Tier 1 suppliers who manage the production and delivery of built-up parts modules could risk a demotion to subcontractor status if they ignore the growing importance of electronics, a new study says.
That's because automakers may increasingly assign project management for these complex components to the electronics suppliers who will design the 'nervous systems' of modules.
Research from Munich-based Roland Berger & Partners also points to a possible power shift from OEM to supplier as independent electronics firms gain more influence over the direction of new technology. Automakers, in response, will need to beef up their internal expertise, if only to manage their supply base.
'There is much uncertainty in the market about future trends,' said Michael Heidingsfelder, the Troy, Mich., managing partner for Roland Berger's automotive practice.
The automotive electronics market is growing much faster than overall vehicle production levels, opening up rich opportunities for suppliers with the right technology and module-making expertise.
Automotive electronics is a $54.4 billion industry in the three main vehicle markets of North America, Europe and Japan, according to Roland Berger.
The firm sees strong growth through 2004 for each main electronics segment - powertrain and chassis, safety, security and infotainment.
In powertrain, for example, the use of throttle-by-wire systems, now a relatively minor application, is expected to grow at an annual rate of 10 percent for the next four years. Likewise, electronic suspension and steering systems are projected to grow at an annual rate of 9 percent to 10 percent through 2004.
The study also concludes:
To be taken seriously as a supplier, electronics firms will need to show leadership in technology or as a global module supplier. Investments will be huge, and product cycles short.
Nonelectronics suppliers may need to form alliances with electronics firms to protect their position as systems integrators.
Some electronics suppliers new to the auto industry, with the latest technology to offer and fresh approaches to doing business, may become significant players in the auto industry.
Bigger cost portion
Electronic parts and systems are expected to assume a much greater share of vehicle production costs in the years ahead. According to Berger, electronic systems now account for 22 percent of an average vehicle's costs. But for some luxury cars, such as the current Mercedes S class, electronics account for about 40 percent of the production cost.
By 2010, the average electronics content of all vehicles could approach 40 percent, the firm said. The only moderating factor will be the tendency of electronics prices to decline in cost from year to year.
Much of the innovation is being driven by European automakers, who see electronics as a key to differentiating their models from competing makes, Heidingsfelder said. European companies also lead the industry in new safety electronics, he says.
'Everything that is in the area of safety innovation is coming from Europe,' Heidingsfelder said.
But the stakes also are rising for electronics suppliers, who will face huge warranty costs if their systems malfunction or cause a safety hazard, the study notes.
As the old mechanical systems receive more electronics content, the potential flaws also increase. That means suppliers will have to do a rock-solid job of design and development.
Roland Berger completed its electronics study in October after interviewing more than 40 leading automakers and suppliers in the United States and Europe. The consulting firm also looked outside the industry, interviewing companies such as IBM and Microsoft Corp.