Bill Carroll - 2000 U-M Management Briefing Seminars
Auto Industry 2000: Fasten your seatbelts
Traverse City
August 9, 2000

Thank you. It’s a pleasure to be here in Traverse City at this prestigious event, and I’m especially honored today to be sharing this panel with J.T. (Battenberg from Delphi) and Sandy (Edward Sanderson from Oracle).

We’ve been asked to share some thoughts on the changes our industry is experiencing, the increasing speed of change, and what it all means for companies like ours as we enter a new century. That’s a pretty tall order, especially in 25 minutes, but I’d like to use my time up here to give you maybe a different perspective on change than some others you’ve heard.

When we talk about change, most of the time what we’re really referring to are rapid advancements in technology, and how they affect the way we do business, and the way we live. Nowhere have these advancements been more profound than in computers and the Internet. It’s now a dot-com world we’re living in. What does that mean for a company like Dana, which along with others in this room is now referred to by some as part of the ‘Old Economy’?

I’ll tell you what I think it means, but first let me tell you a quick story, about a young guy who developed a brand new technology while he was still in school, at Cornell. His professor recognized its commercial viability and advised the student to apply for patent, which he did. The technology also drew the attention of some big companies, so this young guy left school to form a start up, and within two years had a very prestigious roster of clients. He had backing from a venture capitalist, and the company was positioned to go public soon. What does that sound like to you? Sound like something you might want to buy into – maybe the next Oracle?

Now, you may be surprised to hear that he didn’t name his company anything-dot-com, but there was good reason for that. The year his patent was granted was 1903. His name was Clarence Spicer and his new technology was the universal joint. With backing from Charles Dana, this young man began what has become one of the largest automotive suppliers in the world, Dana Corporation.

I bring that up to illustrate that the so-called ‘Old Economy’ may not be as different from the so-called ‘New Economy’ as some people think. Oh sure, there are some differences -- for example, we haven’t done any multimillion dollar IPO’s with no customers and no profits lately -- but our company was founded on CHANGE, and we have grown not by doing the same thing year after year, but by anticipating and embracing change.

Let me repeat that, because I want you to understand our attitude about changes our industry is now facing: I didn’t say our company was founded on the universal joint, I said, "Our company was founded on change."

Here’s another similarity: In the ‘New Economy,’ companies are popping up like mushrooms, but not many of them are able to sustain growth to become the next Oracle. A recent MSNBC article referred to the many dot-coms going out of business as "digital Darwinism."

Many ‘Old Economy’ companies also no longer exist. Every ten to fifteen years, a third of the companies on the Fortune 500 list disappear, either by being acquired, merged or broken into pieces.

So, why have some companies, like Dana, succeeded for decades while others failed? I think it’s because most companies are unprepared for change. They design and develop a new product, then sell it, and prosper…for a while. But when they pause a moment to admire their work, the relentless tide of technology sweeps past them, and they founder.

Surviving companies embrace change. Some of the key figures in the history of Dana Corporation were responsible for literally hundreds of patents for new products, and new technologies. They knew it wasn’t enough to rely on a product. They knew they had to keep moving. After all, nothing in this world stands still for long. Everything changes.

We ‘Old Economy’ companies who have survived have experienced change before. In the 1940s, Dana changed itself to be part of the ‘arsenal of democracy’ during World War II. We designed and built the four wheel drive system for the original Jeep. That was brand new technology then.

We embraced the introduction of the first computers – even though some of them took up an entire room, they immediately brought automation to functions like payroll and inventory. We also dramatically changed our business practices with the onset of the computer revolution.

The pace of change today is unprecedented…I’d say for every year it used to take us to drive change throughout our organization, now we have to do it in four or five months… but our experience prepares us for change. It teaches us to keep moving forward, looking for opportunities, wary of pitfalls. Change can sometimes be intimidating, because it's uncertain -- but it's also vital to our continued growth. After all, if it wasn't for change, we'd still be making universal joints in the corner of a printing plant, not enjoying our stature as a Fortune-200, multi-product, global corporation. Change has been good to us. Change has made us strong.

