The North American International Auto Show was opened in Detroit on January 9th, 2012.  In comparison to earlier shows, Detroit revealed greater optimism in the automotive industry, following the crippling recession of 2008-2009.  LMC Automotive (formerly JD Power Automotive Forecasting) released its Q4 2011 sales forecast, showing US light vehicle sales rebounding for 2010 and 2011.  However, with the arrival of Volkswagen at Chattanooga, Tennessee, and the growth of Hyundai in the US, such as the Elantra winning the 2012 North American Car of the Year Award, the Detroit-based auto makers face stiffer competition to regain their market shares in their home markets. 

Compact Luxury – The New Battleground
While light truck sales have recovered, the North American market is seeing a particularly faster growth in compact models.  This will result in higher production volumes for them.  According to LMC Automotive, the C-Segment will see the largest unit increase in production from 2011 to 2018, followed by the D-Segment, while the A- and B-Segments will see fastest percentage rise.

• The Show’s top launches were the Cadillac ATS sedan, the Dodge Dart sedan and the Buick Encore compact crossover. 

Not only do the above models come from the compact segments, two of them come from luxury brands.  As many North American consumers downsize, in order to lower their fuel consumption, they still demand a high level of comfort and convenience in their future vehicle purchases – and with this, electronics demand in the North American market will continue to grow.

• The Cadillac ATS aims to compete against more successful German branded sedans, in particular the BMW 3-Series.

Fuel Economy
Growing demand for fuel economy will also result in the adoption of direct injected gasoline engines across the industry, as on the Buick Encore and the Cadillac ATS.  The Dodge Dart, however, will come equipped with the new Tigershark gasoline engine, developed with FIAT’s MultiAir exhaust gas recirculation (EGR) and variable valve timing (VVT) technology, although MultiAir is expected to be deployed on gasoline direct injected engines in the future. 

Ford has made major strides in electrifying the powertrain with the announcement of its roll-out of stop-start systems, starting with the 2013 Ford Fusion.  Ford’s common platforms will also enable its customers to opt for electric, hybrid and plug-in hybrid versions of various models, such as the Ford Focus compact and C-MAX compact minivan.  The GM eAssist mild hybrid system has already been offered on the 2012 Chevrolet Malibu, so perhaps the Buick Encore will follow suit? 

And there may be the possibility that Honda and Toyota may assemble hybrid models in the US – following the unveiling of the Acura NSX sports car equipped with new all-wheel drive hybrid powertrain technology, the auto maker announced that development and future production will occur at its Marysville, Ohio, facility.  The Acura ILX compact sedan also featured a hybrid concept.

• Should tensions in the Arabian Gulf escalate, then demand for hybrids will rise rapidly in the short term.  However, auto makers must bear in mind the revisions to the CAFE mandate, such as proposals by the Obama Administration to raise the level to 54.5 mpg (4.3 l/100 km) by 2025, a level that will certainly require more powertrains to be electrified in the long term, especially if the model segment mix remains unchanged.  An an example of making hybrids more affordable for wider consumer adoption is the Toyota Prius C compact ('Aqua' in Japan).

Comfort and Convenience
Despite their size, the new or recently-launched compact models have many features that would only be offered to larger segments.  Examples of these luxury features include passive keyless entry and start systems (PKE), dual-zone automatic HVAC (heating-ventilation-air conditioning) systems as standard, electric parking brakes (EPB), RLT (rain-light-tunnel) sensing for automated lights and windshield wipers and electrically-adjustable, heated and ventilated seats. 

• Examples of compact models with PKE that are assembled (or will be assembled) in North America include the Acura ILX, the Cadillac ATS, the Chevrolet Cruze, the Dodge Dart, the Hyundai Elantra and the Nissan Tiida.

Infotainment
Consumer demand for connectable systems for smartphones and the use of the Internet as a gateway to various features has led to the development of new all-encompassing, software-based infotainment systems.  The launches at Detroit are no exception, which will further lead to growing electronics demand for Bluetooth, voice control systems and HMI systems controlled by color displays and touch screens. 

