May 6th, 2016
David Ruggles- Dealership Owner
At the end of week two in our class, Economics of the Auto Industry, we had the pleasure of being joined by David Ruggles. Mr. Ruggles, a friend of Professor Smitka and the owner of many different dealerships himself, came to help illustrate to the class what takes place once a vehicle leaves its production plant and finds its way to dealerships all across America.
It is generally accepted practice in the auto industry to almost exclusively franchise a particular manufacturer’s dealerships. These franchises are independently owned and operated entities who are associated with a particular manufacturer or perhaps several different ones. The auto industry in particular franchises for several reasons. Most notably to ensure a large, highly available working capital. In most cases, every new vehicle that rolls off of the assembly line has already been sold and paid for. This creates an environment in which the manufacturer does not have a large inventory of vehicles they are trying to sell. Essentially every vehicle they produce is immediately bought and paid for providing immediate working capital instead of an unsold asset. This money can immediately be used by the auto manufacturers to be reinvested into production or research and development to provide several examples.
However, dealerships are very different than the manufacturers who provide them vehicles to sell. Generally speaking Dealerships make their money in four key areas: Service, Financing, Insurance, and Used Cars. The service end of their profit comes from providing maintenance on new or perhaps even used cars they have sold. Financing occurs when a dealer finances either a new or used car to a customer. Insurance is offered in the form of warranties or protection plans for sold vehicles. Finally, used cars, most often trade-ins, are money makers because they can be marked up and resold, often with warranty plans and financing.
May 9th, 2016
Federal-Mogul Plymouth Technical Center
Today we had the luxury of touring Federal-Mogul’s research and development facility in Plymouth, MI. Here we learned about how suppliers interacted with OEM auto companies and about new technology in development.
Federal-Mogul is a major parts supplier for several of the largest car companies in the world including BMW and Ford Motor Company. These companies hold particular interest for a supplier like Federal-Mogul because these companies are very willing to seek out new technology and designs and be on the leading edge of innovation within the auto industry. The Technical Center in Plymouth is home to Federal-Mogul’s in house spark-plug brand, Champion. In the spark plug industry Federal-Mogul is on the leading edge of a new type of electrical ignition technology called “Corona.” This technology uses a multi-tip end that allows for the electrical ignition spark to be projected out into the combustion chamber with multiple points of spark. The result is a quicker and more complete ignition of the air/fuel ratio in the combustion chamber and as a result, more power per engine combustion, and less un-burnt fuel. This both reduces emissions and increases fuel economy. While the technology is still in its infancy, Federal-Mogul holds high hopes for the potential growth that may occur in this area of the market. Other leading edge technology includes Federal-Mogul’s refinement of the steel piston. In a world where forced induction is being used to improve fuel economy, and diesel motors which produce more pressure and heat, the need for stronger and more robust pistons has become more prevalent. Federal-Mogul pioneered and refined the technology allowing them to hold strong market position among other suppliers in the powertrain field.
May 10th, 2016
Ford Factory Tour of the Rouge F150 Plant and Ford World Headquarters
Our second day in the “Motor City” led us to Ford’s Dearborn F150 production plant and Ford World Headquarters. Both the plant tour and our meeting with Hau Thai-Tang painted a unique picture of insight into Ford, a major US automaker, from corporate structure all the way down to the factory floor.
Our first stop was to Ford’s Rouge production facility, a sprawling area of more than 1.5 miles long and 3/4 of a mile wide. The Rouge was the brainchild of company founder, Henry Ford, who wanted to created the world’s greatest industrial complex, creating a car from raw materials to finished product in 72 hours. Today the Rouge is home to Ford’s best selling model, the F150. Every day 12,000 fully assembled F150’s roll out of the factory to be sent off to dealerships across the country. It was an amazing experience to witness first-hand the massive scale and meticulous detail associated with producing complex vehicles using maximum efficiency. It was easily apparent every minute detail was thought out in depth to help maximize productivity and minimize cost. From the catwalks some 20 feet above the factory floor you could watch the progression of painted all aluminum bodies into finished, complete vehicles. It was truly awe inspiring to witness.
Our afternoon was centered around our interactive meeting with Ford’s Chief of Global Purchasing, Hau Thai-Tang. Tang presented us with a brief outline of Ford as a company and its role in not only the national, but global auto market as well. After the presentation, the class engaged in thoughtful discussion and Q&A with Tang about relevant current events, as well of the future of Ford Motor Company. We learned not only about Ford’s involvement with the development of future autonomous vehicles, but how to deal with Takata’s recent recalls and the strategies used to compete against other large auto-makers and competitors in today’s EPA regulated production world. Overall the experience was invaluable to our class and our understanding of how today’s automakers are adapting to the ever-changing market and projected future.
May 11th, 2016
Federal Reserve and UMTRI Research Center
Our first stop was the Detroit Branch of the Federal Reserve Bank of Chicago. Here we were able to witness the intake and sorting of money as well as the shredding process used to help ensure fresh bills are in circulation. Shortly after we met with Dr. Paul Traub and Dr. Martin Lavalle. Both economic analysts for the Fed, they deal heavily with the automotive industry and its effect on the local economy. We learned about how the Fed was forced to take action in the area after the 2008-2009 recession hit the “Big Three” in a big way. Also discussed was the current economic recovery occurring in the area as a result of the great recession and the future outlook for the city of Detroit after declaring bankruptcy.
