GM, Delphi Debate Software Price

DETROIT – Suppliers and auto makers agree auto technology is evolving at breakneck speed, and electronic controllers serve as the building block for most pending innovations.

There is less consensus, however, regarding how much auto makers and consumers are willing to pay for electronic innovation – more specifically, the software brainpower that dictates functionality.

Jeffrey Owens

At Monday morning’s Blue Ribbon panel at the 2006 Convergence Transportation Electronics conference here, Jeffrey Owens, president of Delphi Corp.’s Electronics & Safety unit, makes an offhand remark aimed as a jab at auto makers that place inordinate emphasis on component cost.

“Software is generally considered free,” Owens says with a grin, drawing chuckles from the audience and some fellow auto suppliers on the panel.

One of the panelists was Hans-Georg Frischkorn, executive director-global electrical systems controls and software for General Motors Corp., Delphi’s largest customer.

As part of its bankruptcy case, Delphi has complained that thousands of its contracts with GM are unprofitable.

Later in the panel session, during questions and answers, Frischkorn says GM needs to collaborate with its suppliers to achieve the most advanced safety technology, while keeping cars affordable. “Suppliers will have to help us,” he says.

Another member of the audience asks Frischkorn to compare the level of trust between Toyota Motor Corp. and its suppliers to that of GM.

Hans-Georg Frischkorn

Frischkorn says he considers GM to be more consistent in its treatment of suppliers, and that Toyota has vastly different relationships with its keiretsu suppliers than with those not part of the Toyota supply family.

Then, responding to Owens’ earlier comment about the cost of software, Frischkorn suggests GM could be paying too much for automotive software, and that the No.1 auto maker would begin “true-cost analysis” to determine precisely how much GM should be paying for software.

After the panel discussion, Frischkorn tells Ward’s he is convinced GM sometimes perhaps is paying too much. “Maybe in some instances, we are paying too little,” he says. “We don’t really understand the cost of software.”

True cost analysis will entail a series of metrics that will take into account manufacturing, quality control, engineering and the ability to reuse software.

“The first step is to establish a good database on software. We lack data in the industry on that,” Frischkorn says. “We want to make sure we pay a fair price.”

Owens tells Ward’s he doubts GM’s true-cost analysis will result in massive software price cuts. Actually, he’s hoping the study will prove Delphi deserves to be paid more.

“I don't think we'll have a negative impact from that at all,” he says. “I think we could actually go the other way. I think we're undervalued in some portions of our software development.”

Owens says Delphi’s exposure to total cost analysis in other component sectors “has been very positive.”

“It (total cost analysis) can be a threat because you take away the ‘secret sauce’ aspect of your products,” Owens says. “So if you priced on the unidentifiable, that will be a problem because it becomes very transparent as to what's going on.

“But what we've found more often, there is a value assigned to the functionality delivered by the software that usually ends up being a fair cost associated with it, and that's all we can ask,” Owens says.

Suppliers such as Delphi are responsible for providing vast amounts of electronic functionality in vehicles today and deserve to be duly compensated, he says.

“It's becoming such a huge component of our delivered product now and such an invisible one that, in the end, the consumer doesn't see that,” he says. “The consumer doesn't understand it, and, frankly, most of the car companies' senior management doesn’t understand it, either.”

Owens says the average vehicle in North America today has about 22 electronic controllers, compared with about 15 globally. In certain parts of the world, basic vehicles have no electronics at all, he says.

“In China, it was zero six years ago, and now it’s seven to eight as they bring on safety and emissions regulations,” he says. “It’s hard to necessarily predict that growth.”

At the high end of the market, Owens says the new Mercedes S-Class sedan has more than 70 microcontrollers onboard.

Each vehicle today leverages about 2 million lines of software code, Owens says. By 2010, some vehicles may contain 100 million lines of code, Wind River’s Larry Lehman says in an afternoon panel session.

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