AAH #802 – State of the Supplier Industry

0:00Auto Line After Hours is brought to you by Alex Partners, when it really matters, Bridgestone Tires, solutions for your journey, and by BorgWarner. The automotive industry continues to evolve and so do the opportunities to define it. BorgWarner, one of the world's most admired companies, gets partners where they need to go. Let's do something big together. Hey, everybody. Thanks for joining us this afternoon or this evening or this morning or wherever you happen to be. So thank you. We've got a great show for you. It's going to be a little bit different because, you know, we talk about the industry a lot, but there's one part of the industry we don't talk a sufficient amount about, and that's the supplier part of the business.

0:49So we have with us Colin Shaw, who is the president of the MEMA Original Equipment Suppliers Group. Is that right? Yep. Okay. We've got our friend Paul Eisenstein, who is the proprietor of Headlight.News and the substack The Car Collective. Along with you. Along with me. And, of course, the veteran guest, Chris Otts of the Wall Street Journal. So, Chris, thanks for joining us once again. Thank you for inviting me back. Okay. So, Colin. Yeah. Now, according to you guys, we represent the largest manufacturing sector in the United States, the vehicle supplier industry, with more than 4.8 million jobs.

1:39Come on. You've got to explain that. So it's something that I think suppliers take for granted is how important we are to the economy. And it's something we've been really trying to hammer home, especially as we go through USMCA, is we represent almost a million direct jobs, 4.5 to 4.8 million indirect jobs, and 2.5 % of the economy. When you look at the OEMs, for every one OEM job, we're probably six to seven jobs, maybe more. We represent every single state in the United States has a supplier in it, either manufacturing, R &D, something. And it's something we take a lot of pride in. And as we go to Washington and as we talk to people, it's something that we've really been trying to make sure that the supplier base is proud of, is that we are by far and away the largest driving force in manufacturing in the country.

2:25So when we talk about manufacturing and wanting to build that and continue to build it, suppliers have been doing it. We've been building manufacturing. I just don't think people see how much goes into building a car, the supply chains, the tiers. We really do represent the largest part of manufacturing and automotive, to be quite frank. I'm surprised it's only one million direct jobs. I would have thought it was even more than that. That's direct manufacturing. Okay. Yeah. So that's people working in manufacturing facilities. That's why the indirect, which is your marketing, your research and engineering, all of that, the support, different companies that work with suppliers.

3:03So when you're talking about suppliers, you're talking about everybody from quasi brand names like a Bosch all the way down to some... Some foundry. Back to the dirt. Everybody engaged in the automotive industry. I have a question about that. Anybody who lives in the Detroit area, particularly if you live in some of the older suburbs like I do here, Pleasant Ridge, Ferndale, that area, you drive down some of the streets, east side, along 8 Mile, 9 Mile, 10 Mile, you see all these little shops. Sometimes they're smaller than my house. Are those the type of folks you also include? There are a lot of job shops and the like?

3:45Yeah, so I represent the original equipment side. Mima also has an aftermarket group. And while we represent only the suppliers in the aftermarket, on both sides we work a lot with customers. So the garages, while not necessarily members, they represent our customers. So on the original equipment side, I work with the customers, which would be the big three, Toyota, Honda, Nissan. But on the aftermarket side, they work with the small shops, the large shops, trying to better understand what our customers need. Yeah, they would represent our customers, but not directly in that 1 million pool of jobs that we represent.

4:19But are your members tier 2, 3, 4, or are they just tier 1s? Nope. They're across the whole spectrum. Okay. And it's getting even more confusing because your largest tier ones, the ones that you would think are household names, are oftentimes also tier two suppliers because they may supply a radar into a company making a full ADAS system. Companies I worked for in the past use some of the largest names in the world to do commercial vehicle safety and radar systems. So it's kind of blended. But yeah, we represent the entire supply chain. To be a member of us, you just have to have manufacturing or R &D in North America.

5:00So we're going through massive changes in the industry, what everybody focuses on, what is in the car in terms of technology, what's in old technology. What is the biggest change that you guys are seeing? It's really a lot of different changes. What strikes me as probably the biggest change is that there is an awareness and a focus on supply chain. And when we go to Washington, D.C., when we're lobbying on behalf of suppliers, when we're talking in the media, people start to understand how important a supply chain is. So, you know, when I went to school, there weren't even supply chain degrees.

5:38Now you see masters in supply chain. The recognition of how important a supply chain is to national economic security. I think that is the biggest change. It's yes, there's always the focus on the big, sexy brand names, you know, household names like a GM or a Ford. But I'm also now seeing a real focus on, okay, we need to build supply chains in North America. What does it look like for electronics or rubber or metals or tooling? How is that reflected in our national security and our economic security? That's a conversation now that dominates almost everything. And that's really refreshing to see because I think it gives a recognition of how important suppliers are.

6:22not just to the automotive industry, but to help build up entire supply chains. You know, there are supply chains that wouldn't exist without automotive investment. And yet they feed into every other area, defense, aerospace. All of these different areas feed from the massive scope that automotive supply chains bring into any country, United States included. So, Colin, you mentioned USMCA. the trade agreement, North American trade agreement, now seems to be irrelevant. So it still is relevant. And I think this is a really important point. So when the statement came out a few weeks ago that they were not renewing USMCA, I think there was a lot of confusion.

7:08It goes into a yearly renew cycle. So the agreement is still fully enforced. Now, yes, there are tariffs that do complicate things, But the agreement as of today is still fully enforced. So if you have USMCA compliant parts or vehicles, they still get preferential treatment. There still is investment happening. It is still in full force. Now they're going through this yearly review process. And there are bilateral talks going on. I think it would be shameful to recognize that there's not some bilateral talks going on. And there are issues that I think the U.S. wants to solve bilaterally as well.

