Automotive Research and Development

Michigan Futures Applied Public Policy Research Seminar

Spring 2007
Matt Ahern & John Fournier
Part I Industry Review

Introduction

It is estimated the average rate of return on capital investment in the United States

today ranges from 10% to 14%. In contrast, the private rate of return of R&D investments

is now estimated to be 25% to 30%. Furthermore, the social rate of return of R&D

investments, that is the rate of return that accrues not just to one firm, but to many firms,

industries, and consumers in the society, is typically 50% to 60%, almost four times the

rate for other types of investment (NSB, 2004).

In the Triad regions (the United States of America and Canada, i.e. North

America, Japan and Western Europe), the vehicles industry is mature and has been

plagued by overcapacity, cost pressures and low profitability. Only North America was

buoyant at the end of the 1990s out of the three Triad economies. This resulted from the

long boom of the United States’ economy, the substitution of imported Japanese cars by

cars built in transplant factories, and the profitable shift of consumer demand from

passenger cars towards light trucks. In contrast, vehicle sales in both Western Europe and

Japan were less in 1997 than they had been in 1990. Overall, vehicle sales in the three

Triad regions rose by only 0.6 per cent between 1990 and 1997, and production rose by

4.2% (Humphrey 2003).

Companies no longer make decisions to locate and expand in states based on tax

policies and incentives alone. Rather decisions are based on a state’s talent pool and

culture for innovation, with particular focus on world-class research universities

(Duderstadt 2005). In the past, the facilities of foreign automotive companies, while

nominally involved in R&D, did little or nothing of this nature. Instead, their main

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activities were, first, testing emissions for certification requirements and scanning the

general regulatory environment; second, evaluating the performance of their own and

competitors’ vehicles; and, third, monitoring US. automotive design and styling trends.

Recently, however, more ambitious aims have emerged. Several of the current facilities

have embraced advanced concept design, joint research, and vehicle prototype production.

In addition, companies have started research in parts and materials design and evaluation,

research on key technologies (such as new materials and battery technology), and the

development of parts suppliers locally.

The necessity of having R&D facilities in North America became evident in the

early 1990’s.

Prior to establishing an R&D center in [the United States], our engineers in [the
US. Plant] had to work with the R&D division and technical centers in Japan. We
were sending faxes to each other all the time and our engineers took many trips
between Japan and the United States. The process of developing and producing a
car for the US. market or correcting an engineering problem was very time
consuming. We have eliminated this lengthy process by establishing a U.S.
technical center [in close proximity] to our U.S. plant, sales office, and suppliers
in the United States. We expect to shorten the time needed for concurrent design
and development, concurrent development and engineering, and working on
design and engineering issues for our vehicles in or near production. (Manuel,
Dalton 1994)

These advanced facilities created opportunities within the US for high-tech automotive

jobs and business growth.

Auto R&D Definition

Automotive research and development refers to any facility that supports at least

one of the following activities.

1. Technical support for procurement of parts for local production

2. Evaluations of parts
3. Evaluation of vehicles
4. Styling and general design

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 5. Parts design
6. Vehicle design
7. Prototype production

Global Auto Industry

Recently, three significant changes have taken place in the automotive industry’s

value chain. First, there has been a shift in design activities from assemblers to suppliers,

alongside increased dialogue around design between the two parties. The suppliers, who

had previously provided ready-designed parts (for example, batteries) for many different

companies in the period of mass production, moved towards greater customization,

tailoring their products to the needs of specific companies. Similarly, many of the

subcontracting companies that had formerly worked to the assemblers’ designs moved

towards offering their own design solutions. In both cases, the assembler provides the

overall performance specifications and information about the interface with the rest of the

car, and the supplier then designs a solution using its own technology.

Second, there has been a shift towards the supply of complete functions (systems,

sub-assemblies or modules) rather than individual components. A first-tier supplier

becomes responsible not only for the assembly of parts into complete units (dashboards,

brake-axle-suspension, seats, cockpit assemblies and soon), but also for the management

of second-tier suppliers. The assembler would previously have put these modules or

systems in-house, using parts supplied by many different component companies. In the

past, an assembler might design a seat, make detailed drawings of 20-30 separate

elements, find suppliers for each, take in the parts and assemble them into seats in-house.

Currently, the assemblers look for firms that will design and supply the whole seat, or

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even a seating system, including headrest, seat belts and pretensioners. This has become

part of the process of the increasing outsourcing to suppliers.

Third, the assemblers has become more involved in the specification of the

production and quality systems of their suppliers. With the increasing importance of just-

in-time (JIT) production systems and the imposition of quality-at-source, even simple

tasks became more critical for the overall efficiency of the operations. The assembler had

to invest in its relationships with suppliers. Accordingly, it made sense to have longer-

term relationships with fewer suppliers (Appendix I: Figure 1).

The global auto industry at the beginning of the 21st century is composed of a

number of different parts. The requirements of these different sections are quite distinct.

Assemblers and global mega-suppliers need global reach, innovation and design

capabilities, as well as considerable financial resources. In the second tier, global reach is

not required, even though there are some tendencies towards internationalization in this

sector. The competences needed in the third-tier are much less, but the returns are much

lower. Finally, the aftermarket section offers a completely different route to customers.

The business is much more fragmented and access is easier, but this sector is very price-

competitive (Humphrey 2003).

Assemblers are characterized by an increasing requirement to spread the costs of

vehicle design and branding. Innovation and design capabilities remain critical as first

movers in new markets sections can gain important rents while other companies follow.

Some companies, such as Ford, appear to believe that core competences lie more in

branding and finance, and they are outsourcing parts of manufacturing. Others, such as

Toyota, maintain an emphasis on manufacturing excellence and competence.

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 Global mega-suppliers are firms that supply major systems to the assemblers.

They are sometimes referred to as "Tier 0.5" suppliers, because they are closer to the

assemblers than the first-tier suppliers. These companies must have global coverage in

order to follow their customers to various locations around the world. They need design

and innovation capabilities in order to provide black-box solutions for the requirements

of their customers. Black-box solutions are solutions created by the suppliers using their

own technology to meet the performance and interface requirements set by assemblers.

First-tier suppliers are firms that supply direct to the assemblers. Some of these

suppliers have evolved into global mega-suppliers. First-tier suppliers require design and

innovation capabilities, but their global reach may be more limited. Second-tier suppliers

are firms that will often work to designs provided by assemblers or global megasuppliers.

They require process-engineering skills in order to meet cost and flexibility requirements.