In the afternoon we made our way to Ann Arbor, the home of UMTRI Research Center. This research center, a subsidiary of Michigan University, is focused highly on the development of future autonomous technology. Here the research teams study and even test full-fledged autonomous vehicles on a city construct created behind the facility. The researchers we met with discussed the future vision they have for a fully autonomous vehicle fleet as well as the challenges and potential obstacles that might be faced while trying to bring this technology to the mass market.
May 12th, 2016
Fox Auto Parts, The Detroit Institute of Art, and The Heidelberg Project
Our class began the morning by traveling to Belleville, Michigan, the home of Fox Auto Parts. Here we met with Bill Fox, one of two brothers, who own both an automotive recycling facility and a self service “pick and pull” style yard. Mr. Fox explained to us the process of purchasing totaled vehicles from two main auction companies, Insurance Auto Auctions and Copart, and how cars are dismantled and parts are sold to body and mechanics shops. Mr. Fox stressed the importance of purchasing the correct number of vehicles and of the correct type in order to turn a profit in a business model with such slim margins and high overhead. The software used to purchase vehicles is called “Bid Buddy” and helps to generate a maximum bid for a vehicle by using a formula that accounts for part sales, activity, and current inventory. We also discussed the cooperation between independently owned salvage facilities. The greatest example of this was the PRP trailer system that runs across a good portion of the nation, used to transport brokered parts between recycling facilities to fulfill each others needs and help say “yes” to the customer more and more often.
In the afternoon we ventured our way back into the Detroit Metro area and visited the Detroit Institute of Art. This was an awesome experience for me. I spent nearly an hour in front of one painting called Cotopaxi by Frederic Edwin Church. This painting was massive, almost mural size, and depicted an erupting volcano amidst the setting sun and clouds of ash.
The painting simply captivated me and held a certain foreign-ness to it. It was almost as if you were looking at the landscape of some distant plant instead of the jungle, mountain, and volcano. I was instantly enamored with the way it made me feel. I felt small. Not just because of the massive canvas in front of me, but the manner in which it was painted on the canvas made me feel as if the large expansive horizon was in fact much more massive than the canvas in front of me.
Our final visit of the day was made to the Heidelberg Project, a conglomeration of trash and remnants of abandoned houses put together to make several blocks of polka dots and free-flowing “urban art.” I personally thought this art made the area look trashier than before, but as an artist I know you don’t make art for other people, only yourself and how it makes you feel. So to each his own. I personally much prefer work like that above that simply lets you get lost in the canvas and oils.
May 13th, 2016
Honda’s TRC (Transportation Research Center)
On our last day out of town, we drove south from Detroit and down through rural Ohio to visit Honda’s Transportation Research Center. This center is owned by Honda as its primary proving ground in the US, but used by almost all ends of the auto industry including the National Highway Transportation Safety Board for crash testing and other research. After meeting with the director of the facility and getting a brief over-view, we hopped in a couple of vans and suvs and toured the facility with a driving tour. We went to almost the entire facility and had the opportunity to try out many of the obstacles and witness the various different types of tests performed there. New prototype models that were heavily camouflaged were abundant. Here many OEMs test their new models to ensure they meet specifications and perform well in simulated adverse conditions. This stop was our last before venturing back home to Lexington and concluded our week hitting Auto Alley!
May 17th, 2016
Our last speaker for the spring was Bill Cosgrove, a Ford executive in several different positions for more than 30 years and spanning three continents. Mr. Cosgrove was present for some of Ford’s toughest moments and was on the ground in Brazil amidst 100% inflationary conditions there. He shared with us his knowledge about what makes an auto manufacturer successful and the necessity for quality executives and management to move a company to the next level and be able to stay on the cutting edge of technology.
Mr. Cosgrove also provided us with a framework for success within the auto industry. Most important was the “Culture” of a company. In order to provide a quality product and run a company effectively, a culture of the business must be in place. This culture in integral to the way in which each and every member goes about their conduct and their job. Mr. Cosgrove highlighted the importance of a culture in which everyone is “running scared.” In other words, every member in the company is a little paranoid of the competition and encouraged to keep pushing themselves in everything they do to stay one step ahead. In addition the key to a good product is a balance between quality and cost. A product of maximum quality for minimum price. The enablers for this framework include having a solid process, good people and in the right positions, and a strong balance sheet that allows an automotive company to the survive economic downturns in the business cycle.
May 18th, 2016
Metesla Heavy Frame Rail Manufacturing Plant, Roanoke Virginia
Our last class function was to visit the local Metesla plant in Roanoke. Here Metesla creates the steel frame rails used in many heavy duty trucks globally. We had the opportunity to follow the manufacuring process step by step on our tour of large and very noisy plant. The rails begin their life as large rolls of steel shipped to Metesla from a steel foundry. From there the coils are unrolled and “stamped” to be bent into the recognizable “C” channel that makes up the basis of each frame rail’s structure. next the rails go through several heat treating processes that build rigidity and strength into the raw steel. From here the rails are separated and various holes are stamped. Powder coating is next, you can have any color as long as its black! the last step involves bending the frame rails for specific models that require such bends to accommodate a particular engine and transmission combo. This provided a great end to our class and allowed us to come full circle back to rural Virginia.