7:44But the agreement as of today is still fully enforced. Okay, but you're saying there's bilateral talks going on, but not trilateral talks going on. And heretofore, that had basically been us, right? Canada, U.S., Mexico. Yeah, and there's maybe some misnomers. That's sometimes how the original USMCA went. People were talking together. people were talking separately. You know, we have different goals and objectives with each country. I think each country in this agreement brings something very different to the table. And so each country is going to try and hammer out some details or do some things different with each other because there's different goals and objectives each country has and what they bring to the table for USMCA.

8:28We have seen Canada make some major moves to realign their manufacturing, their trade policies in particular. How much is that going to affect things, at least from what you've seen the Prime Minister and Parliament over there do? Yeah, to be honest, I think it remains to be seen. You know, we all hear about their agreement to purchase some Chinese vehicles. Right. I think in the long run, it really does remain to be seen. I think the focus right now is understanding the relationship between the United States and Mexico. From an automotive perspective, the trade between the United States and Mexico is the biggest part of the automotive industry.

9:11So we're trying to work that out first. There's some things that are on the table for discussion. And then I think it will move into discussions with Canada maybe on these things. So honestly, in the long run, I'm optimistic that our relationship with Canada and from a manufacturing standpoint will remain because we absolutely need Canada for some important areas. Canada has a stronger tooling industry. You can't make anything without tools and dyes. Canada still has a strong tooling industry. Access to critical minerals, aluminum and steel. There's a lot of specialty metals that come out of Canada that we need to make safety-critical components in the United States.

9:53So I'm confident behind the scenes, I think the relationship is probably better than what we see on paper. So I'm optimistic that we'll work some of this out and still rely on each other for the things that we need. So, Colin, what does MIMA's position exist right now in terms of USMCA? Yeah, that's a good question. So our mission and vision is to make sure we foster a healthy, growing, profitable, and innovative supplier industry. For us, it all comes down to how can we as a supplier industry and automotive industry in the United States be more competitive? So that is when we talk about anything, that's the baseline that we use is how do we make sure that suppliers in the United States and then more broadly are competitive?

10:41If you talk to suppliers, everybody would love to just leave the agreement alone. That is by far and away everybody's sentiment when we survey suppliers. just, hey, we are the envy of the world, this agreement works, but we know that's not going to be the case. The administration would like to make some changes. So I think it's also naive to think that we're not going to get some level of changes. And so areas that have been proposed, have been seen in the paper are things like U.S. content requirements, perhaps adjusting some of the regional value content requirements. So looking at things like how do we rebuild some electronics supply chains in the United States.

11:20So chips, printed circuit boards, those kind of things that also serve a very vital part of other industries like defense and aerospace that we really ought to rebuild in our country. So those are things that are certainly on the table, and I think it remains to be seen what's going to happen. But there's also the topic of competition in North America. Suppliers love to compete. Our industry loves to compete, but we want to do it fairly. And that's absolutely on the table with other countries that may not compete as fairly. And so those are also things that are certainly on the table around transshipment of products in the United States.

12:00How do we make sure that suppliers in North America, they're trying to play by the rules, whether it be by human rights or financing. It's a fair and level playing field in the United States. And so that's how we approach things is how do we make sure it's a fair and level playing field in North America. And how do we make sure that our suppliers are not only competitive here, but around the world? To get a little bit more specific about that, the content requirements. We reported maybe two months ago that the Trump administration was at least eyeing, maybe as a starting place, a 50 percent U.S.

12:39content requirement for USMCA treatment in the future. I think today the standard is something like 82 % regional value, which I think means North America. So 50 % U.S. for a vehicle would probably be a pretty substantial change. And I'm curious if you've talked with your members about what that would mean for the industry. What do you think? Honestly, it all depends on how the details are worked out. The USMC agreement is very complicated. So if you're a passenger car company, you have to have 75 % of your content be regional value content. And that was phased in over a number of years. And it just finally hit the final phase-in period of that 75%.

13:28And you have different levels. So you have core, complementary, principle, and they all have different requirements. Heavy truck industry is going to be at 75%. And their final phase-in is, I believe, in 2027. So the heavy truck industry, which also is an area that we represent, which I'm very passionate about because that's the industry that I kind of grew up in, they have a little bit lower threshold, but they phase in next year. What remains to be seen is what are the details behind this U.S. content requirement? I think if you were to look and talk to the industry, you'd probably find, on average, maybe 25 to 35 percent U.S.

14:06content today. I mean, there is U.S. content in vehicles. They're manufactured all across North America. Parts go back and forth. Vehicles go back and forth. But it remains to be seen how that is implemented. Is it a straight, just 50 % of the content of an entire vehicle has to be? Is it 50 % of a component? Or is it done through some of the regional value content components? So, you know, things like engine components, powertrain, brakes, electrical, they all have different thresholds. So the devil is really going to be in the details and how all this has worked out. And that's where we're spending a lot of time is trying to understand where the supply base is at, where each of these different levels are at.

14:53And also getting feedback of what are the goals and aims of the administration? Because the administration clearly has goals and aims that they want to get out of this. They're looking at supply chains to say, hey, from a national security and economic security standpoint, this is really important that we need to have these industries or supply chains in North America. And maybe there's some others that globally are very diverse that maybe aren't as big a risk if we were to come into a situation where we need to source these. So it's tough. I wish I had a better answer. No matter how you look at it, there is going to be some changes, and I think there are going to be some additional requirements to try and get manufacturing or continue to grow manufacturing in the United States because suppliers have been growing manufacturing in the United States.

