John Bozzella, left, CEO of the Alliance for Automotive Innovation, talks with GM President Mark Reuss on Wednesday at the CAR Management Briefing Seminars in Traverse City.
TRAVERSE CITY, Mich. — It's always refreshing to come up north for the CAR Management Briefing Seminars. You can get out of the daily auto grind, hopefully gain some perspective and come back ready to finish the year and prepare for the next.
The verdant view from the top of the Mitten state is beautiful; the view of the industry — especially for suppliers — is not so great.
The most resonant term I heard this past week was "stranded capital."
It represents the money that suppliers spent to tool up for automakers' ambitious electric vehicle targets — investments that may never be put to full use.
In so-called normal times — when suppliers routinely enjoyed higher profit margins than their automaker customers — that might have been manageable, at least for the healthy suppliers.
But after the strains of the COVID-19 pandemic and the ensuing chip shortage (as well as multiple UAW strikes), suppliers don't have the robust balance sheets of the late 'teens. And the debt that they have added is now far more costly than it would've been a few years back — or for most of the past decade and a half.
Suppliers are hurting, and they blame the bad planning of their customers; specifically, General Motors and Ford Motor Co.
If suppliers are feeling left behind — or just a little anxious about their situation — GM President Mark Reuss made it clear that this is not the automaker's intention.
"I don't know anything more important than our relationship with our suppliers, in terms of execution, technology, development and launch, frankly," he said on stage here Aug. 7. "I think those relationships are everything."
Most suppliers work on GM programs for both EVs and internal combustion engine vehicles, Reuss said. (He didn't mention Ford by name, but he stressed that GM did not separate its EV and ICE businesses, because there is a lot of overlap in the talents needed to make and sell both types of vehicles.)
Reuss acknowledged "tough spots" related to EVs as segment growth slows and production plans are adjusted. He emphasized that GM is committed to its suppliers and indicated that support may be available for those who need help.
"When something is short or you're having a problem because of a schedule that you couldn't meet, or we didn't meet, we're in it for the long haul," Reuss said. "And so whatever that is, we'll work it out."
If they take him at his word — and many may, given Reuss' long track record — they couldn't have heard a better message.
His words largely echo the sentiments of supplier advocates like Ann Wilson, the retiring senior vice president at the Motor & Equipment Manufacturers Association.
"We'll rise or fall with our supply base," she said of the industry.
Wilson was the first to raise the issue of "stranded capital" in a panel discussion examining what the November presidential election may foretell for the auto industry.
The general consensus is that a second Trump administration would be bad for EVs and good for big pickups and SUVs, which could be good for automakers and dealers — at least for the short term.
For suppliers, it may mean that their investments to support rapid EV adoption will be forever stranded.
On the national stage, EVs seem to be divisive. John Bozzella, CEO of the Alliance for Automotive Innovation, said the greatest predictor of EV intention is party affiliation. That demands attention, he argued, because Democrats weren't born loving EVs and Republicans weren't born hating them. Nevertheless, EVs have arguably become a wedge issue, and that's not good for an industry segment that needs all the customers it can get.
I'm not blind to the fact that industry stakeholders are always looking to gain an advantage and use the opportunities they have to argue for things to be more in their favor.
It's not like dealers don't advocate for themselves at the NADA Show. It's all part of doing business in a big, complicated industry.
While suppliers suffered during the pandemic — because production was depressed and unpredictable — few, if any, went out of business as a result of the strain. (I've heard that exactly one did, but it also appeared to be under duress heading into the global health crisis.)
Still, there is a serious risk to the health of the supply base again. And widespread failures would be most disruptive to the makers and retailers of automobiles, as well.
Facing these arguably existential economic challenges, how are suppliers supposed to stay focused on the environmental threat of global warming?
I led a panel here about green manufacturing and whether it's just a pipe dream.
Kristen Siemen represented GM, as its vice president of sustainability, and the automaker publishes an annual report of its progress. Some elements are accomplished ahead of schedule, such as diverting waste from landfills, while others remain far away, such as eliminating emissions from the use of its vehicles. Siemen noted the importance of setting goals and measuring progress.
For suppliers — especially smaller ones — sustainability is a less urgent priority compared with finding and keeping good workers or protecting the company from cyberattack.
But there are times when it does matter, said Mark Schmit, who heads a division with the Commerce Department's National Institute of Standards and Technology that works with small and medium size manufacturers.
One is when their customer demands it, the other is when it helps to save them money, such as by reducing energy consumption — especially on a per part basis, with greater throughput.
He agreed with GM's Siemen, who said, "A lot of it is common sense, like your mom told you: Turn out the light when you leave the room, don't leave the water running."
While customer pressure through the supply chain can make a difference, it needs to be done thoughtfully.
Joe Hinrichs, the former president of Ford's auto business who now is CEO of railroad CSX, said automakers need to focus more on partnering with their stakeholders — especially their suppliers.
The auto companies "felt so strongly about being in control — (that) purchasing kind of mindset — and have to think very differently about ... collaborating and being a better partner and being a better enabler of that ecosystem that thrived, as opposed to being the center of it all and everyone is supposed to serve it," he said on Aug. 8. "That model doesn't work anymore."
If that could be the takeaway from this conference, then suppliers' outlooks would certainly brighten.
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