THEY ARE chiefs at opposing ends of missions. Peter Pestillo, 63, is CEO of Visteon Corp., the world's second-largest supplier of original-equipment auto parts. Robert Oswald is CEO of Robert Bosch Corp., the US arm of the world's third-largest supplier, Germany's Robert Bosch GmbH. Last autumn, Pestillo took over Visteon after a long career at Ford Motor Co. Ford has since turned Visteon into an independent company. Oswald, 59, a former Ford manager, will retire at the end of the year.
In a joint interview, the executives shared their views of a turbulent industry on the cusp of still more change. Among the catalysts: automakers' nascent trade exchange, Covisint; the Internet, which is expected to spur more consolidation; and advances in technology, which promise to bring new safety features to vehicles.
Oswald and Pestillo were interviewed July 20 by Automotive News Europe Publisher Keith Crain, Executive Editor Peter Brown and David Versical, managing editor of Automotive News in the USA. Edited excerpts follow: What type of price pressures are you getting from your customers?
Pestillo: The same old price pressure. It will always be that way. We are driven to be more efficient. There's relentless pressure to keep auto prices stable. What is driving this industry is a 22 million unit overhang of excess capacity. People are clamoring for share. You get tremendous discounting going on, which is to some extent a discomfort.
Is there pressure on suppliers to explore modularity in North America?
Oswald: You see more difference by manufacturer than by region. There is a lot of demand here. The demand is not so much, 'Tell us what you're going to do with modules'; it's more, 'Tell us how we're going to run the business smarter.'
Pestillo: Those of us who deal in significantly integrated products are looking for the chance to sell modules. It's a real opportunity for the supplier community because it lets us play a larger role in the product, and it will, over time, make us more nearly partners with the manufacturers.
Will Visteon ever make a complete vehicle?
Pestillo: We get to play a key role, but I don't think we ever have to make vehicles as such. You might find more and more suppliers handling niche vehicles. I don't think you'll see any volume assembly out of the parts community.
How close will you come to moving your employees inside automakers' assembly plants?
Pestillo: I don't think you'll see that take place in the United States any time soon, because that becomes a union issue. But you'll see them at the plant gate. Not just warehousing on-site - it will be subassembly, completion, perhaps finishing out an instrument panel, the ultimate cockpit, things of that kind.
Will modularity be an unstoppable trend in the next 20 years?
Oswald: There are places where it fits and places where it doesn't. There is a tremendous difference across the OEs in terms of how they're feeling about system and module sourcing. All of them are involved at some level, some much more committed than others. We're going to see this grow more and more. The execution will be different as you go from the United States to Europe to Asia, and as you go from the personality of Volkswagen compared to Ford compared to GM.
What is the future of diesels in North America?
Pestillo: Diesels in America have only one shortcoming, and that's their name. Called by any other name, they will be prospering. We've taken emissions down, and still need to do more. We've taken noise out and put the performance in, and with tremendous fuel economy and greater durability. But for all the horror stories that have preceded it, and Americans' absolute disaffection with it, the diesel is a natural application.
Oswald: A lot of the history here relates back to the mid-1970s experience, which was such a catastrophe. Both the public as well as a lot of the executives in the car companies still have deep and painful memories of that. But if you flash forward to today, the technical performance of the diesel - all of those problems you used to talk about - they are just plain gone.
If we are serious in this country about going after the higher fuel economy, the diesel will have to come in. But if we do not get some kind of sensibility into the emission regulations, the diesel can't make it.
We are making investments in new diesel technology in North America, and we're making that investment with the expectation that this whole scenario over the next three to four years is going to resolve itself in a sensible way. And that says there will be changes in some of these regulations.
Is the pressure to help your customers build a five-day or 15-day car a central issue in your management?
Oswald: Central and driving, no. It's very clearly there, but the drive is more one of how do we take inventory out of our system, and how do we reduce the costs, as opposed to reacting to the shorter build-and-delivery cycle.
Pestillo: There's a clear desire for it. But one of the first ways to achieve it is for manufacturers to begin to restrict choice. Until that takes place, you won't see the 15-day car. That's the constant clamor between the manufacturing guys and the sales guys in every corporation that builds them to say, 'Well, I still need 14 colors.' To the extent to which you need 14 colors, you don't get the 15 days.
Does the consumer really want it?
Pestillo: He'd like it. Does he need it? No.
What are the three primary sponsors of Covisint telling you about what this new, someday-independent company is going to do for you?
Oswald: First, they're telling us that they set up Covisint with the input from a lot of the supply base, and that is correct. The fact that they listened to what the suppliers were saying was an extremely positive thing. The second thing that we're hearing is Covisint is going to be the effective and efficient way for us to handle both our supplier relationship and supply chain management. That, of course, is still to be proven by the actual performance. But they're fairly strong in their belief and their commitment to try to make that happen. The third thing is they're encouraging us very much to participate actively in the activities of Covisint.
In other words, if you want the business, you'll do it?
Oswald: No, it has not come to that. But on one side, they're selling very hard the capabilities of Covisint. On the other side, they're reminding us at every step how much money they are spending to set up the capabilities of Covisint and cautioning that if somebody is thinking about doing the same thing, they better be ready to spend a lot of money.
Does it feel like your arm is being twisted?
