Auto brain drain; As vehicle sales rise outside U.S., will decision-making follow?
BYLINE: Brent Snavely
By 2013, vehicle development for more than 90 percent of new cars and trucks made will take place outside the United States, according to automotive research firm CSM Worldwide Inc.
And as those global product-development trends play out, both automakers and suppliers will move more decision-makers to the places where the automotive industry is growing, industry professionals say.
Michael Robinet, vice president of global vehicle forecasts for CSM, presented his forecast April 16 at a seminar sponsored by the Original Equipment Supplier Association, which was held in conjunction with the Society of Automotive Engineers World Congress at Cobo Center.
While the presentation was geared toward suppliers, the forecast also exposed powerful global automotive trends that are challenging Michigan as it seeks to remain the decision-making center of the automotive industry.
``As the Detroit Three continue to globalize their development efforts, the new investment by Toyota, Hyundai and Nissan in Michigan is welcome but will not completely replace the shifted volume,'' Robinet said in an e-mail to Crain's. ``An additional effect is that suppliers with development resources to support the Detroit Three in Michigan may have to shift some of these to other regions.''
According to Robinet, primary vehicle development includes design decisions surrounding a vehicle's structure, chassis, engine, powertrain and building process.
By 2013, Robinet forecasts that the volume of Asian developed vehicles will grow by 54 percent. At the same time, output of North American-developed vehicles is expected to fall by 40 percent by 2013.
Robinet said he believes that North America is becoming an automotive market that will mostly conduct secondary vehicle development. For instance, General Motors Corp.'s 2008 Saturn Vue is basically identical to Europe's five-seat Opel Antara and Australia's Holden Captiva, according to sister publication Automotive News, and was mostly developed in Korea with other work occurring in Europe and North America. The Vue was then adapted for the North American market.
``I feel vehicle development is changing in Detroit, and probably is moving more toward a market for finished vehicle development,'' Robinet said.
Robert Chwalik, principal of Waltham, Mass.-based PRTM Management Consultants, echoed Robinet's conclusions when he presented the results of a survey of 50 U.S.-based automotive suppliers. PRTM's survey revealed that most suppliers project little if any growth in engineering employment in North America. Instead, they are planning to hire more engineers in talent-rich countries such as India and in regions with lower labor and operating costs.
Chwalik said suppliers surveyed expect to increase their engineering staffs by 10 percent to 20 percent per year in India and China between this year and 2011.
Tim Leuliette, who recently became co-chairman and co-CEO of Asahi Tec Corp., referred to CSM's product development forecasts in a speech in April to illustrate why Metaldyne Corp. agreed to be acquired by Asahi Tec in January.
Leuliette said $1.2 billion acquisition quickly boosted Metaldyne's Asian presence and access to decision-makers there.
``As a supplier, we need to put our assets where the action is,'' Leuliette said. ``That's where the development cycle is, that's where our engineering awards are given, that's where we must be.''
For several years Michigan development officials have attempted to blunt the state's diminishing manufacturing jobs by positioning the state as the brains of the automotive industry, or the place where functions such as research and design and engineering will remain.
Doug Rothwell, president of Detroit Renaissance Inc., acknowledged that the global product development trends outlined by Robinet pose a challenge, but said it is a challenge Michigan can meet.
``I think that it's no surprise that the industry would need to go to where the market is, and increasingly ... they will try to make sure they are in tune with those markets ...which means by definition they will be increasing their engineering design and capabilities in those markets,'' Rothwell said.
Detroit Renaissance, a nonprofit CEO council representing the region's major employers, unveiled details of an economic development plan last Thursday aimed at transforming the economy in Southeast, Michigan.
One of the 11 strategies Detroit Renaissance unveiled calls for the creation of a Mobility Innovation Center that would establish a research and development cooperative that provides research and development space for small and medium-sized companies. (For more information, see Page 40).
Rothwell also points out that the automotive industry as a whole is growing. Indeed, CSM projects that the global automotive industry will grow from 62 million cars and light trucks this year to more than 80 million cars and trucks by 2013.
``What we have to do is just make sure we grab a percentage of that market share,'' Rothwell said. ``We are not going to grab all of it, but, nevertheless, the depth of auto engineering talent in Southeast Michigan is so great that we should be able to provide some of the services that those global markets need.''
Thomas Manganello, a founder of a new automotive industry association called MichAuto, said Robinet's forecasts underscore the need for groups to work together to preserve Michigan's automotive industry.
``As China and India explode there will be major (research and design) and design work in those locations, as there should be,'' Manganello said an e-mail. ``But, does that signal the demise of Michigan as a global hub? Not if we do things right. That is what MichAuto is trying to bring focus to.''
Ken Rogers, executive director of Automation Alley, is less concerned.
He said there are many examples of auto companies investing in research and development in Michigan in recent years, including:
* Toyota Motor Co.'s decision in 2005 to invest $150 million to buy nearly 700 acres in York Township to create a research and development center that will employ 400 by 2010, adding to the more than 500 employees Toyota already has in the Ann Arbor area.
* A hybrid vehicle development center launched in 2005 in Troy that is a partnership between General Motors Corp., DaimlerChrysler AG and BMW that is developing a hybrid transmission called Two Mode, according to sister publication Automotive News.
* Hyundai Motor Co.'s 190,000-square-foot, $117 million research and development center that opened in the fall of 2005.
``I think we have engineering centers that are second to none in the world,'' Rogers said. ``To take it for granted would be a mistake ... but the water is not out of the tub for Southeastern Michigan.''
David Cole, chairman of the Center for Automotive Research in Ann Arbor, agrees that the dynamics are changing, but argues that a lot of product development will remain in Michigan.
``What everybody is doing is divvying up the (development) task on a worldwide basis,'' Cole said.
Under the old model, automakers designed and built entirely new vehicles in a single region, Cole said. Now automakers such as GM coordinate development on a global basis and common parts are used for different models.
Even Robinet and Paul Haelterman, vice president of CSM's global advisory services, say Michigan has an opportunity to grab additional R&D projects, especially as Indian and Chinese companies look to establish a presence in North America.
``There is still going to be a ton of product development going on here, and this is the only place in the world where everybody is in this one area,'' Haelterman said.
But to win new projects, Haelterman said, the state's economic development agencies and associations need to have a coordinated message that is targeted to suppliers and automakers who are seeking to expand in North America.
Brent Snavely: (313) 446-0405, bsnavely@crain.com