• Examples of new infotainment systems include Cadillac CUE, Chrysler UConnect, Ford SYNC, Hyundai Blue Link and Toyota EnTune.  The Cadillac ATS and Dodge Dart are equipped with large color touch screens.

Safety
As side airbags become mandated in North America, the focus for safety applications in new models has been advanced driver assistance systems (ADAS). 

Blind spot detection (BSD) and rear cross traffic assist (RCTA) have been key additions in the North American market, as consumers there tend to drive into perpendicular parking spaces and need assistance when backing out of them – the new Cadillac ATS and Dodge Dart will offer radar-based systems. 

Front windshield camera-based systems offer greater value-for-money, offering both distance warning and lane departure warning (LDWS) from the same module – the Cadillac ATS and the Buick Encore are likely to offer the same Magna-supplied system, as already being offered on some GM crossovers. 

Other features making a greater appearance in North America will be adaptive front-lighting systems (AFS) and high intensity discharge (HID) headlamps, as well as head-up displays, as on the Cadillac ATS.  In line with the Kids & Cars mandate, the HMI displays enable the Cadillac ATS and the Dodge Dart to play back park assist cameras.

Implications
According to the latest (January 2012) edition of Strategy Analytics’ Automotive Electronics System Demand Forecast (2009 to 2018), North American demand for the above applications will grow the fastest, mirroring the trends seen at the Detroit Show.

• Among the fastest growing applications were Collision Warning (+26.9 percent CAAGR by $M value), Passive Keyless Entry (+15.8 percent) and Engine Control (+14.9 percent).

Despite vehicle downsizing, demand for automotive electronics in the North American industry remains strong.

The Automotive Electronics System Demand Forecast 2009 to 2018 – January 2012 Update, can be downloaded at: http://www.strategyanalytics.com/default.aspx?mod=reportabstractviewer&a0=6985.

Updates on the following databases will be published in February / March 2012:
- ADAS Supply & Fitment
- Advanced Entry and Start System Supply and Fitment
- EV/HEV Technologies Supply & Fitment
- Hybrid Technologies Legislation/Support

According to an interview with Auto Express magazine in November 2011, Koji Sato, deputy chief engineer for product planning said: “We are working on a number of solutions to offer low CO2 emissions and these include a small hybrid.”

At present, the E-Segment hybrid model in the Lexus line-up is the newly-launched GS 450h, with a 3.5-liter V6 gasoline engine, capable of 0-100 km/h (62 mph) acceleration in 5.9 seconds.  However, most luxury sedans sold in the European market need to lower their carbon dioxide emissions in order to lower the annual road, company car and registration tax burden on their purchasers. 

• An example includes the BMW 520d.  It is priced competitively, at £30,030 in the UK (US$47,000), capable of a respectable 0-100 km/h time of 8.1 seconds.  Its combined cycle (EU) fuel economy is a segment leading 4.7 l/100 km (50.0 mpg) and emits 123 g/km of CO2 with the optional 8-speed automatic transmission.
• In comparison, the GS450h is more expensive at £44,615.00 in the UK (US$69,500), and can only achieve 7.7 l/100 km (30.5 mpg) and a higher 179 g/km of CO2 emissions.
• The result for a UK purchaser is that the annual road tax for the BMW 520d is £115 (US$180) less than for a Lexus GS 450h.  Savings for company car usage is even greater, at 18% Company Tax instead of 26% (based on Benefit-In-Kind rates) in the UK.

Lexus needs to make its GS sedan more competitive, not just in Europe but worldwide, as all consumers seek fuel efficiency to cope with the rising cost of fuel.  The brand has to broaden from its high performance-led strategy and embrace smaller, more economical and low emitting powertrain options for its hybrid models. 

• This has already begun with the launch of the smaller CT and HS hybrids, based on the powertrain platform of the Toyota Prius.

Lexus has indicated that it will not expand diesel powertrains to other models.

The brand has only one diesel model in its line-up, the IS 200d in Europe, equipped with the Toyota AD Series 2.2-liter turbocharged diesel engine.  Toyota does not assemble a larger diesel engine, except for the commercial vehicle segments.

