How Long Can OEMs Hold on to Their ICE Operations?
In North America alone, GM, Ford and Stellantis build about 9 million engines and transmissions a year. Merging their powertrain units would eliminate duplication and slash costs dramatically.
The internal-combustion engine is in the sunset of its existence.
How long it will be around is something we can debate, but with so many countries banning sales of new cars with piston engines within a decade, the end is in sight.
Now the question for OEMs is, how do you wind down your traditional powertrain operations?
Volvo Cars is going all-electric by 2030. It recently spun off its ICE powertrain ops, including R&D, engineering, procurement, IT and manufacturing.
It formed a joint venture with its parent company Geely and that JV will make ICEs for some of Geely’s other brands and will try to sell ICEs to any customer who will buy them. Other automakers should study what Volvo did.
When Sergio Marchionne was CEO of Fiat-Chrysler, he wrote a white paper called “Confessions of a Capital Junkie.” In it, he pointed out how much powertrain duplication there is in the auto industry, wasting billions in capital and engineering.
In North America alone, GM, Ford and Stellantis build about 9 million engines and transmissions a year. And roughly 90% of that production overlaps, meaning they’re all building engines with very similar displacements and transmissions with the same number of gears.
Merging their powertrain units would eliminate that duplication and slash costs dramatically. It would create the largest powertrain company in the world that could sell engines and transmissions back to the OEMs at a lower cost than if they were made in-house.
From a marketing standpoint it would be relatively easy. The vast majority of American car buyers could not tell you what kind of engine or transmission they have under the hood of their car. Even more importantly, they really don’t care.
There are exceptions; hard-core enthusiasts care deeply about the powertrains in their cars. But they only account for about 10% of car buyers.
To placate those enthusiasts, the Detroit Three could keep their performance engines in-house like GM’s LS and LT engines, Chrysler’s Hemi and Ford’s Voodoo.
But how would you merge this all together? The best way would be to form a separate company. It couldn’t be done on a collaborative basis because each automaker would be arguing that its engines and transmissions are the best and those arguments would go on for years. This calls for a separate, stand-alone company that can make the hard-nosed decisions about what stays and what goes.
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A merger such as this would instantly free up cash and resources that each automaker could devote to electrification, autonomy and connectivity. Wall Street would reward the move because it would make them more competitive and profitable. Their stock would jump on the news.It would work for European and Japanese automakers, too. Being more numerous, they have even more overlap in their ICE powertrains.
I know this is a radical idea, but it only sounds radical today. By the end of this decade, as ICE plant closings become ever more common, radical solutions will start to look like common sense.
But why wait until the end of the decade? The savings are ready for the taking right now.
John McElroy (pictured above, left) is editorial director of Blue Sky Productions and producer of “Autoline Detroit” for WTVS-Channel 56, Detroit.
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