Standardization to Cut Electronics Costs, Supplier Predicts

TRAVERSE CITY, MI – How much suppliers will be able to charge for the software they develop for cars is a tricky issue that won't be resolved easily.

The virtual nature of code makes it seem cheap, but the effect of software is key to future vehicles.

John Sanderson, CEO of Siemens VDO Automotive in North America, ducks a direct question on software pricing at the Management Briefing Seminars here Wednesday, but suggests costs can be controlled and reduced when the industry achieves its goal of a standardized electronic platform.

"Overall costs will come down, and reliability will be improved" when the Autosar initiative that started in Germany and other moves toward standardization are in production. Autosar is a cooperative of OEs and suppliers aimed at developing an open architecture for automotive electronics.(See related story: GM to Join Autosar)

Sanderson suggests 70% of a car's electronics could be standardized, with 30% aimed at attributes that differentiate a vehicle.

Siemens VDO CEO John Sanderson

At the same time, Sanderson says, "software is a product," and he cites a study by consulting firm Mercer Inc. that suggests software pricing will rise.

The study shows that in 2000, software accounted for 4% of a car's cost, and electronic hardware amounted to 18%. In 2010, software will grow to 13% of costs, and hardware 22%.

Some 50% of Siemens VDO's revenues come from electronics now, Sanderson says, and “89% of future automotive innovations will be driven by electronics.”

The importance of electronics will be a major part of the shift expected by Roland Berger Strategy Consultants, which forecasts a growing share of supplier content in vehicles, to 55% of the value (based on manufacturing cost) by 2015, up from 40% now.

Pricing is one difficulty facing suppliers today, a result of intense competition based in globalization, new entries in the market and overcapacity.

However, says Sanderson, such turmoil is really just business as usual for the automotive industry.

For people in Florida, he says, preparing for and reacting to hurricanes is normal, not something unexpected, and people choose to live in Florida.

Companies in the auto industry have chosen to live with its equivalent of hurricanes. Nonetheless, he says, the recent past in North America has seen “an unprecedented number of negative events which could have a ripple effect on all of us.”

The keys to success, he says, are having a leadership position, a diverse customer base and a strategic vision.

“This is our business climate,” Sanderson says of the current turmoil. “We need to change with it, and anticipate changes, and move before it forces us to change course.”