In addition, the ability to meet quality requirements and obtain ISO9000 and increasingly

QS9000 (Appendix I: Figure 2) quality certification is essential for remaining in the

market. These firms may supply just one market, but there is some evidence of increasing

internationalization.

Third-tier suppliers supply basic products. In most cases, only rudimentary

engineering skills are required. In the third-tier of the component chain, skill levels and

investments in training were limited and firms compete predominantly on price. A further

important segment of the automotive value chain is the aftermarket for replacement parts.

This is the sector that many firms in developing countries first moved into, even before

local assembly sectors were developed. Presently, there is an international trade in

aftermarket products. Firms in this section compete predominantly on price and access to

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cheaper raw materials and process engineering skills is important. Innovation is not

required because designs are copied from the existing components, but reverse

engineering capability and competence to translate designs into detailed drawings are

important.

Auto R&D Value Chain

When a design team has been given the green light to start the development of a

new component, the associated activities and processes can be analyzed in three stages:

planning, design, and production. The planning phase activities refer to the functional

specifications in the new product such as general product definition, lead time

requirements, definition of interface specifications, platform/architecture design

specifications, and outsourcing decisions. The design and production stages are often

referred to as detailed engineering phase where bill of materials and blue prints are

generated, prototypes are built and tested, manufacturing processes and equipment are

selected and qualified (Appendix I: Figure 3).

Essentially, a system producer faces three alternatives to manage the development

of new components: in-house sourcing, outsourcing, or co-development. In co-

development the supplier and buyer join forces to set industry standards or create new

innovation. Co-development is justified when technologies are so expensive that

individual firms cannot afford to develop them alone. In many cases, firms join forces to

create the technological synergy necessary for innovation. Outsourced components can

be classified as detail-controlled parts, supplier proprietary parts, or black-box parts.

Detailed control parts are developed entirely by assemblers including functional

specification and detailed engineering. Specialized suppliers are selected through

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inquiries and bids to take the responsibility for process engineering and production based

on blueprints provided by assemblers. Detailed-controlled parts are advantageous when

an assembler wants to preserve detailed technological capabilities in a particular

component area, tightly control component design quality and preserve bargaining power

with respect to supplier parts prices. With detail-controlled components, the assembler is

dependent on the supplier to deliver the part built to exact specifications. After supplier

selection from the bidding process, the assembler gets involved with supplier’s

manufacturing, purchasing, and distribution practices (Appendix I: Figure 4).

Supplier proprietary parts are developed entirely by parts supplier including

functional specification and detailed engineering. These parts are taken by the supplier

from concept to production and sold to assemblers through catalogue. Often the

assembler becomes dependent on supplier for availability, upgrades, and system

integration. The supplier of these parts often shows dominance over the technological

path of innovation in question. In addition, these components often have well-specified

and standardized interfaces and supplier performance can be contracted ex ante.

Black-box parts are those parts whose functional specifications is completed by

assemblers while detailed engineering is carried out by parts suppliers. The development

work of black-box parts is split between the assembler and the supplier. Typically,

assembler’s responsibilities include generation of cost/performance requirements,

exterior shapes, interface details, and other basic design information based on total

vehicle planning and layout. Black-box parts enable assemblers to utilize supplier’s

engineering expertise and manpower while maintaining control of basic design and total

system integrity. To the supplier, the accumulation of engineering expertise becomes its

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competitive edge. Prototypes and production parts exchange between the supplier and the

assembler. Added value can be attained when supplier and assembler are willing to

collaborate in solving technical problems, especially in resolving interface compatibility

issues when new technological solutions are created and patents attained (Appendix I:

Figure 5).

Government Automotive Policy

Based on the current understanding of what successfully drives and guides the

process of technical change, the role of government policy has shifted from pure supply-

push, such as government funded R&D, and become more focused on the demand side

and the utilization of scientific discoveries in society.

Lessons from Hydrogen Technology

Almost all the major car companies in the US, Europe and Japan have active

programs to develop hydrogen vehicles. Overall private spending on hydrogen energy

R&D dwarfs spending by governments, however standards are set by government

agencies. Therefore, gpvernment directs the paths of investment. Most of the car

company prototype hydrogen vehicles require use of fuel cells. It is difficult to determine

which automaker will win the race to commercialization and affordability. BMW was a

pioneer and has had prototype hydrogen cars since the 1960s. Honda and Toyota first

leased a few hydrogen-powered Fuel Cell Vehicles (FCVs) in California in December

2002, and hope to be the first entrants (along with BMW and Nissan) into the lucrative

US retail market. Other car companies followed suit with new leasing arrangements in

2004.

Japan

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 Japan is one of the most important players in the international effort to develop a

hydrogen economy, not merely in R&D but also in terms of production plans. Several

factors are responsible for Japan's leadership role: the government's commitment to the

Kyoto Protocol, the country's high dependence on imported petroleum for transportation,

and Japan's need to retain its position as the high-tech superpower for new technologies

both for its image and its economy.

The WE-NET (World Energy Network) project was initiated in 1993 to enable the

introduction of a worldwide network for development of abundant renewable energy

resources, their transportation and utilization. The WE-NET project, completed in 2002,

was a large government–academia–industry joint venture coordinated by the New Energy

and Industrial Technology Development Organization, which acted as the chief vehicle

for planning and implementation of hydrogen related R&D (WE-NET, 2004). Phase I of

the WE-NET project lasted from 1993–98 and focused on research on the feasibility of

different hydrogen technologies, and planning a vision for Japan's hydrogen energy

network. Phase II of the WE-NET project lasted from 1999–2002 and focused on

introduction, demonstration and testing of selected hydrogen technologies and

infrastructure as well as further research and planning. The combined R&D budget for

the first two phases was 20 billion yen (nearly US $200 million). A follow-up project

called the Development of Fundamental Technologies in the Safe Utilization of

Hydrogen is envisioned to last until 2020 and focus on the gradual diffusion and

penetration of the hydrogen energy infrastructure in Japan.

The WE-NET project has developed detailed plans for all the different

components of the hydrogen energy network including production, storage, transport and

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utilization. In the near term most of the hydrogen is expected to come from reforming of

fossil fuel based sources with electrolysis, particularly from renewable generated

electricity, becoming the major mode of production in the long term. Liquefaction has

been seen as the main method for large-scale hydrogen storage and transportation, and

the WE-NET project has been extensively researching liquefaction plants and liquefied

hydrogen tankers. Development of a hydrogen combustion turbine is another important

area of R&D for WE-NET, and a pilot plant with an expected 60% efficiency will be

developed for testing.

