Transmission Supply Shifts Gears

Automotive Industries,  March, 2000  by Michael Robinet

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The transmission world is gearing for quantum changes over the next two decades. Excuse the pun, but the shifts emerging in this once staid segment of the powertrain industry are significant.

For many OEMs, transmission design and manufacturing have always been a core competency. General Motors, DaimlerChrysler and Honda believe that their vehicles' DNA is composed in part by the quality, performance and integration of their transmissions. However, smaller OEMs have found that the inherent economies of scale surrounding transmissions force alternative sourcing arrangements.

BMW, Ford's Volvo and Jaguar groups, and even Toyota procure all or some of their transmissions from outside vendors. Capital requirements, shifting priorities, and emerging transmission technologies will drive further outsourcing.

As automakers shift their capital and focus to the softer sides of the business -- namely finance, marketing, and service -- the prospect of designing and tooling for a new transmission is not welcome on the balance sheet. Seating and axles are examples of other commodities that have befallen a similar plight. As was the case with Delphi and Visteon, OEMs have discovered the pitfalls of continued investment in leading-edge design and build technologies. Economies of scale, low capacity utilization, and the ability to spread development/tooling costs are paramount

A decade ago, this scenario drove GM and Chrysler to merge their North American manual transmission and transfer case manufacturing/design capabilities, thus creating New Venture Gear. The same issues drove Ford's partnership with Germany's ZF on continuously-variable transmissions (CVTs).

Transmission life cycles are shrinking as well. OEMs simply cannot stick with the same designs for more than a decade - shrinking the historical investment payback period. Several recent transmission investments are worth more than $1 billion; larger programs are in the $2 billion range.

Increasingly restrictive emission and fuel economy regulations, coupled with the consumer's wish for more functionality, will also drive OEMs for innovative and cost effective transmission solutions in the future. Add the planned usage of CVTs, AMTs (Automated Manual Transmissions), and the possible emergence of IVTs (Infinitely Variable Transmissions) into the mix and the transmission business is certainly ripe for the emergence of specialized suppliers. OEMs will quickly determine that these technologies would be difficult to duplicate in-house at a competitive cost. The transmission specialists -- JATCO, Tremec, ZF, Getrag, NVG, and Aisin -- offer these new technologies with the ability to spread total costs among several customers.

While the outlook for the independent transmission supplier is bright, barriers to wholesale outsourcing of transmission manufacturing and development still exist These include labor contract considerations, massive OEM transmission infrastructure, and simply the resistance to change. But as we witnessed with Delphi, Visteon, and Ford/ZF, these operations can be freed from the OEMs.

There will be holdouts. Certain OEMs (DaimlerChrysler, Honda, and GM -- the latter two selling to one another) will maintain some in-house transmission capability, due to corporate ideology and competitive factors. However, technology, cost pressures and low-volume, specialty applications all point to the growth of non-OEM transmission suppliers.

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While one traditional supplier, Hayes Lemmerz, continues to control Ford's aluminum intake manifold business, two European-based suppliers -- Montaplast and Mark IV Automotive -- are winning significant composite business. With three primary sources, Ford seems to be content with their intake manifold supply base -- unless Visteon enters the composite business.

-- by Michael Robinet, Director of Forecast Services, CSM Worldwide Inc., a consulting service in Northville, Mich. email: MichaelRobinet@CSMauto.com http://www.CSMauto.com

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