15:40Another thing I've heard just on this point from the OEMs, and I assume it's the same for suppliers, another big unknown is whatever the new rules are, how much phase-in is there? In other words, how much time do we have to adapt to meet these rules? That's the golden question. But one thing you guys are facing right now, and you mentioned it earlier, is tariffs. Yep. And one of the things that I think perhaps doesn't get a sufficient amount of attention is the fact that a lot of your members rely on getting materials to make their products. And these materials come from somewhere else that have a tariff applied to them.

16:20Absolutely. So what is the MEMA position on the tariff situation? Yeah, we've gone into this saying we like to see open, fair, and free trade. That's capitalistic. We like to see markets be efficient. We understand that there are some goals and aims of the administration to rebuild some supply chains. Firstly, I wish there was a few more carrots rather than so many sticks. Because the ultimate aim of this is to continue to grow manufacturing in the U.S. Right now, it just feels like we're getting hit over the head with a lot of sticks and tariffs. There's got to be some carrots at some point. And that's an area where I think as we come through some of these negotiations, we start to see, okay, how can we help reinvest in some of the supply chains?

17:08I'd love to see some of the tariff money be used for some of that reinvestment because a lot of headlines out there, you see, oh, GM or Solanus are taking these write-downs on EVs. Those rest is the supply chain, and they're not as liquid. They're balance sheets. Some are good. Some are struggling. And so it would be good to see some of that come back. Well, explain that a little bit. So suppliers were told not that many years ago that the future is EV and you better have the capacity to fulfill the grandiose plans that the OEMs have for EVs. And so they invested in plant equipment. And now branded assets?

17:49Yeah, and I think this is an industry struggle. And I try to see both sides of the equation here. And it wasn't just, I think, the OEMs that bought into all of this. All of us were. I mean, we all have to make decisions. We all have to make investments. You look at forecasts. You look at regulations that were pushing us there and the penalties for not complying. So I don't put all of this just on one area. It was a collective, yeah, we all made these investments, and then there was an abrupt change. Were we going to get there? Probably not. We would have got a little closer. But now, yes, there are stranded assets, and people are trying to figure out, okay, can I redeploy these?

18:34Am I doing something adjacent to the electric vehicle industry? Can I redeploy these in data centers? Can I redeploy these in defense and aerospace? Some can. Some were just canceled programs, removed programs, and say I'm doing door handles or something that was unique to that product but wasn't necessarily an EV component. Yeah, those could probably be redeployed, but there's still more money you've got to spend. There's more investment you've got to do to retool things. And so, yes, it is a massive undertaking to retool this. And now you've also got all this talk about reinvesting into a supply chain, talking about automation, talking about supply chain mapping.

19:18There's a lot of capital that is being asked to be spent. And talk about access to capital by these guys who don't have vaults of it in their siloesically. So we've seen a pullback on EVs down to what, under 6 % of the market from 8 % as a running total. It was about 8 % or 9 % last year, and it's maybe 6 % or 7 % now. But what we've also seen is an explosion in the hybrid market, and we may see in some form of EREV or plug-in going further out. We were out earlier today, and we were looking at some stuff that Atlantis does, is looking at. But the head of SRT was talking about everything they're doing has to be based on a multi-energy strategy.

20:06And it seems right now like everybody is saying we better move up hybrid, the focus on hybrids. So with suppliers that have been burned by EVs, how are they responding to all of a sudden having automakers saying, hey, my God, we've got to get you to all of a sudden shift focus? Can they take those stranded assets and move them, or are they sitting there going, guys, we're much more reluctant on giving you what you want this time because maybe that's another fool's chase? Yeah, there's tons of hesitancy out there. There's a lot of pent-up frustration in investment. There's a lot of hesitancy. What I tell suppliers is it's important that you really need to understand the end customer.

20:49You can't just take your customer's word for, hey, we're going to make this program. Now, the hard thing about our industry is we have the most complex consumer product on the face of the earth by far. Almost every supply chain in the world is rolled up in automotive, whether it's upholstery, chemicals, metal, electronics, you name it, rolled up into a vehicle. So it's hard to say whether suppliers can at large retool. Some can, some can't. Hybrids is a fascinating story. I think there's a lot of demand out there because of fuel prices. But also, if you look at things like, and this is a little bit of my own opinion, but if you look at things like a plug-in hybrid where you've got two powertrains and a lot of those vehicle programs were simply a compliance play, I'm unsure as to whether those are really going to see the light of day or whether consumers really want to now pay to make sure that those vehicles are profitable because those vehicles have to be profitable now.

21:44They're not compliance play. You've got tens of thousands of dollars of extra equipment in there. I think your ice market, your Bev market, they're great stories. Hybrids right now because of the fuel prices are great stories, but there's some of these other technologies. The supply base really has to flex a muscle they're not used to, which is understanding consumer demand and understanding the segments that they play in. And that is not always something that I think supply base is used to doing, is listening to that end customer feedback. So one of the things that we're seeing that affect your members is the fact of Chinese companies are largely vertically integrated.

22:29Tesla is vertically integrated, and vertically integration basically means you're doing it in-house. You're not going to a supplier to do that. What does this look like for you guys? Yeah, that's a great question. You know, as an industry, we started very vertically integrated in the United States. Over the last, what, half a century, as the requirements for investments have increased on OEMs and suppliers, companies have had to divest, deintegrate, so that they could get more value to make other investments. And so what you see out of the natural result of that is we have a very non-vertically integrated industry here in the United States.