The area where progress and publicity has been most evident has been FCVs and

related infrastructure. Several dozen FCVs made by Japanese (Toyota, Honda, etc.) as

well as international (GM, DaimlerChrysler) automakers are currently in service in

various public and commercial fleets in Japan, starting with a handful in 2001. The Japan

Hydrogen and Fuel Cell Demonstration Project (JHFC) was launched in 2002 by the

Ministry of Economy, Trade and Industry in partnership with all major automakers,

Japanese utilities and energy companies. The JHFC project has also started testing fuel-

cell cars and buses under a variety of real-life conditions to gather data on performance,

reliability and fuel consumption for evaluation. The WE-NET project estimates that in

the near term methanol or gasoline reforming would be the most practicable technology

for fuel cell applications but has a long-term goal of adopting pure hydrogen.

The MITI is responsible for Japanese industrial policy and strategic legislation

that affects industry and therefore it is responsible for Japanese energy policy, R&D

policy and technology policy. The responsibility of the MITI in the transport sector has

foremost been to support the development of new vehicles and fuels. The MITI may fund

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company research on technologies that are in the public interest with 100% funding at the

early stage of development and between 50 to 67% as the technology comes closer to

commercialization. Standardization projects receive 100% funding from the MITI

(Ahman 2004). The MITI has identified three areas in which government support is

needed in equal measures: R&D on methods for providing hydrogen, standardization, and

fuels and infrastructure.

The Japanese Government regards fuel cell development for vehicle use as a

strategic issue for the nation in the long term. Today, most Japanese automobile

manufacturers regard the fuel cell system as a strategic and proprietary issue and

development is pursued in-house or together with other private companies. An important

finding from previous efforts to establish BPEV charging stations is the need for early

standardization. Standardization is also seen as strategically important for Japan; not

letting other countries to set the standards, but influencing coming world standards in a

Japanese way.

European Union

While Germany has the most advanced hydrogen energy program in continental

Europe, the most important regional policy initiative is that of the European Union (EU)

and European Commission (EC). A major report and action plan were issued by the

EU/EC in 2003 that outline the hydrogen vision. The report is a significant indication of

the EC's commitment to a long-term conversion to a hydrogen economy—the first major

political body to do so beyond Iceland and Japan. A High-Level Group (HLG) was put

together to examine the potential contribution that hydrogen and fuel cells can play in the

long run to achieving viable, sustainable energy systems for Western Europe. The HLG

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was created in 2002 by the Vice President of the EC responsible for energy and transport,

and the Research Commissioner. It consists of representatives from some of Europe's

leading energy, automobile, and research institutions, i.e., “stakeholders.” The report

suggests that traditional fossil fuels and nuclear power can be used to produce hydrogen

energy, along with renewable energy sources, though with carbon sequestration in the

case of the former feedstocks.

The report recommends the creation of a European Hydrogen and Fuel Cell

Technology Partnership, to be steered by an Advisory Council. An important local

hydrogen partnership was established in London in 2002. It also suggests drafting of a

Strategic Research Agenda and a Roadmap to define research priorities, for planning, to

set technical targets, and to outline pathways for the development of European hydrogen

and fuel-cell technologies. The driving forces behind these recommendations are both to

secure a sustainable energy future (and to not contribute to global climate change). In

addition the initiative is designed to secure diverse energy sources and avoid over-

reliance on Middle Eastern oil imports.

The draft EC report suggested that fuel cells are intrinsically cleaner and more

efficient that conventional energy converters. The main problem with this is the focus on

the cleanliness of the energy carrier instead of the cleanliness of the fuel used to make

that carrier. Several existing hydrogen and fuel cell initiatives in EU member states were

highlighted, such as the testing of 30 Mercedes-Benz, fuel-cell busses since 2003 in 10

major European cities. These cities include London, Hamburg, Madrid, Barcelona and

Stockholm. In addition, the report also calls for the establishment of several “centers of

excellence” for critical research, to develop rules on intellectual property rights, etc. The

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government financial support anticipated for hydrogen and fuel-cell development in the

EC would be boosted to $2 billion over four years, as compared to US DOE support of

$1.7 billion over 5 years. The report ends with a call for strong public subsidy, since at

the present time the hydrogen/fuel-cell conversion cannot compete with conventional fuel

combustion technologies.

The lack of stronger renewable-based hydrogen policies in Europe is surprising,

given the strong commitment to wind and (to a lesser extent) solar energy production in

Germany, Spain and Denmark. There are also major hydrogen and renewable energy

initiatives in the UK, though these are at an early stage. Finally, several of the initial

hydrogen energy fueling stations in Western Europe are based on renewable energy

sources for the hydrogen, such as hydroelectricity, geothermal, solar photovoltaic and

wind power (Solomon 2004).

DaimlerChrysler is expanding its on-road fleet to 20–37 FCVs in 2004 in the US

and another 60–70 in Europe and East Asia. These vehicles include cars, city busses, and

a sprinter van based on compressed-gaseous hydrogen converted from methanol. The

automaker already has spent $1 billion to develop and demonstrate successive

generations of its New Electric Car (NECAR), first introduced in 1994, and plans to

spend $1 billion more over the next 5–10 years. The NECAR-5 completed a cross-

country journey to Washington, DC in 2002. DaimlerChrysler initially had hoped to

produce and sell 100,000 of these vehicles by 2010 although 2015–25 is now more

realistic (Ahman 2004).

United States

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 The larger exporting automobile manufacturers saw the future BPEV market in

California as both strategically and economically important. Toyota, Nissan and Honda

were all affected by the Californian ZEV mandate and now entered the BPEV

development race more seriously than before and began investing heavily in BPEV

technology. Seizing an opportunity for leadership on new energy and automotive

technology, however, several state governments have developed their own hydrogen

energy programs. Chief among these are California, Michigan, Ohio and Hawaii.

The California Fuel Cell Partnership, based in Sacramento, is a public-private

venture that began in April 1999 and includes auto manufacturers, energy providers, fuel-

cell companies, and State and Federal government agencies. Its goals are to demonstrate

hydrogen FCV technology and alternative fuel infrastructure and fueling stations, explore

the path to commercialization and increase public awareness. The Fuel Cell Partnership

was stimulated in part by the California Air Resources Board's original mandate that 10%

of new cars sold in the State by 2003 were to be Zero Emission Vehicles. This deadline

has since been modified and delayed because of three lawsuits filed by GM,

DaimlerChrysler and Isuzu. Nevertheless, thus far California can point to several public

demonstrations of hydrogen vehicles and by far the most hydrogen fueling stations in the

US. The California Partnership plans to place up to 300 fuel-cell cars and busses in fleets

over the next few years, especially in the Los Angeles and San Francisco-Sacramento

metro regions (Banerjee 2004).

