The challenge of intensified innovation.

A common theme among today's auto industry participants and observers is that innovation is the best hope for automotive suppliers to significantly improve their competitive position and profitability. Because of the wide-spread agreement on this subject, you can expect a new level of intensity in this arena. (For example, when people all started talking about "operational excellence," the number of companies that devised their own variations of the Toyota Production System exploded.) One of the consequences of a new focal point is that things become more difficult in the near-term. In innovation, for example, we are likely to see a "solutions race" mentality that increases the number of players and the range of options to be evaluated by the automakers. More investment will be made by suppliers in efforts to address a specific issue, but only some of the companies will see a return. As seems to be case with many of the prevailing trends in the industry, the only sure winner is the consumer.

Let's look at an example of how the emphasis on innovation will shape up in a given space. An issue that has been around for a long time is the problem of wintertime windshield clearing. Spend some time on the road in the northern half of the U.S. and it is obvious that many drivers settle for too few minutes with the ice scraper, and too much haste for the defroster to do its job. This is not news to the industry. A U.S. patent search shows at least 30 years' worth of relevant intellectual property creation by the Big Three and far more obscure parties. But while there has been ample innovation commercialized in the field of wiper systems--intermittent wipers, intelligent systems that sense precipitation, new materials like Teflon[R] blades, and dual reversible motors--no one seemed to have homed in on the optimal cold weather solution. But we noticed an unusual name among the handful of suppliers with a presence at the 2004 North American International Auto Show, Microheat Inc., which has developed a system to apply heated fluid to iced windshields. This led us to look further into this area; a little further research turned up an array of potential solutions that attack the core problem from a variety of angles.

As Exhibit A (left) shows, companies from up and down the supply chain, inside and outside the industry, young and old, big and small, have entered the solutions race. No one is assumed to have a lock on the rights to address this need. It could be a daunting prospect to go head-to-head in new product development and commercialization with the likes of Robert Bosch and Valeo, given their track records and high R & D spending (e.g. 6% of sales for Valeo). On the other hand, there is something to be said for a nimble, focused, determined entrepreneur, particularly one with some cash (see Exhibit B, above).

How this will turn out remains to be seen. Some questions that we would ask in the course of further research to assess the technology initiatives in this market include:

* What is the automakers' perception of the various approaches to improving wintertime visibility?

* Where do these solutions fall short? Cost? Effectiveness? Trade-offs required (e.g., a heated windshield will increase replacement costs for consumers)?

* What technical obstacles to their adoption exist (e.g., a need for 42-volt systems)?

* What political obstacles arise in the consideration (e.g., issues between competing teams on integration of the technology into a new vehicle platform)?

* Will end users embrace this feature, and more importantly, will they pay more for it? (Some parties are citing J.D. Power survey data to say yes.)

* What are the costs to the OEMs of getting it wrong, whether by adding something that consumers don't want, or by missing the boat on a winner offered by a competitor?

* To whom is this innovation most important? Which suppliers will be pushing the hardest?

Going forward, it is likely that no stone will be left unturned in the search for marketable innovation. Every product area will have real or perceived shortcomings and will, therefore, attract a variety of problem-solvers. Decision-makers at the OEMs will have their hands full keeping up with the evaluation of all the possibilities. Collectively, we face the happy prospect that vehicles will keep getting better and better. For individual companies, though, the intensification of innovation is one more battleground.

Exhibit A -- Diverse Participants in the Windshield-Clearing Challenge

Supply Position                  Examples of Companies

Windshield Producer              Pilkington -- Hotscreen[TM]-
* 'Owns' the largest element     incorporates fine wires capable of de-
                                 icing a frozen screen at -5(degrees)C
                                 inside 2 minutes
                                 PPG Industries -- Sungate
                                 WeatherMaster[TM] windshield with
                                 multi-layer metallic coating activated
                                 by electrical connectors, 4X faster
                                 than standard defroster
                                 Asahi Glass -- Fabricated glass product
                                 line includes electrically heated
                                 windshields (EHW) and melting snow
                                 windshields (MSW)
                                 Saint-Gobain -- SGS ICECONTROL[R]
                                 Heatable Glazing with wires or coating
Windshield Wiper                 Valeo -- SmartWash[TM], a compact
Systems Integrator               electronic device to heat windscreen
* Overall control of the system  washer fluid
                                 Bosch -- Aero-Twin wiper assembly
                                 system with improvements to blade and
                                 arm that improve durability and contact
                                 with glass
Wiper Component Supplier         A. Raymond -- Patented heated micro-jet
* Expert in key                  spray nozzle unit for better washing
  element of system              function
                                 Siemens VDO -- Heatable version of
                                 washer nozzles; patents on
                                 electrically-heated windshield washer
                                 spray nozzle assembly
Other Automotive Supplier        TRW -- Fully automatic moisture-
* Threshold technology is        activated sensing system that can
  outside current wiper system   detect how hard rain or snow is falling
                                 and determine how fast to run the wiper
                                 motor
Specialty Supplier               Microheat -- HotShot washer-fluid
* Specialist in the problem      heater that uses precise temperature,
                                 timing, and cycling to clear a
                                 millimeter of ice in 2.5 minutes; also
                                 useful for cleaning bug splatter in
                                 warm weather
Aftermarket-Focused Supplier     Rostra Precision Controls -- Safety Hot
* Real-world experience          Blade
                                 Wiper Shaker Technology Inc. -- The
                                 Shaker[TM] Wiper De-Icer Plus
                                 Everblades[R] -- Heated windshield
                                 wiper blades
                                 Specialty Manufacturing Co.--
                                 Thermoblade[TM] electrically-heated
                                 windshield wiping system
                                 And many more ...

Exhibit B -- Two Participants in the Solutions Race

The Superpower -- Valeo

* Company founded in 1923
* $11 billion in total sales
* R & D expenditures 6.1% of sales in 2003; more than 550 new patents
  filed
* Wiper systems are one of ten industrial branches within Valeo
* Wiper system sales of $1.5 billion (14% of total)
* 8,280 employees in wiper systems
* Product line includes wiper arms, blades, linkages, motors, rain
  sensors, wash systems, and modules
* Produces 100 million wiper blades annually, 30 million wiper motors

The Upstart -- Microheat

* Company conceived in 1994 and founded in 1997
* Private investor funding of $28 million thus far
* Expects $20 million annual sales starting 2005
* 27 patents filed
* 80 employees
* Sophisticated marketing--presence at Auto Show, SAE Show, stylish web
  site, good media P/R, testimonials from industry insiders, consumer
  research to define demand, trade show research to capture perceptions,
  product line extensions, aftermarket presence to test the product and
  build up volume

By Melissa Anderson, Vice President, IRN, Inc. [e-mail]