So, here we are, again at the turn of a century, and again we’re embracing change. It’s a dot-com world, but someone still has to manufacture the goods consumers demand, including vehicles.

So, are we truly the ‘Old Economy’? I think that, far from being left out of the ‘New Economy,’ the automotive industry, representing one out of every seven jobs in the United States, has a significant role to play. I think we’re part of the economy of today and tomorrow.

There is no question that technology is changing our industry, and not just Internet technology. Advancements in product technology are pushing the entire industry to new heights. As OEMs rely more and more on suppliers, it falls on our shoulders to continue to push the envelope, to develop the next new advancements in automotive technology.

The advancements in integrated modules and systems continue to create new efficiencies and performance improvements. Our ability to provide engineering as well as manufacturing on a global scale means the faster opening of new markets and more consistency in vehicle quality across continents.

Technology is leading us to push the envelope in terms of what is possible and how we can provide more value to our customers. At Dana, we took modular subassembly further than anyone has, with the Rolling Chassis module. Then, we advanced structural engineering by combining what we call "enabling technologies," such as multi-pressure hydroforming and magnetic-pulse welding, to enable the design of new lighter, stronger engine cradles and frames and even lightweight tubular spaceframes. Through combining such Dana technologies, we now can envision the first Rolling Space Frame, an even more advanced, more integrated subassembly. We aren’t content to sit back and admire our work; we are constantly looking for new ways to apply our technologies and stay ahead of an ever-changing industry.

And, of course, we are applying technology not only to our product development, but also how we communicate. We are continuously evolving. Where we once manually tracked inventory and shipped in large lot sizes, we now utilize advanced web-based collaboration tools to keep up with the fast-paced nature of our industry.

We know manufacturing is global, but let me tell you how global engineering has become. One example is a vehicle platform where Dana engineers in Tokyo, in India and in Pennsylvania all are working on the same project. That’s pretty much 24-hour-a-day engineering…we’ll have to station someone out in the middle of the ocean next to make sure we’ve got all the time zones covered.

We’re still positioning ourselves close to the customer…for example, on this particular platform, we manufacture in three countries near customer manufacturing sites – different countries from where we do the engineering. And another recent example of staying close to the customer is a new technology center we’re building in Japan.

But this ability to provide engineering anywhere in the world virtually 24-hours a day – and when I say virtually, I mean virtually – that’s something we could not have done without the Internet…bring our global engineering strength to bear wherever our customers need it.

In fact, our e-tools allow us to notably improve our capabilities in managing the engineering process and take over a more significant role in managing the extended supply chain. Internally, we have established a global database of component and material information that gives us a knowledge base to pull from. We are developing what we call a "lean ERP" system that allows us to build and ship to sequence in just over an hour, assemble in lot sizes of one, and do this with fewer than two days of inventory. Our system is allowing us, and our suppliers, to see exactly where inventory is in our system. And we’re working to set up this lean system where everything can be viewed in real time not only by us, but also by our suppliers and customers. What a major advancement, thanks to the Internet.

Technology is big, no question. But when I look at the next few years, I see a couple of key trends that, although they are technology-driven, they are not technology based. One is the future of competition, and the other is the future of cooperation.

First of all, competition. Product technology is bringing us advances in subassembled modules and systems, while information technology is giving us new tools to improve process management all the way down the supply chain. Suppliers are lining up with strategic partners, if not buying them up, breaking down many of the old barriers.

One good example is Drive Tek, the joint venture Dana formed with GKN for advanced driveline systems integration. Drive Tek pulls the best expertise from Dana, from GKN, and from other suppliers to make sure the customer gets the most technologically advanced driveline systems, and manages the systems integration process.

We’ve also recently announced that pending government approval we will align ourselves with GETRAG, a German company whose high tech transaxle and gear manufacturing technologies are highly complementary to our expertise, and who is strong in the European passenger car market. These and similar strategic partnerships strengthen our ability to provide complete under-the-vehicle and under-the-hood technologies and integrated modules and systems.

Going forward, competition will be supply chain versus supply chain. But in the new competitive landscape, your competitor one day could be your supply chain partner the next. What we used to call lines of battle will now look more like a game of Twister.