The State of Michigan’s program is called the “NextEnergy” plan, in April 2002.

Michigan's effort is similar to that of California, and includes a NextEnergy Zone in

Detroit designated as a Renaissance Zone (a tax-free area that could result in tax rebates

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based on job creation) in the hopes of luring cutting-edge, hydrogen R&D companies

from around the world. Further tax breaks would be available to individuals and

institutions that purchase the hydrogen-energy technologies created in the State. This

program is expected to cost $50 million over 3–5 years. The Michigan announcement

was followed by a competing $100 million, three year hydrogen fuel cell initiative in

Ohio (Bodipo-Memba, 2002). A smaller program was established in 2000 in Hawaii

(Dunn, 2001). While the goal of Hawaii's program is to develop hydrogen fuel for use in

the State and for export based on solar, wind and geothermal energies and perhaps

methane hydrates, the Michigan and Ohio programs will more likely be based on fossil

fuels.

GM plans to mass produce a fuel-cell car called the AUTOnomy with a range of

200 miles. Since this prototype vehicle will have few parts its production cost is expected

to be low. GM's initial goal was to sell 1 million, affordable AUTOnomy's worldwide by

2010, although again 2015–25 is more realistic. GM is working with Dow Chemical Co.

to demonstrate and reduce the cost of its fuel-cell technology at Dow's Freeport chemical

plant in Texas. The third major US carmaker, Ford, plans to test 30 hybridized fuel-cell

cars (specifically an option on its Ford Focus) in Sacramento, Detroit and Orlando in late

2004. BP and Ballard are supporting this initiative. Embedded in these market plans are

alternate assumptions about the need for and cost of a hydrogen fuel delivery

infrastructure vs. small steam gas or methane reformers, or electrolyzers at local fueling

stations. As of today, however, hydrogen cars are far from affordable and far from a cost-

effective option to lower air pollution, greenhouse gases, or to improve energy security

(Solomon 2004).

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Michigan

The high-tech sector is large in total in Michigan, with almost a quarter of a

million workers in 2004–05. Over half of them are in industrial high tech, many

associated with advanced manufacturing in the auto industry. Michigan is one of the

national leaders in industrial high tech (Appendix II: Figure 1). The sector grew very

rapidly during the 1990s, but has turned down with the rest of the economy since 2000. A

similar analysis of U.S. Patent Office information on patents received by state found that

Michigan ranked in sixth position with 17,603 patents received during the five-year

period 1997-2001 (Appendix II: Figure 2).

One industry trade publication in mid-90’s, located 74 of 81 known U.S.

automotive supplier R&D facilities in Michigan. The Michigan facilities accounted for all

but 270 of the 11,966 (98%) jobs listed in these 81 supplier R&D facilities. Michigan had

all 23 of the listed foreign-owned supplier facilities. These new foreign supplier facilities

have all been built in the last seven years and now employ over 2,100. In recent years, the

state has also seen the startup of new vehicle producer R&D facilities by such companies

as Nissan, Mazda, Toyota and Saturn. In addition to R&D from the traditional automotive

companies, Michigan houses over 215 automotive research centers. For example, the

Michigan Technology Tri-Corridor, focuses on R&D and commercialization in the fields

of life sciences, advanced automotive technology, and homeland security (Duderstadt

2004).

Michigan’s advantage in industrial high-tech reflects the fact that it is the

“capital” of the U.S. auto industry. Because the Big Three are headquartered in Michigan,

their research, engineering, and design functions are also centered here. In addition, many

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overseas auto producers have located their U.S. tech centers in Michigan, and are

currently expanding these operations. This results in a massive investment in technology

resources in Michigan and the creation of a large technology-related employment base

(Fulton, Grimes 2006).

The TTC in Ann Arbor, MI contains 106 acres of land and 559,000 sq. ft. of floor

space. The TTC facilities include an Engineering Design building, an Evaluation building,

an Administration building, an Emission & Engine Tuning Lab, a Prototype Lab, and a

Check Road. The Ann Arbor facilities employ 583 workers, by far the majority of

Toyotas North America R&D 728 employees.

The Toyota Tech Center (TTC), conducts automotive R&D work in technical

support for procurement of parts for local production, evaluations of parts, evaluation of

vehicles, styling, general design, emissions certification and technical research. TTC is

also playing an increasingly important role in the design-engineering and development of

Toyota products, particularly those developed for the North American market. Major

vehicle developments include:

ƒ 1994 Camry Coupe Launched

ƒ 1995 Avalon Launched
ƒ 1997 Camry Sedan Launched
ƒ 2000 Avalon Launched
ƒ 2002 Camry Sedan Launched
ƒ 2004 Sienna Launched
ƒ 2004 Solara Launched

The company's mission for the future is to continue to support Toyota's reputation

for excellence by developing automotive parts and materials that represent the best in

quality, cost, function and timing. In addition, TTC strives to contribute to the quality-of-

life and economic growth of the communities it serves, and to promote stable

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employment and the well-being of its employees. In mid-2005 Toyota announced it had

signed a purchase agreement with the State of Michigan for property being offered by the

State of Michigan. The approximately 690 parcel of land owned by the State of Michigan

is located at the North West corner of US 23 and Willis Road in York Township,

Michigan. TTC plans to expand its research and development operations to complement

Toyota's increased localization and growth of manufacturing and sales in North America.

TTC's current 106 acre Ann Arbor campus has limited space for future growth.

Dr. Akihiko Saito, Executive Vice President, Toyota Motor Corporation said of

the new aquisition:

We think the York Township property is large enough to give us the assurance of
being able to plan for TTC's short term as well as long term growth," said. "The
North American growth in sales opened the door for Toyota to establish our
manufacturing operations which in turn supported the localization of our R&D
presence. The York Township property will provide adequate space to conduct
our engineering and research for Toyota's core North American vehicle
development programs (toyota.com).

The purchase agreement allows TTC to move forward with due diligence activities and

obtain various approvals, which include zoning changes and site plan approval by York

Township. The first development phase is targeted for a capital investment of $150

million and will add 400 new jobs by 2010. In addition, "The State of Michigan has been

very active throughout this process and we appreciate the strong support. We believe

Michigan is the optimum place for Toyota to expand its home base for North American

engineering, development and research operations," said Mr. Yasuhiko Ichihashi,

President of Toyota Technical Center, USA Inc. (toyota.com).