23:11Yes, you have a lot of startup and companies like that that are more vertically integrated. Rivian, for example. Rivian, for example, Tesla, BYD, and they're doing a great job with it. However, if you were to try and re-vertically integrate, what do you need? You need capital. There's one thing that our industry is really good at wasting and is really short on. capital. So I don't see a lot of vertical integration out of your traditional OEMs. We've tried that with software in the last decade. It worked to some degree, and to some degree it didn't work. And you saw layoffs in things like software engineers.

23:50So I don't think we're going to see a whole lot of vertical integration out of your traditional OEMs here, because it just takes too much money. And look at all of the things that they now have to invest in. automation and manufacturing. That's probably the number one area of investment in the industry right now is automation and manufacturing and your operations. Plus, you have a lot of demand for safety products. There's still not a huge penetration of ADAS products in our market. So there's still a lot of investment that needs to take place there to make our roads safer. So there's plenty of other things to invest in, aside from, hey, why don't we buy a steering company or why don't we invest in axles again well we divested of that so we could get value out of those companies and make other investments so i don't see a whole lot of that happen interesting no i mean i was i was just going to say that you know um i was over at rivian looking at everything they did with the r2 and you know even they are vertically integrated but they're still off that doesn't mean that they're actually manufacturing what goes in you know there's still Well, often suppliers involved in executing whatever.

24:55So, you know, I think sometimes the vertical integration undersells the extent to which they still do rely on your members. Absolutely. I mean, companies like Rivian absolutely rely on a supply chain because they're really good at some things like software and batteries and motors. And they have a great product and will receive them on customers. But they also use suppliers for seats, stamping, ADAS systems. I mean, suppliers are really good at that. They provide the majority of content and value in a vehicle. So why not leverage it? Got a great base here. I did want to go back to the discussion on the EV write-downs and the pullback.

25:34I'm curious, to what extent is the supply base actually holding the bag on that? Because when you dig into those write-downs, the charges that Ford, GM, Stellantis, and others have booked, A lot of times they will give you a little bit of detail about what those mean. And often the cash components of those charges are compensation to suppliers for program cancellations. But I assume that that's not 100 percent of the investments that they. But I was wondering if you had any thoughts on, you know, the relative burden that suppliers bore when the automakers pulled back from. Honda talked about that in their earnings yesterday.

26:18Okay. So it's really fascinating. You know, the WRI score this year, every automaker went up. This is the working relation index for those of you, and this is how the players feel about the OEMs. Last year could have been a bloodbath. I mean, it was not an easy year. Tariffs, EV write-downs, there's a lot of negotiations, a lot of discussion on pricing. And to see that every automaker went up, I was actually pleasantly surprised by, which to me says, on average, people are being treated okay. I get calls all the time, good and bad, frustrations, happy, those kind of things. It's absolutely not dollar for dollar.

26:59I mean, it's percentages of investments. If you look at the amount of investment, so the DOE has a website. We invested right around$250 billion in EV technology in the United States. Not far off what China has done. If you look at how much China has invested. If you add all of that up into what the OEMs have written down, a lot of it was born by the supplier base. And so, yes, it's not going to be covered by all of the write-downs from the OEMs, all of the give-backs. Doing what they can, it's much appreciated. But just adding up the sheer numbers, a lot of it was still born by suppliers. So sitting in the seat, I'd be remiss if I didn't bring up software-defined vehicles, which is one of John's favorite subjects.

27:46Now, one of the points that seems to be made related to software-defined vehicles is that software replaces mechanisms. Mechanisms are largely what suppliers produce. What will the consequences be going forward for the supply base as we get to more software-defined vehicles? I think there's a better term for this. I call it centrally computed vehicles. That's a better way to think about a software-defined vehicle. It's bringing all the compute power into one, two, three, four locations on a vehicle so that software can then talk to each other more easily. As opposed to 100 distributed microprocessors.

28:25I'm doing a brake system. I got my ECU on my brake system. I'm doing my own discrete software. It's not going to talk to anything else. Yeah, it may get read into the CAN bus for errors and things like that, but it's not talking to the chassis system. Sometimes it talks to the steering system. now. So this notion, I think, is incredibly exciting. But where it is challenging, and I think some of the risk may lie, or how to think about it is, where does the value of my organization come from if my software, which most of the time is the secret sauce, let's think about a braking system, because I came from the trucking world, and you've got to break a vehicle that could either be 20 ,000 pounds or 80 ,000 pounds, depending on the load that you're hauling.

29:08And you spend decades refining a braking system and the algorithms that then go on to the actuation systems. So as you divorce those, where's your value come from? There's a little bit in components, but so much of that tribal knowledge is in the software that you've been building and developing in the algorithms. So that I think is the challenge on the supplier side is to understand where does my value then come from and how do I protect that value, which that value is a lot of times in the tribal knowledge that gets built up in the software. So that's a lot of, I think, how people are trying to approach this.

29:44And especially if you're a smaller or medium-sized company, if you're one of the big ones that are making these central compute units, yeah, you have a little bit more control of your destiny, which is why I think you see a lot of the big suppliers getting into central computers. You have a little bit more control of your destiny. But if I'm a small to medium-sized supplier, and I've got to build a component and provide some of the software, maybe I even have to compete on the software with somebody else who can write it and just stick it on a central compute unit. So it's this whole, where does my value come from question that really is the crux of this, I think, for the supplier community.

30:19All right. We're going to have to leave it there. Colin Shaw. Wonderful. Mima. Thank you. Thank you for joining us. And we're going to take a quick break. We're going to hear from the people that make this show possible, Alex Partners, Borg Warner, and Bridgestone. So we'll be back. The automotive and industrial sectors are undergoing a historic transformation. Electrification, digitalization, supply chain reinvention, regulatory shifts. The pace is accelerating and the pressure to adapt is real. This is not a time for hesitation. It's a time for bold decisions backed by fast, effective execution.

