How Tech is Altering the OEM-Supplier Relationship

Photo by NVIDIA

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Automakers have always relied on Tier One suppliers to provide not only physical components for cars, but also innovations ranging from fuel-saving engines and run-flat tires to convenience features like cruise control and heated seats. With the latest generation of technology including cloud-connected infotainment and autonomous driving playing such a crucial and transformative role in the auto industry, the OEM-suppler relationship is undergoing a dramatic shift.

And one in which car companies may no longer be at the “top of the pyramid,” according to a recent whitepaper titled “Me, My Car, My Life,” prepared by the consulting firm KPMG. “In fact, there isn’t going to be a pyramid anymore,” Gary Silberg, national automotive industry leader for KPMG LLP and author of the report, said in a statement. “The structure of the automotive ecosystem is changing fast. Designing and producing new vehicles have become far too complex and expensive for any one company to manage all on its own, and in the future, horsepower may matter less than processing power.”

While the KPMG report takes a look at the larger role technology will have on the automotive industry, one particular section titled “OEMs Dethroned?” claims that the existing supplier-OEM “paradigm doesn’t work anymore.” And it quotes a senior executive at a Tier One supplier as saying “We can’t manage [the rapid pace of technological change] alone anymore. Even within our group there will be so many costly changes, there have to be partnerships to share the investment.”

This effort to connect with tech companies is probably most evident in the way automakers and some Tier One suppliers are either establishing or beefing up their presence in Silicon Valley. Just in the last year or so, Ford, Delphi, and Continental have all opened new R&D facilities in the tech Mecca, while Mercedes-Benz and Nissan have expanded their Silicon Valley presence.

Even car companies with a long-standing presence in Silicon Valley are putting more emphasis on the work being done in there. Volkswagen’s Electronic Research Laboratory (ERL), for example, was one of the first such facilities in the area and, according to a recent article, ERL has a mandate from VW mothership in Germany to develop innovations that require more collaboration with outside companies.

One example is a feature called Photo Souvenir that uses four GoPro cameras mounted at each corner of the car to take pictures every five seconds during a trip. A companion software program would sort through the images and select the best photos to not only documenting a journey, but also learn about a driver’s interests and more finely tune the ownership experience.

Another is a Smart Accessories feature that would allow items such as bikes or surfboards attached to the rack to link to the car through the cloud. If the gear gets stolen, drivers could be alerted via a smartphone or smartwatch so that it’s tracked. Such a feature would require VW to reach outside to other companies to provide apps, sensors, and cloud-based connectivity.

More proof of this shift in prominence of tech suppliers is the way automakers are literally sharing the stage with these new partners. At the recent LA Auto Show, for instance, Audi held a joint press conference with graphics processor supplier NVIDIA to promote a new Modular Infotainment Platform on which the two companies collaborated. Other examples from LA include Jaguar Land Rover’s introduction of its new justDrive app that was developed by the Silicon Valley company CloudCar, and Hyundai showing the implementation Apple CarPlay and Google’s Android Auto.Jagua

Automakers are also reaching out to technology partners in a variety of locations and across various industries. In announcing a recent partnership with Germany-based software supplier SAP and the oil giant Shell to create a new app that can find fuel and parking spaces, Dr. Olaf Dubel, head of new products at Volkswagen, acknowledged that automakers and their technology suppliers have to pool resources in order to remain competitive. “We are facing new challenges to make vehicles more intelligent and more networked, and we need the IT industry and we need other industries to make this happen,” Dubel said.

KPMG’s Silberg noted that this will require “culture change, bringing in new talent and rethinking every aspect of process and people management,” on the part of automakers. And it won’t be easy for automakers who are typically slow to change — and are used to being at the top of the pyramid in the OEM-supplier relationship.

Silberg added that “melding the rigor and discipline it takes to build zero-defect automotive grade machines in factories throughout the world with the free-wheeling culture of the most innovative high tech companies will be a challenge. But the winning companies will make it happen.” And those that don’t will fall behind and fail.

Originally published by Automotive IT News