Honda has one office in Michigan called the Honda R&D Americas. The HRA

Detroit office is located in Southfield Michigan, a suburb Northwest of Detroit. The

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overall purpose of the Automobile Technology Research (ATR) Group is performing

research that will help us better meet the future needs of Honda's customers. They are

investigating two main areas: the first is precompetitive cooperative research with other

Automakers, the US Government and Universities on advanced automotive safety, the

second is identifying and researching future technology areas (honda.com).

In addition, the Nissan Technical Center North America, Inc. is in Farmington

Hills, MI with 250 employees in technical support for procurement of parts for local

production, evaluations of parts, evaluation of vehicles, styling and general design, parts

design vehicle design and prototype production (nissan.com).Isuzu Motors America, Inc.

has an office in Detroit that employs around 100 individuals in technical support for

procurement of parts for local production, evaluations of parts, and evaluation of vehicles

(isuzu.com).

Two of Mazda North American Operations Inc. are situated in Flat Rock, MI and

Ann Arbor, MI employing 63 individuals in positions regarding technical support for

procurement of parts for local production, evaluations of parts, evaluation of vehicles,

styling and general design, parts design vehicle design and prototype production.

Mitsubishi Motors R&D of America, Inc. has an operation in Ann Arbor, MI. The facility

support roughly 50 jobs and these jobs are in technical support for procurement of parts

for local production, evaluations of parts, evaluation of vehicles, styling and general

design, parts design vehicle design and prototype production (mazda.com).

GM Research is housed in a 10-building complex at the General Motors

Technical Center, located in southeast Michigan. The center was first opened in the early

1950s and is currently undergoing a major renovation that includes a world-class

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computer network, state-of-the-art engineering facilities, and a new climatic wind tunnel.

The R&D Center also is the home of the GM Library and Information Centers, which

access global databases and library holdings around the world. The Research staff of 650

reflects GM global emphasis. The R&D Center draws on talent from around the world.

More than 50 percent of the staff are professional researchers, and more than 85 percent

of those have PhDs. Not surprisingly, the Big 10 universities are well-represented among

the staff, but so are the Massachusetts Institute of Technology, the University of

California at Berkeley, and the universities of England. Fields of study also run the gamut,

from Electrical Engineering to Chemistry to Engineering Mechanics.

Ford Motor Company's Scientific Research Laboratory, in Dearborn, MI has been

in operation since 1951. The lab has made significant contributions to the auto industry

and society, developing cleaner, safer and more fuel-efficient vehicles. This research will

continue under the leadership of Dr. Gerhard Schmidt, who assumed the position of vice

president-Research at Ford Motor Company in 2001. He joined Ford from BMW AG,

where he led powertrain development. Schmidt leads a team of more than 1,000 scientists,

engineers and technicians from over 50 countries whose collaborative work is a model

for diversity.

The motor-vehicle industry’s high level of R&D spending naturally influences

Michigan’s position in a similar ranking of states. Michigan ranked second among the

fifty states in total private spending on R&D at $17.7 billion in 1999 (Appendix: II Figure

3). The Office for the Study of Automotive Transportation, (now CAR) conducted a

special survey (fall of 1999) of the three largest motorvehicle-manufacturing firms in the

United States (General Motors, Ford, and DaimlerChrysler) to directly tabulate their

21
high-tech employment. The three automotive firms were asked to provide their year-end,

1998, U.S. and Michigan employment in the list of technology-oriented occupations.

Technology-oriented U.S. employment for the three firms totaled 47,548 in 1998. The

Big Three employed 37,489 of these employees in Michigan. In other words, almost 79

percent of Big Three, U.S., technology-oriented employees were working in the State of

Michigan in 1998. Furthermore, the results show that about 16 percent of the three

companies’ employment in Michigan falls into the high-tech category compared with

only 4 percent of their employment in the other 49 states (Appendix II: Figures 4 & 5).

Many experts believe that Michigan continues to hold a number of advantages as

a predominant site for automotive R&D. These include the presence of the Big Three

product development operations and the National Emissions Testing Laboratory of the

Environmental Protection Agency (EPA) in Ann Arbor. More importantly, perhaps, is the

fact that southeast Michigan contains the largest known concentration of experienced

automotive engineering talent (and active members of the Society of Automotive

Engineers) in the world. Automotive engineers, it is believed, are almost exclusively

trained within motor vehicle firms and a handful of large suppliers. This critical source of

automotive R&D labor actually attracts new automotive R&D operations to the state. For

example, Nissan's Director of North American R&D was quoted in Automotive News as

saying that, "Michigan is a logical choice. . .it is fashionable to have studios in California,

but future product development is moving to Detroit" (Feinstein 2000).

This is a reality which, of course, only reinforces the decision of many automotive

engineers to remain in Michigan, in close proximity to the largest and most active labor

market, for their services. The state's university system has reinforced this concentration

22
to some extent by maintaining a number of automotive R&D programs in their

engineering and institute programs alongside graduating the third most engineering

students in the country (Appendix II: Figure 6). In addition, because of the growing

interdependence between the auto manufacturers and their supplier firms many suppliers

have located their technology-intensive operations in Michigan. In other words,

Michigan’s automotive industry is far more technology intensive than the U.S.

automotive industry in general and this is reflected in Michigan being the number one

state in industrial R&D intensity (Feinstein 2000). Overall, Michigan is the number one

state for vehicle-related R&D activity, spending $10.3 billion annually and employing

over 65,000 professionals statewide (Appendix II: Figure 7).

California

Automotive companies, both U.S. and non- U.S., have chosen the Los Angeles

Metropolitan Area and other parts of Southern California as the place to put design

studios. There are 13 such studios in Southern California, seven being Japanese, three

being American, and the other three being Swedish, German, and South Korean (Manuel,

Dalton 1994). Calty Design Research, Inc. was the first major R&D institution

established by a foreign auto firm in the US.

The Calty Design Research, Inc. in Newport Beach, California contains 8.4 acres

of land and 72,500 sq. ft. of floor space. Included in these facilities is an Emission Lab &

Engine Tuning Lab, a Fuel Cell Partnership Lab, and a Satellite Research Laboratory.

These facilities employs 107 of Toyotas 728 automotive R&D workers in the US. In

addition, the lead involvement by Toyota’s US.-based Calty Research Design in the

23
exterior design of the Lexus/Soarer Coupe began a general movement toward higher-

value-added activities in the US automotive industry by Toyota.