30:58You need a partner who understands complexity from factory floors to boardrooms and delivers measurable results. That partner is Alex Partners when it really matters. The automotive industry continues to evolve and so do the opportunities to define it. BorgWarner, one of the world's most admired companies, gets its partners where they need to go. Let's do something big together.

31:33Performance that shines even in the rain. That's what really matters. Bridgestone Potenza tires, improved grip and wet conditions. Okay, and we are back. Paul alluded to this earlier so I will ask you Chris you guys were at the former Connor Assembly plant famous plant where they made Vipers right Paul? They made Vipers and they now have the most amazing collection of classic we'll call them Chrysler products in all the iterations way back to the not the first model that Walter T I don't Walter P. I mean, put out, it may have been all the way up to the newest concept vehicles. It's an astounding place.

32:25But you were there not to find out about concept cars. You were there to learn about the new Ram developments. Is that correct? Yes. Can you talk about these? Paul might be better at describing what we actually saw. So RAM, a few months ago, unveiled this new line of performance muscle trucks, is what they call them, right? The Rumblebee. This was an SRT event, their performance division, and they basically have prototyped a part that purports to fix the problem of turbo lag on the twin turbo hurricane engines that they have. And that's where I'll hand it to Paul. All right. So everybody knows the term turbo lag.

33:19The dread turbo lag. On some vehicles, it's better than others. And there are some interesting solutions out there. Well, let me back up for a second. One of the things that automakers have to deal with is, we were talking a little bit before, uncertainty. And Stellantis has come up with a new chassis called the Stella 1, which is a multi-energy platform. It'll be able to use anything from gas to, well, conceivably in Europe, diesel to all the way up to EVs and everything in between. And what SRT's mission is, is to come up with a way to make them fast. But one of the challenges is working with turbo technology.

34:04Turbos, I don't know, Gary, you're the numbers guy. How many, what percentage of American vehicles this year will be sold with turbos? I have no idea. That's the first time I've ever seen that. I can be very honest with that. Well, you know, it's a lot. A lot more than used to be, right? A lot more, and it's continuing to grow. And there are still people, as we know, with the Ram 1500, that don't want that. They want V8s, but there's a growing interest when you give people high mileage, good performance out of a turbo. But when you get up to the extremes, people want to solve turbo lag. And in just a period of seven weeks, this is astounding, the SRT team came up with, they went from concept to prototype of the system, which essentially solves the problem of turbo lag, at least in the concept form.

35:02The idea is to redirect the airflow into the vehicle when it's at low RPMs into another chamber, which is an electric boost, a compressor, sort of like an electric supercharger that then directs highly compressed air into the turbos. Why do turbos have a problem? Because they rely on exhaust gas. So when you just stomp on the throttle, there's not a lot of exhaust gas, so they don't spin very fast. So this solves the problem, they claim, by just jamming a lot of air into the turbos until you hit maybe 2 ,500 RPM. All right. So basically what they're doing is they're taking the air, they're sticking it in a tank, and then when they need it, they turn the valve and it goes into the turbo.

35:53Exactly, and you get instant torque as if the turbo was running at full speed. And what they say, it takes 650 milliseconds, so no time at all for this system to basically give you the full power that you'd expect out of a turbo. Now, the obvious question, are they going to build it? Are they going to build it? The obvious answer, we don't know. They don't know. All right. So, okay. So, so while we're on the RAM and, and, you know, the, the V8 term came up here, HEMI, right? So apparently RAM is going to start phasing out the e-torque 48 volt system, the start stop system from the trucks that have the HEMI engine.

36:48Yep. Okay. Now, part of the reason that the start-stop systems are put in there are to save fuel, right? Right. Fuel economy. And, you know, SAE did some tests. They found that there was a 7.3 % improvement in standard city tests and up to 26, 4 % reduction in extreme stop-and-go conditions like New York City traffic. Now, I'm sure that there are not a whole lot of Ram 1500s that are in the stop and go in New York City. No, but in L.A. and some other cities there are. So, okay, Paul, why are they doing this? Because they can. Why can they? Because a certain person down in Washington, D.C. and all his minions have said, we don't care about fuel economy.

37:36And I think it's one of the biggest misreads of this administration. I think they are completely disconnected on a politically biased position that is not reflected in the actual buyer concerns. The only reason that you can justify that is cost. Anything you can take out of the cost of the vehicle at a time when average transaction prices, depending on who you quote, around$50 ,000 to$52 ,000. you take out a thousand bucks and the automakers well they have the choice is it going to be profit or is it going to be lower prices i don't think one of those start stop systems actually cost a thousand bucks but no but you get my point right i mean to reinforce that i did i actually spoke with tim caniscus uh at uh solantis and asked about this very thing i was speaking in for something else that hasn't come out yet so uh i'm really kicking myself for not reviewing my tape in remembering everything that he said about this, but I do recall that he did acknowledge the cost equation in the decision that it will save costs.

38:45I think it's a big mistake. So I ran some numbers just out of curiosity. So if you owned a truck and you're getting 20 miles per gallon, which is reasonable for a truck, right? That's pretty good, actually. Actually, it's pretty good, but I'm being nice. Okay, and let's say you drive 12 ,000 miles a year. and let's say gas costs$4 a gallon, okay? If you get 10 % savings, which, you know, so SAE had 7.3 to 26.4, and so I'm being generous on the small side of things, right? You would save$240 a year as a consumer. So it seems to me that like within a couple of years, you probably pretty much pay for that stop-stop.

