As North American vehicle production ramps up, spot shortages of electronics components have forced Robert Bosch GmbH and other suppliers to produce and deliver every possible part. The shortages should ease in the second half of 2011, says Peter Marks, CEO of Bosch's North American operations.
Bosch and other suppliers also are wrestling with the rising cost of raw materials such as copper and platinum -- yet another byproduct of a recovering economy.
Marks discussed these and other issues with News Editor Charles Child and Special Correspondent David Sedgwick at Bosch's North American headquarters in suburban Detroit.
Q: What is us your estimate of U.S. sales in 2011?
A: We think the market is going to improve. Our expectation is that U.S. sales will be around 12.5 million units, and that the corresponding production rate will be around 12 million units.
Are there any shortages of electronic components?
We still have some constraints on electronic components, and we think it will continue into the second quarter of next year. There has been some investment in the electronic supply chain, but it will take awhile before they become effective. In the second half of next year, supply should be in balance.
Which components are in short supply?
Micro-controllers, memory chips, capacitors. It's across the board.
Has this caused production constraints, or can you get enough to be OK?
It's not a matter of price. It's really a matter of availability. Yes, we've had some hiccups, but none of these [has interrupted vehicle production]. We are working closely with our customers. We are making sure there isn't any unused inventory sitting somewhere. We [make sure] every part is used efficiently nowadays.
Do your suppliers have sufficient access to capital to expand production?
[Bosch's suppliers] are of significant size, and they typically have access to capital, so there is no problem with capital constraints. Last year, [a few suppliers] needed some support. We helped them with payment terms, but it was to a very limited extent.
These were accelerated payments to help with cash flow?
This was an issue in 2009. I don't know of any cases in 2010. Production volume has come up, so they are supported by additional revenue.
Are you concerned about the rising cost of raw materials?
Copper and platinum are two metals that we are a little concerned about. We use platinum for oxygen sensors, and we use copper for various types of electric motors. Our suppliers also use copper quite extensively for printed circuit boards. The price of copper is going up, but we are prepared to discuss this with our suppliers.
Do you buy raw materials for resale to your suppliers?
No. We don't do this. We have a hedging strategy. That requires us to look into the crystal ball. Sometimes we're right, and sometimes we aren't. For some products, we have pass-through clauses with our suppliers, but it's not across the board. It's a mixed bag.
Are automakers generally willing to index component prices to the cost of raw materials?
When appropriate, yes. For example, with alternators and starters it's pretty customary that you have price clauses for raw materials. And there are other products where it's not customary.
Which of your products have shown the biggest sales growth?
Diesel components have been a very strong business of ours for many years. But now, gasoline direct injection is really taking off, particularly in North America.
And we are also committed to the electrification of the vehicle. We have close to 800 associates working on hybrids and electric-vehicle technology. We [helped] launch the Porsche Cayenne and the VW Touareg hybrids.
We also have a joint venture, called SB LiMotive, to develop battery technology. We have close to 650 people involved. We will invest half a billion dollars [for lithium ion battery development and production] by 2013. One production line has been opened in Korea. We have a contract to supply batteries for the Fiat 500, and we have the contract to supply batteries for BMW's Megacity car.
For hybrid and EV technology outside of batteries, we have another 800 people generating a lot of new ideas, mainly in Germany. And we are increasing our activities in the U.S. and China. We believe the electric car will have quite an attraction in China.
You've enjoyed impressive sales of diesel fuel systems in Europe, but diesels have never really caught on in the United States. Do you think that will change?
We are great advocates for diesel. We have felt that the U.S. would be the perfect market for diesel, because we typically drive long distances, and we drive heavier vehicles. That's the perfect application for diesel.
So why don't we have it? Let's face it, gasoline was always very affordable. Now, things have changed. And we see that diesel is getting more and more attractive.
In 2009 and 2010, 13 new diesel-powered models were launched in the United States. And it's all-new technology, very good technology. The reception in the marketplace is tremendous.
On the passenger car side, the Audi A3 turbodiesel has gotten recognition as the Green Car of the Year in 2010. Last year, it was the VW Jetta. By 2015, we think there's a chance that 10 percent of U.S. vehicles sold will be diesel.
Many companies are reducing their supplier networks. Is Bosch doing so?
At this point, we don't have a big program to reduce the number of suppliers.
In 2009, you sold your foundation brake business to Akebono, allowing you to focus on your stability control products. How are you doing?
In terms of new technology, it has gone very well. We are combining electronic stability control with brake boost. This technology is getting a good reception with our customers. These products will come to market in 2014 or 2015.
Are you hiring engineers? Is there a shortage of engineers?
We are hiring. But we didn't have a situation when we were in the recession where we let a lot of people go. Our philosophy was to weather the storm and keep our core team intact. So we don't need to hire excessively. But in certain fields, we are hiring engineers.
Last summer, Chrysler revised the terms and conditions for its standard supplier contract. We're told that Chrysler is asserting ownership of any technology that it develops jointly with suppliers. Can you accept that?
There has been a tendency among automakers -- particularly in North America -- to make this point. But it's counterproductive. When suppliers [are allowed to] serve different customers, it creates economies of scale that the customer alone can't create.
So it's not a very sensible business model [for automakers to assert ownership of the supplier's intellectual property]. And yes, we have some issues with this. We've tried to limit [such agreements] to a very few pieces of our intellectual property. And we have come to working agreements, but it's not an easy issue.
So in limited circumstances, Bosch will let automakers assert control over your intellectual property. Have you rejected business over that issue?
And are you taking issue with Chrysler about that?
I will not comment about a particular customer.