I also want to mention the future of cooperation. Suppliers aren’t the only ones choosing partners, OEMs are consolidating as well. In the new, global automotive industry, there will only be certain survivors among the OEMs as well as the Tier One suppliers. Total light vehicle production in the world is growing at a slow one to two percent pace, so as efficiencies are gained due to technological advances, we will learn that only so many OEMs and only so many Tier Ones are needed to meet consumer demand.

The most important lesson for the survivors will be how to develop relationships that are mutually beneficial. I think there is a lot of worry on both sides – OEMs are worried that Tier Ones will get too big and then they will have too much leverage. Tier Ones worry that the OEMs will get too big and have even more leverage. The key understanding that has to be reached is that as efficiency takes out waste in the system, both sides need to develop their partnership, and share in the rewards. If the major global players can understand that, then all of us – our shareholders, our employees, our customers, and certainly the end consumers buying the vehicles – will share in the benefits available to us through advancements in technology.

Dana has taken a leadership role in the implementation of e-business with our supply base. We gained significant knowledge and developed some expertise, partly because we felt that’s what we needed, to be prepared to conduct e-commerce with our customers.

For example, working with Ariba and Aspect, we coordinated our purchasing function among 287 different sites. That’s just within Dana. We can eliminate a significant amount of waste that way, but it also made us better prepared, so when we signed up with Covisint, and other customer exchanges, we had an infrastructure in place internally that could maximize our efficiency in conducting e-business.

E-procurement is great, the trend we’re seeing in transaction cost reductions will benefit the entire supply chain, but frankly the biggest value for us, as far as e-business, is a little farther down the road, in using e-tools for collaboration and supply chain management.

I think this will be true for a lot of suppliers – a study commissioned by the Original Equipment Suppliers Association concluded that only 15 percent of the total savings from a Covisint-type exchange would be procurement driven, while 85 percent would come from supply chain and process improvement. But again, that’s not something you learn how to do overnight, so we felt very strongly we needed to get our infrastructure in place and up to speed so we could work closely with our customers.

The phrase used in the title of today’s session, "Fasten Your Seatbelts," is a pretty good way of summarizing the state of the auto industry today. I talked earlier about how anything that used to take us a year to change, now we have to do it in a few months – that’s really the major difference between the dot com era and the history of our industry. Time compression is the major issue today.

Just think, in the early part of the twentieth century there were more than fifty OEMs in the U.S. alone. Their valuation was high compared to established companies of the time…then came the inevitable shakeout and consolidation. Today we can imagine going to six or seven OEMs worldwide, and the technology is widely diffused.

What took nearly a century to happen in our industry is happening in a decade or so today with the dot coms. But, it is not only industry participants who benefit from the technology.

Washing machine manufacturers, for example, didn’t invent the assembly line process they use to make their products nor the vehicles used to ship them. Those came out of the auto industry. But they used those technologies to create value for their shareholders.

In the same way, our industry today is in the process of using the dot com technologies to create value for our shareholders, in areas we’ve discussed like procurement, 24-hour engineering, and supply chain management.

The question isn’t old economy versus new economy as much as it is who can move the fastest to convert the new technology into value. And this isn’t a question answered in terms of one industry versus another, but rather by the level of speed with which companies within an industry can move, and their capacity for innovation.

That’s what really makes it exciting to be in this business today. As an industry, we have our foot on the accelerator and are really picking up speed.

There is another saying, however, that applies to everyone, new or old economy, and it’s attributed to none other than Dr. W. Edwards Deming. He said, "It is not necessary to change. Survival is not mandatory."

The tools that are making our world run faster are available to everyone, but not everyone will be ready to use them. The survivors will be those companies who are willing to not just accept the new environment, but embrace it…embrace change.

The OEM and supplier companies that embrace change and survive as we go forward into the new century will be in a position to reap great benefits from the increased efficiencies brought about by technology. Our greatest challenge, I believe, is understanding how to partner to bring integrated solutions technology to the ultimate consumer so that everyone wins, and we all share in those rewards.

Thank you for your attention this afternoon, and I’m looking forward to hearing your questions and comments.