthier and more accessible, it became even more important.
Layer on top of this an economic downturn post 2008 (the Great Recession) and new car sales slumped and the average age of a car on the street today is nearly a dozen years.
To ensure your car is running smoothly and is there for you when you need it, scheduled, frequent routine maintenance with increasingly better parts became the mantra for all automotive market participants.
- Invest in good parts, ideally OEM equipment (aka the part supplied by a vendor to the original vehicle)
- Drop by your garage as frequently as you can
- Let the “unbiased” car alert the driver about performance issues
This “law of the road” ensured OEMs became trusted mobility advisors reaping the benefits of a steady, recurring revenue stream shifting profitability from new car sales to maintenance. This is a trend we also see in the aerospace sector. As the arms race to component maintenance, more intelligent components (incl. embedded software) and routine, OEM-mandated 3-5% annual cost reductions persisted, suppliers found solace in merging. This allowed R&D and distribution to reap economies of scale and cross-pollinate their IP.
Safety in Numbers
It also created a better position for increasingly larger suppliers to negotiate terms with OEMs. The drive towards higher quality focused automotive executives on optimizing increasingly longer, global supply chains to optimize their lean manufacturing practices. OEMs became designers and marketers of vehicles. Joint development, optimization, testing and even manufacturing and shipping was outsourced. Suppliers commanded increasingly more tasks in the supply chain. OEMs often required that their production facilities were right next door and fully integrated into the shop floor work stream with the final OEM assembly line.
As electronics became more sophisticated and integral to a vehicle (first in the commercial truck space), suppliers naturally jumped at the opportunity to become software vendors. With software mechanical and electrical parts will also continue to live longer, which will increasingly reduce more complex parts maintenance to routine service jobs (brake, oil, etc.) However, as insiders tell me, complex interdependencies between increasingly more sensors and ECUs and frequent changes of suppliers (to keep them in line on pricing demands) diminished the software QA process. The necessity to constantly switch suppliers was driven by the need to keep MSRPs steady. This was the OEMs strategy to deal with the well-publicized, stagnant middle class incomes over the last 15 years.
And so the Story Goes
Software updates are typically done once you drop off your vehicle for maintenance at a dealer, not an independent installer yet but then again, the car industry just asked insurers to help with recall notices. This could mean every 5,000 miles in theory but most likely once or twice a year when updates are released. Tesla is on the forefront here with every few months (likely weeks in the future) as they do it wirelessly.
This poses a major problem as the OEM needs to deploy “vanilla” releases to a specific model and, at some point, custom releases to certain driver segments, which are able to self-tune based on the typical or current driver’s performance. The car would then need to understand who its normal array of drivers are, say a family or set of roommates or co-workers, recognize who is sitting in the driver seat at the moment, pull recent usage information, monitor this trip’s attributes (braking, steering, velocity, signaling, distances, lights, weather condition, road condition, etc.) and make adjustments (active assist) and suggestions (passive assist) immediately.
This litany of developments creates two main challenges for information systems. First, when suppliers merge, shift supply and production locations or update component BOMs (bill of material), the respective data sources require a flexible, cost-effective way to (re)integrate quickly.
Secondly, the vehicle needs to become a highly responsive identity and data integration management system and associate driver characteristics with historical and real-time event data. It will recognize you when you approach the car; set climate controls appropriately; detect if you actually the person sitting in the driver seat; who is with you; where you will likely drive; how the drive will be given traffic, weather and road conditions; optimize fuel/battery consumption; save you from a collision; schedule or at least suggest your next tune up; suggest an audio play list, etc.
There will be a lot of wireless data traffic from data centers to and from the vehicle, a lot of scenario-based predictive analytics, which all require a lot of data that has to be secure, complete and of impeccable quality.
What a challenge for your average OEM. Don’t you agree?