At the Handelsblatt Automotive Summit 2014 in the Hilton Hotel Munich, some 250 participants met to discuss the future of mobility. The most important talking point was the future of connected cars, and how the businessmodels of automakers will need to evolve and adapt, as new players like Google and Apple discover the sector for themselves.
Elmar Degenhart, chief executive officer of the automobile industry supplier Continental, and Opel’s chief financial officer Michael Lohscheller took the stage with Handelsblatt Editor-in-Chief Hans-Jürgen Jakobs to talk about new forms of automotive alliances and integration.
Handelsblatt: Mr. Lohscheller, what does Opel’s comeback look like? Can you lower your considerable losses for the year?
Mr. Lohscheller: We are gaining market share in eleven European countries and increasing sales. When I look at the financial numbers of the last nine months, I see we are making good progress. We are right on course to get into the black in 2016 and continue growing.
Mr. Degenhart, suppliers already provide 61 percent of the added value. How will the industry develop further?
Mr. Degenhart: There's a high probability that this percentage will continue to climb over the next five or 10 years. This is being driven, amongst other things, by the volume of growth in markets like China. The international joint ventures in China are standing on their own two feet, but local producers in such a market are dependent on the technology of system producers to close the gap.
Suppliers are reporting spectacular mergers. Recently, the German car parts maker, ZF Friedrichshafen, acquired the major American global supplier of automotive systems, TRW, and Conti and Schaeffler joined together a couple of years ago. Will consolidation continue?
Mr. Degenhart: It will continue and it comes in cycles. There are phases when takeover activities are very intense and phases when they subside. Incidentally, one of the great strengths of the German automobile industry is that we have technology leaders like Daimler, BMW, and Volkswagen on the manufacturing side. And after the takeover of TRW by ZF, we have three of the top five suppliers worldwide in Germany, equally distributed, like the carmakers in the north, south and center of the country. That will only make the German automobile industry stronger.
The key will be how we can serve customers’ expectations - how the car and the smartphone will be integrated. Whoever offers the best solutions will have the edge. Michael Lohscheller , CFO, Opel
Is there mutual stimulation or rather a tug-of-war between suppliers and buyers?
Mr. Lohscheller: Stimulation is the right word. My view as chief financial officer is that it is crucial in the development process that we begin to develop ideas on time together. The decisive point is to do this at a very early stage in the process. That’s why I’m very happy we have over 7,000 engineers in Rüsselsheim, so we have that expertise. These are strategic agenda settings and crucial for our new vehicle projects.
Nevertheless, demands on the suppliers are always increasing. Must the suppliers’ factories always mesh with the carmakers’ factories? That’s certainly a narrative that causes problems in terms of return on investments.
Mr. Degenhart: That is an enormous challenge – the functional linking of drive systems, suspension systems and communications systems. There are actually just a handful of suppliers worldwide that have this portfolio and are capable of tackling optimization of the overall functions. The preliminary work is always increasing to ensure returns don’t fall victim. This really is one of the chief tasks of management.
Mr. Lohscheller: Perhaps another aspect is localization. Take Russia, a market that isn’t exactly uncomplicated. Who is there, locally, on site? That is also an important element for us. How can that be optimized accordingly? This is a challenge for everyone.
Mr. Degenhart, you said beforehand that earlier in the 1960s, there was already a lot of existing knowledge about self-driving cars and it was being given a lot of thought. Why did it take Google to come along to advance this concept?
Mr. Degenhart: Google certainly has played a role and served as a good catalyst. It has often been asked what role the company will play within the automobile industry in the future. I’m of the same opinion as many of my colleagues that Google won’t produce cars. Google is interested in the data that can be generated in a car.
That is actually a kind of business war. There’s Google and it has certain growth prospects it wants to exploit. Then there is Conti and the other players. Who will be the big wheelers and dealers and get the biggest slices for themselves?
Mr. Lohscheller: The key will be how we can serve customers’ expectations. It’s crucial to us how the car and the smartphone will be integrated. I believe whoever offers the best solutions will have the edge. For example, in our partnership with Apple – on the Siri Eyes-Free voice control – it was important for us to get the integration right.
Mr. Degenhart, have the right alliances been made? You said you are cooperating with Cisco and IBM. Do you need more partnerships to get a good command of the issue?
Mr. Degenhart: I don’t exclude it, but we are being opportunistic about this. If the need arises, we will cooperate with additional partners. Our interest is to support our buyers. General Motors, Opel, Daimler, Volkswagen and company are much more important to us than companies such as Google or Apple. I believe the conditions are good when we work together, or even against the interests of the IT industry, including Google and Apple.
But General Motors is cooperating with Google, so are Audi, Hyundai and Honda. What are the initial impressions? How is that going?
Mr. Lohscheller: General Motors is one of the founding members of this alliance. It is a matter of the issue I described earlier, namely, how do we make cooperation better?
In other words, you’re in bed with the enemy?
Mr. Lohscheller: It’s also a matter of what new approaches are out there. We’re getting interesting feedback on that. Once again, on the subject of customer data, with us, naturally, the customers decide where the data goes.
The functional linking of drive systems, suspension systems and communications systems is an enormous challenge Elmar Degenhart, CEO, Continental
In the world of the future, the car will be a rolling data storage device, a permanent data producer. Why should the traditional carmakers and suppliers be the winners?
Mr. Degenhart: Take the category of car-specific data... Today, we have up to 100 different electronic control units in cars. The car industry knows them better than Google. If we botch that up, then we have ourselves to blame.
But certainly a car produces a lot more data when it moves through a city . . .
Mr. Degenhart: How a car is used as a data source to provide the driver with traffic and weather information is no magic trick. Building up a backend structure with the help of partners that tend to be neutral toward the car industry, for example Cisco, as well as establishing linkups is doable. Naturally, there is a third category, that of personal data, and that is the use of the freely available Internet in the vehicle. The user should have a say in that.
Mr. Lohscheller: We also have a great deal of data. A fine example is that is next year we are putting OnStar in all the vehicles with a lot of features including, for example, Hot Spot Network Manager, and also vehicle diagnosis. Then, we’ll also have a lot of data about the vehicle itself and we have a lot of ideas. What do we do with this data? Will tailor-made car insurance policies be offered? Once again, it is a question of who can offer the overall solution and who is quickest.
Will OnStar be a standard installation and what is the customer’s benefit from this service?
Mr. Lohscheller: There are fantastic possibilities. For example, you can connect up to seven devices in the car to Hot Spot with WLAN. That is something children think is great. My daughter recently asked me why we can’t watch videos in our car. The good news for her is that next year we can.
Hans-Jürgen Jakobs has been Editor-in-Chief of Handelsblatt since February 2013. To contact the author: [email protected]