It is likely that it will deploy a smaller capacity, four-cylinder gasoline engine to its hybrid platforms to meet the new strategy.

• The Lexus/Toyota hybrid platform is mostly integrated in its transmission modules, involving two electric motors, and can thus be mated to any combustion engine.
• The smallest gasoline engine in the Lexus line-up, in the IS 250, is too powerful to bring about the fuel economy needed by the new strategy.  This is a V6 2.5-liter unit producing 153 kW (208 bhp).
• A likely choice would be a modified 3ZR (four-cylinder 2.0-liter) engine from Toyota, to match the 135 kW (184 bhp) generated by the diesel engine in the BMW 520d. 
• Another candidate is the 1.8-liter Atkinson Cycle engine in the Toyota Prius, but uprated to match the performance required by the Lexus brand.
  The final decision on the new engine will be announced in the summer of 2012, before sales begin for the GS sedan in Europe.

Strategy Analytics has analyzed the decision to pursue an all-hybrid approach to the Lexus’ dilemma and believes the brand has taken the correct course of action.

The reasons are:

• Lexus is experienced in the development of hybrid powertrain technology and is well-known among consumers for it.  Sato said: “Lexus has a strong association with hybrid and we want to continue to develop this.”
• With current hybrid platforms in place, it would be more cost effective to develop less-powerful but more economical hybrids than to develop new diesel models virtually from scratch.
• By widening its hybrid offerings, it can also raise volume in hybrid powertrain production and bring about economies of scale across the hybrid line-up.
• Nitrogen oxide (NOx) emission standards have been tightened in recent mandates, involving the adoption of new emission control strategies for large segment diesel models, such as the injection of AdBlue in the exhaust to meet Euro-6.  Although not as complicated as hybrid powertrains, the fear is that NOx controls would become too severe, and thus too costly, for Lexus to develop on its own.
• If Lexus is unable to develop new diesel powertrains, by sourcing from outside suppliers it would undermine the brand’s reputation and lose control of its powertrain design.
• The volumes required for the new strategy may be limited, given that Lexus is a luxury brand, and may not justify the additional investment needed to develop new diesel powertrains – Infiniti are to source from Mercedes-Benz and the Chrysler 300 features a V6 diesel engine supplied by VM Motori (a joint venture with FIAT and General Motors), but only in limited volumes.
• Away from Europe, the new strategy is relevant in North America where the CAFE fuel economy mandate has got tougher (for 2025) and following the lower uptake of diesel there.
• Diesel powertrains are increasingly being threatened by the development of new, more efficient gasoline powertrains, such as stratified combustion, which would negate any investment in new diesel powertrains.
• Hybrid powertrains are perceived to be more refined and relevant for the Lexus brand than diesel powertrains.
• Zero-emission drive, although for very short distances, can give Lexus the advantage should Chinese and European mandates appear to ban combustion-driven vehicles from city centers, as already seen for motorcycles in Beijing.

While competing luxury brands are already successful with diesel powertrains, this does not mean they should follow the Lexus strategy – It is a problem unique to Lexus, which requires a strategy that is unique to Lexus.

For further information relevant to diesel and hybrid powertrain strategies, please refer to the following products from Strategy Analytics:

EV/HEV Technologies Supply & Fitment Database
http://www.strategyanalytics.com/default.aspx?mod=reportabstractviewer&a0=6729

Hybrid Technologies Legislation/Support
http://www.strategyanalytics.com/default.aspx?mod=reportabstractviewer&a0=6726

Analog Semiconductor To Get Market Boost From HEV/EV Growth
http://www.strategyanalytics.com/default.aspx?mod=reportabstractviewer&a0=6623

Economies of Scale - Driving Affordability In Electric and Hybrid Vehicles
http://www.strategyanalytics.com/default.aspx?mod=reportabstractviewer&a0=6244

Auto Shanghai 2011: Domestic Car Makers Face Tougher Battle Ahead (commentary on the BMW 5-Series plug-in hybrid)
http://www.strategyanalytics.com/default.aspx?mod=reportabstractviewer&a0=6324