39:31So the flip of that is people are paying a premium to get the Hemi engine, which doesn't have the horsepower and torque of the hurricane. So a guy like Kineska says, yeah, we're going to wind up costing them more money to take it out. But they want the Hemi and they're willing to pay for the Hemi. So I guess they're not going to worry as much about the Hemi getting worse fuel economy. At least that's the only argument I can find. Yeah, I think it depends on the customer preference, the customer demographic. For that particular customer that you're talking about, Paul, they're just not that sensitive to fuel usage or fuel prices.

40:16At least they want a$2.89 a gallon. Are they more sensitive? And this is the thing that I wonder if Caniscus has data, or they're going by seat of the pants and if gas stays up at$4 a gallon, are they going to wind up having people say, yeah, I can't afford that Hemi anymore? Well, I mean, that's a good question and a thought on that. But before we leave the e-torque subject and the stop start, the other thing that I've talked to truck buyers about this, I mean, a lot of them just like you say, okay, you can save$240. What is that, a year? Was that your, okay. I think if you presented that to them, I know some I've interviewed recently would definitely say that they would be glad to pay$240 to get rid of the annoyance of the stop start.

41:07They just don't like it. That surprises me. It's the experience that makes you mix. Are we talking about today's vehicles? You drive a lot of cars. Like every week you drive a different car. and I'm sure that every one of these vehicles, and cars and trucks and SUVs, and every one of these vehicles that you drive now has a start-stop system. Pretty close to it. And you probably don't even notice that it exists. No, and unfortunately, we've talked ourselves into believing that people's attitudes are the same towards today's stop-start as it was six, eight years ago. I mean, we all remember the original BMWs, which were clunky.

41:50They made a lot of noise, which made people uncomfortable and so on. And that, I think, is the image a lot of people have of it. But you're right. I think if you drive today's stuff, you're right. I forget in those cases that there is stop-start. I remember the first time I was in a car with stop-start, and I was making a left turn at a major intersection. So I'm in the intersection, and then the car shuts off. And I'm like, holy crap. What happened? I'm in trouble now. oh, I'm not going to be able to make this turn and people are going to run into me. And, you know, of course, the thing started.

42:24But it was an unpleasant experience, both from shutting off, but also the noise and the vibration in the early ones. You don't even notice. Not at all. Well, I mean, you guys have heard the term the customer is always right. People have ingrained feelings and perceptions about these things, whether they do match the reality. And, you know, not everybody gets to drive newer vehicles and understand exactly how different the how different the technology is but then they do get to make a purchase decision when it's time for it so all right so so um paul you mentioned bmw um so apparently bmw has cut a deal with the makers of spider-man brand new day and that people who have bmw vehicles that were built after july 2020 who run the The BMW operating system 7 through 10 will get an ad promoting the new Spider-Man movie on the screen of their vehicle when they start their vehicle up.

43:30And this started on July 27th and will run through the August 10th. Well, finally, software-defined vehicles are achieving their purpose and their dream. I mean, this is the pinnacle. No, I'm just kidding. Let's put it this way. I'd rather have stop start than have an ad come up on my screen that I didn't want. So is this perhaps the response to OEM saying, you know what, people don't want to buy subscriptions. Therefore, what we'll do is we'll sell space on screens. This is going to piss people off even more than the idea of paying$50 a year for seat heaters. Why is it BMW was the one that proposed that idea and now BMW is trying this?

44:16that's right so i mean i mean do you think i mean i used to have a garmin um system that i bought and um you know it was at costco and it was cheap and uh you know periodically there'd be like ads showing up like you know there's a tim hortons you know near you and you know i figured okay you know it's a cheap garmin that's you know i gotta i gotta yeah so so i think an analogy might be like a modern Kindle reader. Mine has ads on the front. And I think they gave you that decision. You pay another 30 bucks or something like that at the time of purchase. Not to have those ads, I may be misremembering.

44:59But I think if people understand on the front end what they're getting into and that there's a trade-off in terms of the cost of the product and their ability to obtain the product in the first place for, you know, for the ads, but like with a BMW, that doesn't seem to... I don't like it a lot when I start or stop my vehicle and the brand has all sorts of music and displays and everything. Oh, you don't like that? Not terribly. Maybe the first time it's cute, the second time it's acceptable, the 400th time it's annoying. No, and the idea of having an ad, served up to me. The only thing that would be worse is if you couldn't drive the car until the ad finished.

45:48That would be pretty bad. I just wonder whether the BMW owner demographic is aligned with Spider-Man. I kind of doubt it. All right. So moving on to another technology area. Yeah, so the forthcoming Ford Fathom. The Fathom, yes. I can't say Fathom that name. I was going to be the first to make that joke. All right, play back the tape and we'll get Chris to be able to do that. Okay, so the Fathom, which is the universal electric vehicle. I think it's better than Ranchero, I'll say that. What do you think? Fathom versus Ranchero. He's not old enough to remember to have the fondness for the Ranchero.

46:35So Fathom is a weird name. It just, it's going to get jokes. You know, a slate with a blank slate. They're sort of cute with that. Fathom? I can't fathom why this is. Yeah, exactly. I mean, that's how people are going to look. I can't fathom this. I had the same sort of reaction at first. I don't know. The more I think about it, there's maybe a couple of pluses. One, it's nice alliteration with the Fs. number two when you look at what Ford has said about why they chose this name it's actually interesting the I think etymology is the term of the word fathom initially it meant like a person's wingspan I think when they dig out their arms and then evolved into some kind of way it happened to Icarus when he stuck out his arms well the flip side if you want to do etymology, it could also mean if this project fails, how deep they're going to sink the leftover vehicles.