Honda Performance Development (HPD) located in Mountview, California

engages in technical support for procurement of parts for local production, evaluations of

parts, evaluation of vehicles, styling and general design, parts design, vehicle design and

prototype production occur at these facilities. The facility is located 30 miles north of Los

Angeles, HPD, a subsidiary of American Honda Motor Co., Inc., is the technical

operations center for Honda's North American motorsports engine programs. Currently,

HPD is focused on American Honda's participation in the IRL IndyCar Series and the

R&D of the Honda Indy V8 racing engine. Established in April of 1993, HPD currently

operates out of a recently renovated 123,000-square-foot building in Santa Clarita. This

two-story structure houses comprehensive engine design, engineering development,

preparation, rebuilding and inspection areas, transit-style dynamometer test cells,

machine shop, parts center and administrative support facilities.

In addition, Honda has an Honda R&D Americas facility in Los Angeles. The Los

Angeles Center has the responsibility of envisioning the products customers will want

tomorrow. The focus is on product planning, market research, styling design and

engineering research. In addition, the LA associates strive to balance the needs of the

individual with environmental and safety concerns. The Los Angeles Center has evolved

from an emphasis on concept cars to the design of mass production vehicles

manufactured at Honda's production facilities in the U.S. and Canada.

The Honda Proving Center California is within two hours of Los Angeles

International Airport, Honda R&D Americas Inc. in LA, and American Honda Motor

24
Company, Inc. in Torrance. This site offers a unique variety of environments for vehicle

evaluation including on-site paved test courses modeled after common North American

public roads.

One of Nissan Design International, Inc’s facilities is located in San Diego and

has 50 employees for designing only. In addition, Isuzu Motors America, Inc. in Los

Angeles combined 192 employees including technical support for procurement of parts

for local production, evaluations of parts, and evaluation of vehicles (isuzu.com).

Mazda North American Operations Inc. is situated in Irvine, CA; employing 40

individuals in positions regarding technical support for procurement of parts for local

production, evaluations of parts, evaluation of vehicles, styling and general design, parts

design vehicle design and prototype production. Mitsubishi Motors R&D of America, Inc.

has an operation in Cypress, CA. The facility supports 63 jobs and these jobs are in

technical support for procurement of parts for local production, evaluations of parts,

evaluation of vehicles, styling and general design, parts design vehicle design and

prototype production (mazda.com).

The DaimlerChrysler Research, Engineering and Design North America Inc.

(DCREDNA) has three locations along the northern West Coast of the United States,

each with a unique strategic mission closely linked to the business communities of those

areas. DCREDNA in Palo Alto, in Silicon Valley, is the headquarters of DCREDNA. Its

mission is to build on the innovative scientific community, technology and business

environment of Silicon Valley to have a positive impact on DaimlerChrysler products,

services and processes. DCREDNA is a member of The California Fuel Cell Partnership,

in West Sacramento, CA. The DCREDNA Sacramento serves as a testing ground to

25
advance fuel cell technology in DaimlerChrysler vehicles, both in North America and

worldwide.

California is very competitive in most high-tech related areas and the automotive

industry is one of them. Over all, California ranks first in R&D spending, first in the

number of high-tech jobs, first in producing engineering students and second in

automotive R&D spending. Many of these high numbers can be attributed to the sheer

sizes of California’s population but other factors must also be considered. For example,

California succeeded in the high-tech sector even with an unfavorable tax regime. In

addition, favorable government policies are in place towards education and research.

California’s largest strength lies in its forward looking policies. California has

been the nation trend setter for eco-friendly products and the automotive industry is no

exception. The example of the hydrogen car is just one instance of California pushing the

envelope in research initiatives. By setting standards for vehicle quality and emissions,

California is placing itself at the forefront for increased R&D investment. In addition, the

size of the California market is considerable and foreign companies need to be able to

respond to trends in the industry by establishing R&D centers within the state.

Part II Policy Review

Introduction

Advanced automotive research and development policy is not very well

articulated in the United States because it is a sub segment of an industry that has

remained largely self-governed over its history. There are few policies that directly target

this industrial segment and therefore few regulations. Nevertheless, policies do exist in

both Michigan and California that target business growth in general and these policies

26
and regulations do have an indirect impact on the current and future strength of the

industry in both states.

Current Policies and Regulations: Michigan

The advanced automotive industry in Michigan is a thriving sector in our state’s

economy. Over $10.3 billion automotive R&D dollars are spent annually in Michigan

employing over 60,000 professionals across the public and private sector. In this

environment of economic success, the State of Michigan has chosen to implement very

few policies and virtually no regulatory requirements on the sector. Outside of basic

labor and environmental regulations that are applied across all sectors, the advanced

automotive work done in Michigan is completed without state supervision.

Still, encouraging the proliferation of advanced automotive companies is one of

the cornerstones to Governor Jennifer Granholm’s economic development strategy. In

August of 2004, the Governor unveiled the Michigan Automotive Industry Economic

Development Strategy. While the plan has seven points, it can really be boiled down to

two main action items: (1) to bring new business to Michigan from other states or

countries, and (2) to help companies already in Michigan develop successful business

models (MEDC – AA Business Strategy).

Governor Granholm never missed an opportunity to remind voters in the fall of

2006 that she would go anywhere and do anything to bring jobs to Michigan. Among her

trips were fruitful missions to Japan and Germany that produced advanced automotive

plants from companies such as Toyota and Daimler-Chrysler. The Governor has been

successful in attracting investment in automotive R&D to this state partially through

specifically tailored tax incentive programs and partially through the Small Business

27
Innovative Research (SBIR) /Small Business Technology Transfer (STTR) funds, which

were made available through the 21st Century Jobs Fund. Unfortunately, these funds

have been exhausted and no new grants are being issued at this time (SBA).

The 21st Century Jobs Fund has been specifically tailored to only a handful of

Michigan industries, advanced automotive being one of them. In 2006, 26 advanced

automotive proposals were funded for a total of $37.3 million of investment by the

Michigan Strategic Economic Investment and Commercialization Board. Of the four

Michigan industries the SEIC targeted, none had more projects funded and only one, life

sciences, had more money invested in it. The SEIC is scheduled to award $75 million in

new investment annually through 2015.

Ann Arbor’s Spark, the administrator of the Ann Arbor Smartzone, has created

their own statewide pre-seed capital fund with $8 million leveraged from the 21st Century

Jobs Fund. This fund may be used to invest in companies in the life sciences, homeland

security, alternative energy, as well as the advanced automotive industries. However, at

the time of this writing only three companies have received support from the fund, two of

which are in life sciences with the remaining in homeland security.