Automotive Gas Sensors: Emission Mandates Boost Demand
http://www.strategyanalytics.com/default.aspx?mod=reportabstractviewer&a0=5981

Hybrid and Electric Vehicles: OEM Strategies Reviewed
http://www.strategyanalytics.com/default.aspx?mod=reportabstractviewer&a0=5365

Sensors for Advanced Powertrains: Efficiency Solutions Drive Demand
http://www.strategyanalytics.com/default.aspx?mod=reportabstractviewer&a0=4435

HCCI: The Single Solution For Combating Both CO2 And NOx (commentary on stratified combustion technologies)
http://www.strategyanalytics.com/default.aspx?mod=reportabstractviewer&a0=3614

Diesel Challenges Hybrids in the US
http://www.strategyanalytics.com/default.aspx?mod=reportabstractviewer&a0=3368

BMW Sets The Pace in Engine Efficiency
http://www.strategyanalytics.com/default.aspx?mod=reportabstractviewer&a0=3250

Strategy Analytics previously reported (in the blog, Automotive Electronic Design Heads East) on the expansion in research and development to support the recovery in the automotive industry during 2010 and the growth in the emerging markets.  However, caution was advised because of growing uncertainty in 2011, such as the ending of government incentives, rising inflation in China and the threat of a currency crisis occurring in Europe.

While the demand continues to grow, albeit at a lower rate, in the emerging markets, Tier 1 vendors are turning more of their attention towards diversifying their customer base and towards growth application areas, such as ADAS (Advanced Driver Assistance Systems) and electrified powertrains.

Tier 1 vendors are keen on diversifying their customer base, in order to increase revenue and to lower the risk of a future economic downturn. 

• The 2009 recession heavily affected North American operations, particularly the “Detroit Three” car makers and their suppliers. 
• In 2011, the earthquake has heavily affected the Japanese car makers and their suppliers.  By spreading business on a more global scale, the Tier 1 vendor is able to offset the loss of business in one region.  It could also be argued that Japanese suppliers would not have been disrupted as badly if they could transfer production capacity to operations outside of the affected areas in Japan.

Evidence of this trend, over the last six months, can be seen in the latest Strategy Analytics "Tier 1 Vendor Regional Design Center Database".

Examples of diversifying the customer base include the opening of new technical centers outside the home market and the expansion of existing ones:

• Bosch recently completed an expansion of its Kanagawa facility, where it develops braking systems, ECUs and gasoline fuel injection systems for Japanese customers. At Memanbetsu, it intends to expand its capabilities in developing stability controls systems, to be completed by 2013.
• Garmin opened a new technical center in Novi, Michigan, having made its OEM navigation business a strategic priority - to bring about global opportunities and to win new business, such as the uConnect system for Chrysler, the integrated navigation system on the new Aston Martin Virage and navigation software for Daimler.  With an initial 20 staff, it aims to build relations with the auto makers before expanding the facility.  The company is already a leading brand in PNDs (Portable Navigation Devices).
• Johnson Controls completed its expansion of its European headquarters in Burscheid, Germany, to raise its technical competence in order to increase its business from European customers.

Examples of growth application areas affecting technical centers include:

• Bosch, in its collaboration with the Reutlingen University of Applied Sciences and the University of Stuttgart, opened a new technical center to develop power electronics for electrified powertrains in return for students attaining their PhD degrees.
• Continental recently acquired the Ottobrunn technical center from Magna International, which develops automotive radars.  It also expanded its capability in transmission control systems by opening a new center in Nuremberg, where it has also hired another 240 staff from a US$100 million investment in expanding its existing facilities in the same city, some of whom will be developing systems for electrified powertrains.
• Valeo is planning to expand its facility in Tuam, Ireland, over the next three years.  The center specializes in developing software for camera-based ADAS systems, as in the optional 360Vue system fitted to the BMW 7-Series.

Meanwhile, new technical centers are continuing to open in the emerging markets.