47:37Okay. All right. All right. So check the cynicism for a second. But then there was something about, you know, it was also like a way that sailors who couldn't see the depth could figure out how deep the water is beneath them. And then it ultimately evolved into a word that means whether you understand something or like, or looking into the complexity of something. and so they find like this deep meaning in the word that they apply to you know their clean sheet and chris this is why you work for the wall street journal you go into that and but somebody who's going to uh bill brown ford over there they're not going to say oh that's i want one of those so this gets to the old debate can a can a name truly affect if it's a good product does a name matter.

48:27Now, I have to say from everything I've understood, I spent some time out in California with a bunch of their folks, including the head of the universal EV program. I'm impressed. So we'll have to wait to see what they come up with. We'll have to see what the numbers are. You know, this price is great. The ones who should be worried right now are slate. Yep. All right. So, so one of the things that I think is genius, and we had a little banter about this, um, is that Ford announced that it is working with Apple and will be integrating Apple maps into this universal electric vehicle platform, which will start with a fathom and then allegedly go to other vehicles.

49:21Anybody out there, they have made sure that you see prototypes. And so they also said that, you know, road level maps information will also enable Ford's Latitude AI team to build a seamless hands-free driving experience. So they're saying, hey, you know, our guys will be working on this, but we're going to Apple. I think this is genius. Okay, why? Okay, because there probably are few consumer products that are more beloved than Apple products. Okay? Reasonable. And suddenly you have this car company or truck company, more or less, is aligning itself with that beloved brand. I mean, so we see, you know, Ford's doing something with Carhartt.

50:09Oh, that's nice. Yeah. And, you know, car companies are always doing this. But to do it with Apple, and they're saying, okay, this is our technology play. This EUV is our technology play. And meanwhile, the guys down the street at General Motors are saying, ah, we don't need Apple. We're going to have our own system. Okay. So how many people think, you know, I mean, now apparently they're sort of like walking that back. a little bit in terms of their speed with which they are eliminating car play from vehicles. Yeah. Well, okay. First, I think we're maybe talking about two different things here.

50:52So Ford, I believe what they're doing is having native Apple Maps integration. Does that jive with what? Yes. Okay. Which, you know, GM has, you know, native Google Maps. Almost everybody does now. Yeah, right. But you said Apple is one of the most admired companies or people like their product. Totally true. If you ranked Apple's products in terms of best quality and most trusted to worst quality and least trusted, I think Maps might be all the way at the bottom. I mean, there's no doubt, I think, that Google Maps is generally a better product, especially when Apple Maps was new. I would say like six months ago, you had, but I think Apple has recovered.

51:52I don't know. I'm a Google Maps person, so maybe I'm a little bit biased every time. A little bit? Yeah. Every time it takes me to Apple Maps, I'm like, oh, let me get into Google Maps. I have to say, I have an iPhone. I don't use a Mac that's based long ago and it's just too costly to switch. I like Apple products. But when I get in, I load Apple CarPlay and go to Google Maps. I don't go to Apple. And in some cases, my iPhone, I don't even have to say loaded on Google Maps. It goes to Google on its own. Okay, but just from a marketing point of view, isn't this very clever of Ford to make that alignment?

52:38Are we going to see... You mean like it'll make the vehicle feel more tech forward, I guess, maybe? Yeah, I mean, I think that's possible. Well, you saw the line in the big bold headline in the release, tech forward. Yeah. So yes, it's going to be part of their pitch to be tech forward. Will they have an iCar? Well, they have an Apple version. I doubt that. But, I mean, it just seems to me that, you know, as Colin was talking about earlier, I mean, there are all these things that the OEMs have to invest in. We've still got seven minutes, Paul. Something's annoying me on my Apple Watch. There you go.

53:16See? And so they have all this stuff to invest in, and yet somehow they seem to say, oh, we've got to invest in these interfaces, and we've got to be more like the tech companies, like whether it's, you know, we've got something more like Google Maps or more like Apple Maps or more like CarPlay or more like Android Auto. And it's like, guys, don't bother. You know, they've already figured this out. You don't need to do that. Spend your money elsewhere. Make it a better product for us. Well, I don't think any of the OEMs were ever coming up with their own mapping system. I mean, I think they're always integrated with either Apple or Google.

53:51Well, long ago, they were working with other suppliers before Google and Apple got into it. So, you know, if you go back 25 years, 30 years ago, there was no Google mapping system. There were no screens in cars, so it didn't really matter. I think the bottom line is, do you get in the vehicle and it's easy to map where you're going and to tell it where you want to go, and does it come up and send you the correct way without you? I mean, honestly, I think Apple CarPlay is a necessary convenience in a lot of ways, but I really am growing to see its limitations. Sometimes I just want to get in the car and have an easier experience that doesn't involve fiddling with my phone to set up to get it on a screen.

54:42I agree. And then having my phone do all the computing work and drain the battery to tell the car where we're. And there's oftentimes that connection is not perfect or it doesn't come up all. And so I think Ford is moving in the direction of making you less reliant on your phone when you get in the car to know where you're going and get there. And I think that is definitely a good thing. GM, too, with the Google Maps integration, it's all moving in that direction. To your point, if this can accomplish what GM claims it's doing in a proprietary way, and which Rivian and Tesla say they're doing, which is to not require the car to somehow integrate with a separate system, which means you can do certain things in terms of controls of the vehicle, in terms of making smarts on your hands-free technology and the like.

55:46That's GM's claim. That's Tesla's and Rivian's, that once you offload to Apple CarPlay, those systems may not be able to do some things like properly determining your range based on road conditions and the route itself and talking to the vehicle and knowing what's going on. So if Ford can do that by integrating Apple, more power to them. All right. So you mentioned Slate. Okay, so we, you know, late recently had their announcement of their vehicle. So now Ford comes out and announces the pricing for their new... The Fathom. The Fathom. It's starting under$30 ,000 with Destination. It's starting under$29 ,000 without Destination.