Current Policies and Regulations: California

California does not have any specific measures designed to retain or attract

companies in automotive research and development. However, the state has various

policies that promote the growth of business in general. Most recently, Governor Arnold

Schwarzenegger, veto of Senate Bill 815, which prevented the changing off the historic

workers' compensation reforms of 2004. By vetoing the bill the Governor also told small-

business owners that it is safe to expand their enterprises and hire more people by

28
preventing increases workers' compensation premiums that forced layoffs and business

closures. In addition, Californians in 2004 approved Propositions 57 and 58, ballot measures

that limit state spending and refinance the state’s debt. That same year the Legislature passed the

comprehensive workers’ compensation reform bill (SB 899), reducing employer costs by billions

of dollars.

Outside of the policy realm California has a multitude of reasons for investing

advanced automotive work in the state. California has easy accessible information on

starting and moving businesses to the state. The two most noticeable publications are the

Small Business Start-up Kit for California and the California Investment Guide: An

Overview of Advantages, Assistance, Taxes and Permits. These publications give a well

laid vision for creating a business in the state as well as moving a business to the state,

giving many reasons for doing so along the way. Regarding automotive research and

development California offers:

• Over 2.5 million students are enrolled in 250 colleges and universities.
• The nation’s highest concentration of engineers, scientists, mathematicians and
skilled technicians.
• Six of the top 20 engineering schools are in California.
• California workers on average perform at 15% greater productivity than the
national average (according to Alan Greenspan).
• In 2004, California companies received more than $9.3 billion or 45 percent of all
venture capital dollars invested in the U.S.
• California offers a 15% R&D tax credit for in-house research and 24% for
contract research, the highest in the nation.
• California is the #1 state in the nation for attracting foreign direct investment,
reaching over $120 billion.
• California is globally connected with world-class infrastructure. More than 15,000
miles of highways and freeways carry over 1.3 billion tons of freight per year.
Twelve cargo airports carry more than 3 million tons of freight per year. Eleven
cargo seaports handle more than 7.7 million TEU’s (containers) and 60 million
metric tons per year of shipments, over 1/3 of the nation’s total waterborne cargo.
• Eighteen foreign trade zones (FTZ) allow tenants to delay or forgo import and
export duties on goods and raw materials until they enter U.S. commerce.

29
 • Twenty-nine freight railroads operate over nearly 6,000 miles carry over 6 million
carloads and 155 million tons of freight

The most import provision out of this list for advanced automotive is the research tax

credit. It was designed to encourage companies to increase their basic research and

development activities in California, the research and development tax credit allows

companies to receive a 15 percent credit against their bank and corporation tax liability

for qualified in-house research expenses, and a 24 percent credit for basic

research payments to outside organizations. Qualified research expenses generally

include wages, supplies and contract research costs. To qualify, research must be

conducted within California and include basic or applied research of scientific inquiry,

original investigation for the advancement of scientific or engineering knowledge or

improved effectiveness of commercial products.

In addition, California tax law allows businesses that experience a loss for the

year to carry this loss forward to the next year in order to offset income in the following

years. New businesses can carry over 100 percent of their losses for 10 years if the loss is

in their first year of operation, 100 percent over seven years if the loss is in their second

year of operation, and 100 percent over six years if the loss is in

their third year of operation. Existing California business can carry over 50 percent of

their losses for five years.

Future Policy Areas

Although the policy environment in Michigan and California regarding advanced

automotive is limited currently, in the future, with the development of new automotive

technologies, the states may choose to regulate the area further. Three technologies that

30
have shown promise in the testing phase are hydrogen vehicles, hydraulic hybrids, and

electric automobiles.

Hydrogen

Although they are still in development, hydrogen vehicles represent an attractive

option for reducing petroleum consumption and improving air quality. Hydrogen vehicles

are powered by fuel cells that produce no air pollutants and few greenhouse gases. If

fueled with pure hydrogen, fuel cells emit only heat and water as a byproduct.

Hydrogen fuel cell vehicles are not yet commercially available. However, they are

currently being demonstrated in light- and heavy-duty applications in fleets throughout

the country. For example, Honda has placed several prototype light-duty FCX fuel cell

vehicles city fleets, and California transit agencies are demonstrating fuel cell buses in

revenue service.

The U.S. Department of Energy (DOE) is dedicated to hydrogen vehicle research

and development. From using hydrogen in internal combustion engines to building a

nationwide network of hydrogen refueling stations, studies in all aspects of hydrogen

vehicles are being conducted by DOE's FreedomCAR and Vehicle Technologies and

Hydrogen, Fuel Cells, and Infrastructure Technologies (HFCIT) Programs.

In addition, the HFCIT Program developed the Controlled Hydrogen Fleet and

Infrastructure Demonstration and Validation Project, which conducts tests on the

performance of fuel cell vehicles and the supporting hydrogen infrastructure. Insights are

fed back into DOE's research and development program to guide and refocus future

studies.

Hydraulic Hybrids

31
 A hybrid hydraulic system uses an accumulator (which stores energy as highly

compressed nitrogen gas) and one or more hydraulic pump/motors rather than the battery

pack, electric generator/motor and power electronics used in electric hybrids.

Like their electric cousins, hydraulic hybrids can come in different configurations with

different benefits.

A milder form of hydraulic hybrid is termed Hydraulic Launch Assist (HLA).

With HLA, a reversible hydraulic pump/motor and accumulators are added to optimize

fuel economy, while keeping the vehicle’s conventional engine and transmission.

Regenerative braking captures the braking kinetic energy. Earlier EPA prototypes stored

and re-delivered about 80% of braking energy back to the wheels. The efficiency of this

regenerative braking makes a hybrid hydraulic design very attractive for vehicles

operating in stop-and-go conditions. Benefits of HLA include a 25%–45% improvement

in city fuel economy, with a concomitant reduction of emissions by 20%–30%; better

acceleration, less brake maintenance and reduced operating costs.

The diesel-hydraulic hybrid under development for UPS, though, is a full series

hybrid system that incorporates the new EPA Clean Diesel Combustion engine for further

emissions benefits. The CDC engine powers a hydraulic pump rather than a

generator/motor. A hydraulic drivetrain replaces the conventional drivetrain and

eliminates the need for a transmission. Regenerative braking captures additional energy

for the hydraulic system. Primary hydraulic components consist of two hydraulic

accumulator vessels, one engine hydraulic pump, and one integrated rear-drive hydraulic

pump-motor assembly

Electric

32
 A plug-in hybrid electric vehicle (PHEV) is a hybrid which has additional battery

capacity and the ability to be recharged from an external electrical outlet. In addition,

modifications are made to the vehicle's control software. The vehicle can be used for

short trips of moderate speed without needing the internal combustion engine (ICE)

component of the vehicle, thereby saving fuel costs. In this mode of operation the vehicle

operates as a pure battery electric vehicle with a weight penalty (the ICE). The long range

and additional power of the ICE power train is available when needed.

