Automakers, suppliers grapple with rapid pace of tech development

on Aug4

Al Koch: “The automotive industry is very used to a slow clock speed of developing new product … Not true in technology.” Photo credit: Greg Horvath

TRAVERSE CITY, Mich. — Automakers, suppliers and startups are scrambling to develop technologies such as those needed for self-driving vehicles at a speed never seen before in the auto industry, says one financial veteran.

“We have more than 50 ‘name’ companies that are working on autonomous vehicles. In addition to that, there are hundreds — literally hundreds — of smaller startup kind of ventures,” said Al Koch, vice chairman of AlixPartners, speaking Thursday at the CAR Management Briefing Seminars here. “It’s a huge, huge market and changing very, very rapidly.”

AlixPartners is an international consulting, corporate turnaround and financial advisory firm.

Koch has presided over some of the massive changes in the auto industry over the last several years. As chief restructuring officer, he played a major role in General Motors’ overhaul in bankruptcy in 2009.

Additionally, he was involved with Kmart Corp.’s Chapter 11 bankruptcy, having been interim CFO of the retailer in 2002 and 2003.

The wide variety of partnerships between automakers and startups, as well as mergers and acquisitions of others, has bucked the trend of traditional development within the industry as well, Koch noted.

“The automotive industry is very used to a slow clock speed of developing new product, of investing in product and typically, investments last for many, many years,” Koch said. “Not true in technology.”

Koch made it clear that automakers shouldn’t scoff at the idea of partnering with technology companies and giving up some control to them.

“Our hypothesis would be that efficient use of capital suggests that the industry needs to make greater use of where the industry’s technology can be an advantage, but also take advantage of the people like Google, who have tremendous, tremendous capability in technology,” said Koch.

“Keeping return on invested capital at forefront, I think, includes developing asset-light approaches, it includes entering into more partnerships and being open to the idea of not controlling the entire process.”

Koch noted that while some of these partnerships between automakers and technology companies will be a strain on a company’s balance sheet, he believes the auto industry has the resources to make deals.

“Is the industry’s capital adequate? My answer is yes,” Koch said. “If we keep in mind, at all times, return on invested capital, it needs to improve significantly and we can’t allow not-invented-here to get in the way of being objective when evaluating new opportunities.

“Because if an opportunity is not objectively evaluated and you kind of have your thumb on the scale, it’s always easy to make it appear as if developing internally is the best answer.”

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