• China has seen at least seven new centers being opened.  Bosch, Faurecia and Key Safety Systems have opened new facilities in Shanghai, while TRW is planning a larger replacement center to open in 2013.  UAES (a Bosch joint venture) has opened a new center in Chongqing, while Valeo’s Interior Controls division aims to double the staffing levels at its newly-transferred Shenzhen center.
• In India, Bosch is to add Diesel and Gasoline Systems Electronic Controls (DGS-EC) capability to its Bangalore center.  The expansion will be completed by 2013, culminating in the hiring of 800 additional staff.  Panasonic has recently opened a technical center in Gurgaon to develop energy management and infotainment systems to its Indian customers.
• Visteon has also expanded operations at its Guarulhos facility in São Paulo State, Brazil.

Strategy Analytics believes that with increasing competition, development activity will expand towards a more global scale, not just to service the needs of new customers in new markets but also to utilize a wider pool of talent and to speed up the rate of development in a race against rivals.  However, such investments will be costly and may require collaboration with other vendors, as is the case with OEMs in electrified powertrains.

Chrysler has given extensive insight into its future plans in a series of presentations that were released recently.  Its future roadmap shows the introduction of Chrysler Group-branded Fiat-based models from 2012, with a C-segment compact sedan to be built by Chrysler for both the Dodge and Chrysler brands leading the way.  This will be joined by a couple of Fiat-based commercial vehicles the same year.  2013 will see more new products, including:

• A Fiat-built B-segment small car for Chrysler and Dodge
• A Fiat-based B-segment small SUV for Jeep
• A Fiat-based Patriot/Compass replacement for Jeep
• A Fiat-based D-segment sedan for Chrysler and Dodge
• A Fiat-based Liberty replacement for Jeep
• A Fiat-based mid-sized crossover for Chrysler

These new models, along with the launch of the Fiat-branded 500 from 2011, are hoped to help revive Chrysler’s US market share from a low point of under 9% in 2009 to approaching 14% by 2014. This will not be easy, with competitors such as a resurgent Ford, chastened Toyota and ambitious Hyundai-Kia keen to fight hard for market share as well. One key part of Chrysler’s plan is the rapid adoption of many of Fiat’s powertrain technologies.  Strategy Analytics believes that Chrysler has fallen somewhat behind the curve in the US, with engine line-ups such as Ford’s EcoBoost having no current Chrysler-derived competition. In its powertrain strategy document, Chrysler states that is wishes to implement a “Rapid introduction of all Fiat Group technologies: downsize/turbo, MultiAir, start/stop, Gas Direct Injection”.  By 2014, Chrysler envisages offering a wide range of downsized units, including a 400+ hp 3.0-liter 6-cylinder direction-injection turbocharged unit based upon Fiat MultiAir technology. The result is that by 2014, Chrysler Group predicts that 38% of its products to be fitted by a 4-cylinder gasoline engine, up from an expected 19% in 2010.  Diesel demand will also expand, up from 9% to 14%.  The 6- and 8-cylinder gasoline units will see sharp declines, down from 54% to 38% and 18% to 10% respectively.  By 2014, only 12% of powertrains are expected to be Chrysler legacy designs. Chrysler is less forthcoming when it comes to hybrid and electric vehicle technology.  Although its short-medium term strategy includes “Electrification/hybrids to complement advances in conventional technologies”, this would appear to be limited in ambition with a longer-term strategy stated as “Electrification/hybrids will expand once they become a cost effective proposition to final customer”. Firm commitments to the electrification roadmap are few and far between, and include a stop-start Jeep Wrangler diesel for late 2010.  The Chrysler Group electrification plan slide contains little of substance, other than asserting that “Chrysler Group is lead engineering center for hybrid /electrification for Chrysler & Fiat Group”, as shown below. Strategy Analytics is not surprised by this approach.  It is highly pragmatic, and concentrates the engineering resource on what needs to be done: getting a highly-competitive range of conventional powertrains on the road soon.  However, there is a danger.  GM has generated huge numbers of column inches with the Volt, and Ford now has its electric Focus on the Jay Leno Show.  Chrysler is getting done what needs to be done, but risks losing out on what needs to be seen to be done.