Given suitable infrastructure, PHEVs could also be recharged while the user

drives. The PHEV establishes contact with an electrified rail, plate or overhead wires on

the highway via an attached conducting wheel or other similar mechanism. The PHEV's

batteries are recharged by this process - on the highway - and can then be used normally

on other roads. This provides the advantage of virtually unrestricted highway range.

Since most destinations are within 100 km of a major highway, this reduces the need for

expensive battery systems.

The technology for such infrastructure is old and well established. Electricity and

infrastructure costs can be funded by toll revenue, gasoline taxes or other sources.

PHEVs are commonly called "grid-connected hybrids", "gas-optional hybrids" (GO-

HEVs), "full hybrids", and are sometimes called HEV-30 (for instance, to denote a hybrid

with a thirty-mile (50 km) electric range, compared to a HEV-0 (a non-plug-in hybrid).

However, Ford, GM, and Toyota have all used the term "Full Hybrid Technology" to

describe configurations that allow electric-only operation at low speeds (yet not PHEVs).

Two other PHEV names used by a major U.S. automotive supplier and in a 1999 SAE

paper are "energy hybrids" and "true hybrids". PHEVs can also operate in a mixed-mode

33
where both gas and external electricity are used simultaneously to increase gas mileage

for a particular range, usually at least double that of its electric-only range, but highly

dependent upon the stage length between rechargings.

Policy Recommendations

Advanced automotive in Michigan is an industry that has flourished despite the

state’s poor economic standing. This, we believe, speaks to the industry’s strengths and

therefore we recommend that advanced automotive by and large be left alone. It does not

need regulation, nor does need specifically tailored programs to encourage its growth.

However, more generalized strategies aimed at entrepreneurs of any type will be helpful

to this industry’s command of talent and resources in the face increased competition from

other subsidized industries in the State.

Among these recommendations are an increase in funding and support for

the SmartZones. Many of Michigan’s SmartZones have molded themselves into business

accelerators aimed at specific industries, advanced automotive being one of them. This

kind of support is necessary to keep the industry among the top in the state. Second, the

state can make more pre-seed capital available for fledgling small businesses in Michigan,

including advanced automotive firms. Last, one of the most important outcomes from

these policies is not just the strengthening of Michigan’s advanced automotive industry,

but the diversification of firms in that industry. Our continued reliance on the big three

auto companies is hurting this state economically, and in the long run a diversification of

firms is in our best interest.

34
Appendix I

35
Figure 2

ISO 9000

ISO 9000 is a series of quality management systems standards created by the

International Organization for Standardization (ISO), a federation of 132 national
standards bodies. The ISO 9000 quality management systems (QMS) standards are not
specific to products or services, but apply to the processes that create them. The standards
are generic in nature so that they can be used by manufacturing and service industries
anywhere in the world. First released in 1987 and revised in a limited manner in 1994,
they underwent a major overhaul in 2000.

The most important revised standard, ISO 9001:2000, uses a simple process-based
structure, which is more generic than the old 20-element structure of ISO 9001:1994, is
consistent with the plan-do-check improvement cycle used in the ISO 14000
environmental management systems standards, and adopts the process management
structure widely used in business today. ISO 9001:2000 addresses an organization’s
quality management system requirements, in order to demonstrate its capability to meet
customer requirements, and applies to all generic product categories, such as hardware,
software, processed materials and services.

ISO 9001:2000 registration gives the organization the benefit of an objectively evaluated
and enforced quality management system. It is a tangible expression of a firm’s
commitment to quality that is internationally understood and accepted. ISO 9001:2000
registration is carried out by registrars, accredited organizations that review the
organization’s quality manual and other documentation to ensure that they meet the
standard, and audit the firm’s processes to ensure that the quality management system
described in the documentation is in place and is effective.

QS-9000

QS-9000, released in 1994, is the ISO 9000 derivative for suppliers to the automotive Big
Three, DaimlerChrysler, Ford and General Motors. This quality management system
standard contains all of ISO 9001:1994, along with automotive sector-specific, and Big
Three and other Original Equipment Manufacturer (OEM) customer-specific
requirements.

QS-9000 applies to all internal and external suppliers who furnish parts or materials for
production or service, along with heat treating, painting, plating or other finishing
services, directly to the Big Three, embracing the latest technology and taking a
preventive approach to quality issues. A QS-9000 quality management system provides
for continual improvement, emphasizes defect prevention and reduces waste in the supply
chain.

General Motors and DaimlerChrysler require their production and service suppliers to
register to QS-9000, while Ford requires conformance to the standard.

36
Figure 3

Planning Design Production

Start Development
Concept Generation

Start Design

Prototypen
Prototype0

Pre-Pilot

Production
Pilot
Tests Tests
Project Selection

Design Activities: Manufacturing Activities:

Planning Activities: •Planning of manufacturing
• General product
•Blueprint generation
processes
development •Detailed component •Design of manufacturing
•Lead time specs processes
requirements •BOM generation •Selection of equipment
•Interface specs •Qualification of new
•Platform/ •Module level tests equipment
architecture •System level tests •Tooling
design specs •Materials planning
•Outsourcing •Packaging design
Decision
Purchasing Activities: •Floor layout
•Sourcing of unique parts •Quality control
•Qualification of suppliers •Test engineering

Functional Specs Detailed Engineering

Figure 4

Detail-Controlled Parts Detail-Controlled Parts

(functional) (body)

Vehicle Concept Vehicle Concept

Specification Specification
Prototype Parts
Layout Layout

Detail Design
Prototype Parts
Detail Design

Production
Process
Production Installation
Process Process

Complete Vehicle Component Component

Complete Vehicle

Assembler Production Production

Supplier Assembler
Supplier

37
Figure 5

Supplier Proprietary Parts Black-Box Parts

Component
Vehicle Concept Vehicle Concept
Concepts

Suggested
Alternatives

Component Type Specification

Specification
Layout
Layout

Detailed
Prototype Parts Vehicle Test Detailed
Approval Prototype Parts

Production Press
Production Press

Complete Vehicle Component

Complete Vehicle Component

Assembler Production Assembler Production

Supplier Supplier

38
 Appendix II

Figure 1

Figure 2

39
Figure 3

Figure 4

Figure 5

40
Figure 6

Figure 7

41
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