56:39Well, you've got to put Destination. I think it's a big pet peeve of mine. It's a sticker. We have this part of the price that's not the price. Yeah. But I mean, so bottom line, it is under 30 ,000. Yeah, which they said around 30 ,000 before. So I was actually quite surprised. Yeah, exactly. So, OK, so what does this do to Slate? Well, I mean, obviously, if you're in the market for a small pickup and, you know, you've got a choice between one with two doors and roll up windows and no stereo and no speakers. And no color except slate gray. Uh-huh. And you can pay five to, let's call it, put another five of cushion in there, right, depending on, you know, if you want blue cruise or whatever the options are.

57:30But you get all the things that a modern car has, and you get four doors. Right. I mean, it's, yeah, I mean, maybe I'm thinking about it from too much of a traditional perspective. the customization aftermarket customization that a customer can do on their own with slate is maybe the unique selling point of that vehicle i once heard it somebody who works there described it to me as uh like the perfect car for people who love legos it's kind of like a lego you can do so many different things with it in terms of what colors you make it or you know put the suv kit on it, like all kinds of endless possibilities.

58:12But in terms of the features, I mean, it's... Think about this. Ford toyed with the idea of giving you customization capabilities with Maverick. Remember they even had little QR codes in the vehicle that told you how you could come up with shelves, or you could custom print. You download programs to 3D print components to put in your memory. Right. So the question is, is Ford going to try to undercut? We haven't heard a lot about the details of Fathom yet, like power range and so on. Is Ford going to try to make customization a feature of Fathom, which all of a sudden could really hammer Slate?

59:02I mean, I don't know if it's exactly this. I think Slate will probably still be the more customizable. I agree. Especially with the whole wrap thing. Okay, but here's a question, you guys. Okay, again, going back to, you know, the earlier conversation with Colin Shaw of Mima, and, you know, part of this thing is, you know, you've got to have scale. You've got to make a lot of stuff so you're going to be able to have, you know, to feed your supply chain. is this announcement today of the price of the Fathom put a period at the end of Slate? Slate to your point significantly fewer parts they've done things like make sure lighting on the left side and the right side are identical they just put the same part in so they have higher volumes in some cases of fewer parts and they make exactly the same truck every single time.

59:58And you are not, you don't have a paint shop. And we'll see how much it costs to mold those bodies as opposed to stamping them out. So it's still a little unclear whether or not Slate has some advantages that at lower volumes will allow them to do just fine. My own gut, I think that they're going to do very well in the commercial vehicle market where even a$1 ,000 difference, especially on a base vehicle, is just fine with somebody who wants the stripped-down pickup truck, and maybe they like the idea of a wrap because then they can customize it to their particular business. I think fleets is maybe the thing to want.

1:00:44You can imagine. The thing I wonder about is, okay, everybody thought that EVs were going to take off in fleets because it was always very deterministic, and they go back to the depot at the end and you know where you're going. The problem is you have to have the depot and you have to put the infrastructure in to have the depot. Yeah. So basically you look at that and say, oh, that's actually not a turnkey solution. You say, oh, that's cheap. But, oh, I can buy a Maverick, you know, not a Fathom, not a Slate. I can buy a Maverick and get this done. And oh, by the way, then that's that Ford dealer down the street and he can fix it.

1:01:18Yeah. I mean, you know, it's hard to argue with what you're saying, Gary. That could be a problem with Fathom 2 then, not just with Slate. That somebody will buy Maverick instead? Yeah, exactly. Yeah, I think that perhaps the timing is not propitious for them to come over. I think one thing to remember is that the Fathom 2 is also just the first iteration of Ford's UEV project. I mean, they are looking at others, and it could come in quick succession, and maybe even at the Louisville plant where they're doing the whole new assembly process, you know, adding more volume there. Maybe the next one is a crossover or what, you know.

1:02:03There was a reason. I'm sorry. Yeah, no, I'm just saying this is just an opening salvo for them in terms of this affordable EV platform. Exactly. And Slate needs to sell to get to the next vehicle. Right. There was a reason why when I went through their facility out in Long Beach, California, that one room had a nice plywood prototype of a three-row universal EV. That wasn't there by accident. So we know that the SUV and possibly a three-row are not very far down the road. Now all we have to do is convince people to buy electric vehicles because as you mentioned earlier, 6 % of the market right now.

1:02:47For now, for now. And it's like... 45 different nameplates are all with that 6%. I'm still not ready to write off EVs as a 6 % solution. Full disclosure, Paul owned a... No, I own an F-150 Lightning and have no desire to trade it in. I love the vehicle. I argue with my wife. All right, we're going to end it with you arguing with your wife, Paul. So thank you all for joining us. Paul Eisenstein, good friend of the show, good friend of me and John and possibly Chris. And so headlight.news and the car collective, all one word, the car collective. Substack.com where you can find Gary's pieces every Monday.

1:03:39And more important, Chris Otz, the Wall Street Journal. important. So I want to thank you both for being with us and we'll have you back because it's just too much fun not to. Absolutely. And we will see you all back next week and John will be here and I'll be there. So thank you. Auto Line After Hours is brought to you by Alex Partners, when it really matters. Bridgestone Tires, solutions for your journey. And by BorgWarner. The automotive industry continues to evolve and so do the opportunities to define it. BorgWarner, one of the world's most admired companies, gets partners where they need to go.

1:04:19Let's do something big together.