Old Tech or New: Vision Matters
For both OldCo. & NewCo., succeeding in the near- and long-term is all about planning, developing an insightful vision, and knowing when to execute strategically in volatile times in order to maximize profit.
Disruption, caused by several emerging trends, is sending shockwaves throughout the supplier sector this year and beyond. With Norway, India, France, the United Kingdom, and China all moving toward banning or limiting the internal combustion engine (ICE) for vehicles and trending toward the adoption of zero-emission vehicles (also known as BEVs or battery electric vehicles), the move to electrified powertrains has started to accelerate around the globe.
Amidst this turbulent landscape, we are starting to see two breeds of business develop within the industry: Old Company, or OldCo., businesses that produce mechanical products associated with the slowly dying ICE ecosystem; and New Company or NewCo., organizations that are adopting and developing new products and business models suited perfectly to future growth markets such as electric and/or autonomous vehicles.
OldCo. businesses are firmly entrenched in the status quo, fulfilling the current demand for traditional automotive parts. They have succeeded for years with little need for major overhauls. While automotive technology has moved forward, the ICE has changed comparatively little.
NewCo. businesses, on the other hand, stand on the brink of an exciting new world. Whether start-ups, new entrants or spin-offs of OldCo. businesses such as Aptiv (aptiv.com) or Veoneer (veoneer.com), they are running full speed towards the future. These organizations are driving technology disruptions, like electrification or autonomous vehicles, into our industry.
Though these two types of suppliers differ vastly, they face a very similar risk: how will they be affected by the rate of change in terms of generating needed cash flows to pay for capital investments?
OldCo. Businesses Can’t Forecast Like They Used To
OldCo. businesses have relied upon steady, predictable demand for decades. Being able to accurately gauge how many parts they needed to make based on both steady OEM volume and clarity on program life has been key to their past financial success and capital investment planning. However, with the onset of electrification and the potential for sharp ICE component volume decline, the once planned-upon volume and investment assumptions could disappear. And the lack of anticipated volume that was targeted to pay for invested capital could hinder and diminish much-needed cash flows. Without the consistency they’ve thrived on for so many years, these traditional businesses will risk bankruptcy … if they don’t take strategic action now.
NewCo. Businesses Will Face Significant Challenges
Cash flow and access to new skill-set resources are two of the primary issues NewCo. businesses will wrestle with as they emerge. If automakers ramp up demand for the new components faster than NewCo. businesses can make the needed capital investments accordingly, NewCo. businesses could become bottlenecks and face possible bankruptcies.
NewCo. Businesses will equally be affected by the challenges associated with the development of new supply chains. As new raw materials and components like semiconductors become central to new electrified and autonomous components and systems, NewCo. suppliers can expect to face unpredictable challenges due to commodity restrictions, demand and other difficulties.
For Both, The Solution Is The Same
To combat the incredible challenges coming their way, both breeds of auto suppliers must have clarity about just how quickly things are about to change. Whether OldCo. or NewCo., these suppliers face fast, potentially volatile ups and downs that can easily make or break their businesses. So, above all, they must be proactive.
Many OldCo. suppliers need to focus on actively identifying and reducing costs that align with a potential operational wind-down. They should also be considering the future of dedicated assets. By developing a strategy now so the organization has the right plan in place, most OldCo. businesses will not have to go bankrupt and/or lose out when changes hit them hard.
For NewCo. businesses, being able to understand the future market and the factors that affect it is key, as well as to successfully develop channels to accessible, sufficient capital. The last thing these modern suppliers need is a healthy demand but no way to deliver it.
For both, succeeding in the near- and long-term is all about planning, developing an insightful vision, and knowing when to execute strategically in volatile times in order to maximize profit. Without these moves now, we can expect to see both OldCo. and NewCo. businesses fall to the wayside in the face of unprecedented technology disruption.
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