Oswald: It feels like a very good sales job.
Are you part of Covisint?
Oswald: At the present time we are not.
Pestillo: We are not yet a member, but I expect we will be.
What does being part of Covisint mean?
Oswald: To the extent that GM, Ford and DaimlerChrysler say, 'We are going to buy through this channel,' anyone that is selling to them will use Covisint. They have established a desire to say there is a different level of participation that suppliers may have. And they have offered a preferred relationship. But in order to achieve that status, you have to agree to a priority of usage of Covisint, compared to other exchanges.
Does that mean including your own purchasing?
Oswald: Very much including our own purchasing.
How will Internet communication affect the industry in the next five to 10 years?
Pestillo: It will accelerate consolidation. E-commerce is so fast and so faceless that it will cause failures at the bottom end. As those with the more near-commodities bid recklessly to stay open, they will fail. Those of us who are building more and more complete systems will have the obligation to take on their product as a way of assuring delivery of our system.
Which makes more sense for suppliers, acquisitions, or joint ventures?
Pestillo: Both. It's more complex running ventures, but it has two virtues: it costs less, and therefore you bet the farm less often. You'll see ventures maybe as a prelude to coming together, so you get to know the culture of the other company and go forward that way.
Is all the consolidation in the industry putting pressure on you to get bigger, too?
Oswald: Our compulsion is to get better and to get faster. If getting better means selectively getting bigger, yes, we will do that.
We are making acquisitions and we have very clear growth objectives, but growth by itself is not our target.
Are Ford's acquisitions and GM's affiliations affecting your purchasing relationships?
Oswald: Yes. There are two dynamics going on, even with Ford, which has an ownership model, and we are expecting the same thing with GM.
On one side, Ford is trying to allow the purchased entity to maintain the things that made them good. On the other side, they are trying to find synergies; there's more connection with what you're doing with the parent company. We've had to change our method of interfacing with these customers.
In the 1990s, many suppliers considered Chrysler the best company to do business with. Is this still the case?
Oswald: Basically, the Chrysler and Mercedes philosophies of relationships with suppliers have not changed since the merger. At the same time, they are trying to bring their systems together. If I compare how we are dealing with DaimlerChrysler in North America today with how we dealt with them four years ago, it is a bit more rigorous and more demanding system.
What is the future of telematics?
Pestillo: Telematics is growing about 5 percent a year. There are three iterations of telematics. One is enhanced audio. Two is safety. And the real opportunity is remote entry, immobilization, vehicle tracking, navigation and the ability to communicate trouble.
Then you go to enhanced e-mail. Intelligent vehicle highway systems are another application coming up associated with navigation. The key enabler is voice recognition, and that's where we think we have leadership.
We will participate in an effort that I think will take place in Detroit in the next couple of years on the intelligent vehicle highway, the better recognition of congestion.
Will automakers be able to self-regulate telematics, or will government step in?
Pestillo: Vehicles are just a perfect tool for regulation. There are very few manufacturers, so it's easy to go knock 1/8em on the head and get them to do things. There will be regulation of some kind. I say that because there always is. It's easy to do, and the industry always recovers from it.
What auto technologies will be heavily produced 10 years from now that aren't today?
Oswald: We will see fuel cells. We'll see some alternate-fuel types of things, but the dominant technology will continue to be gasoline and diesel engines. Within that, there will be a clear demand for substantially improved efficiency and cleanliness.
The second major area is safety. Starting with chassis systems - vehicle dynamic control - things that basically are using electronics to make the vehicle safer to use and at the same time more fun.
What will become standard 10 years from now?
Oswald: I would not be surprised to see electronic-stability technologies in the above-50-percent penetration. That also will lead to such things as brake-by-wire.
Electronics to service the user of the vehicle, both in terms of entertainment all the way through to safety, are what we're betting our future investments on, basically.
Pestillo: Enhanced engine performance. Hybrids are going to play a significant role for a period of time. One thing near-term that's going to take place is enhanced ride management. It is electronic transmission control, electronic ride control, active suspension and the like - not for performance, but for comfort, sorting out bumps, taking the gear-shift feel out of transmissions. Those are going to be distinctive characteristics of vehicles within five years.
You spent most of your career with Ford Motor Co., and now you're with a parts maker. How do you like not being a Ford guy anymore?
Pestillo: Detroit is very much like Hollywood. In Hollywood, the pecking order is film, television, music. Here, it is OE, supplier and vendor. I'm wondering if I have to move out of my neighborhood. It's a little different, but it's fun.
What can suppliers do to get back in favor with investors?
Pestillo: The obligation for most of us is to run the business. Those of us who try to run it and watch Wall Street at the same time generally fail at one or another or both.
Oswald: We're a private company, one of the few left now. During the last decade, this has been either a positive thing for us or a negative thing for us. Right now it's positive. But it goes in cycles.
Pestillo: In today's climate, I wouldn't be surprised to see an effort again to take some of these companies private, which makes some sense. Buy back stock. I think you'll see some of that.
What's your basic pitch to Wall Street?
Pestillo: We're an old-line manufacturing company that has some high-tech applications. The line I use with Wall Street is we each think the other is stupid, and that's their problem. They think we operate mindlessly, and we think they operate foolishly. Since we need each other, we find some harmony.