ESSAYS ON ISSUES THE FEDERAL RESERVE BANK OCTOBER 2011 OF CHICAGO NUMBER 291a

Chicag­o Fed Letter

Making cars smarter: The growing role of electronics in automobiles by Thomas H. Klier, senior economist, and James M. Rubenstein, professor, Miami University

Electronics make up nearly 40% of the content of today’s average new automobile, and their share will continue to grow. On June 2, 2011, as part of the eighteenth annual Automotive Outlook Symposium (AOS), the Chicago Fed hosted a panel of experts at its Detroit Branch to examine the current and future roles of electronics in motor vehicles.

Today an average new automobile in- consistent with other long-term trends cludes more than 40 electronic control- in motor vehicle production, whereas lers, five miles of wiring, and more than they noted the rising use of electronics 10 million lines of software code. Are in enabling connectivity in vehicles would cars becoming more like computers on likely cause substantial shifts in long- wheels? What factors are behind the in- standing industry practices. creasing use of electronics in automo- biles? And what should we expect in the Vehicle performance future? For example, will motor vehicles Most of the electronic content of motor drive themselves one day? A panel of vehicles supports their performance. auto industry experts at this year’s AOS1 Motor vehicles are made up of four prin- Panel presentations are explored these and related questions. cipal systems: powertrain (the engine available at www.chicagofed. This Chicago Fed Letter summarizes the pre- and transmission); chassis (the frame, including axles, wheels, and steering); org/webpages/events/2011/ sentations and discussion of the panelists, who were Thomas Kurfess, professor exterior (the body); and interior. For sev- automotive_outlook_ and BMW Chair of Manufacturing at eral decades, automakers have assembled symposium/index.cfm. Clemson University; James Buczkowski, these four systems with large integrated Henry Ford Technical Fellow and direc- modules or subsystems, which are sup- tor of electrical and electronics systems plied by independent parts manufactur- research and advanced engineering at ers. In each of these four systems, one can Ford Motor Company; Michael Smitka, observe that the role of electronics has professor of economics at Washington been growing. For example, electronic and Lee University; and Thomas Klier, parts have replaced mechanical levers senior economist at the Federal Reserve for adjusting seat positions in the interior. Bank of Chicago. More recently, electronics have begun to replace hydraulics in steering com- Functions supported by electronics ponents of the chassis. The panelists explained that vehicle per- Electronics have been especially impor- formance and connectivity are the two tant in improving two aspects of vehicle primary functions supported by the ­ performance: 1) refining the powertrain increasing use of electronics in automo- to reduce emissions and improve fuel biles. The panel members said they con- consumption and 2) refining the chassis, sidered the growing role of electronics exterior, and interior to improve vehicle in improving vehicle performance to be safety and comfort (see figure 1). Most of this growth in the use of electronics Association (CEA), 1. Performance-related automotive applications of electronics has been hidden from the driver’s view. which Buczkowski summarized. For ­ Category Examples The growing role of electronics in mak- example, the ability ing motor vehicle performance better has Passive safety restraints Multiple airbags to connect a digital Tensioning seat belts had little effect on the traditional rela- media player to the Sensors (e.g., measuring tire pressure) tionships between vehicle assemblers and car stereo was cited Active safety systems Electronic stability control parts suppliers.2 That is, the development by many consumers Adaptive cruise control of performance-related electronic parts Blind spot detection as one of their top and subsystems continues to follow the Lane departure detection wishes for in-car en- traditional industry model, with the auto- Drivetrain controls Multiple sensors linking engine tertainment. How-­ maker atop the supply pyramid, long lead and transmission ever, the top two in-­ Electrically activated turbocharging times prior to product launch, and vehi- car electronics items cle specifications that last about four Fuel efficiency Electronic steering that consumers said Rapid start/stop systems years. As electronics have become more they most wanted Source: Michael Smitka, 2011, “Vehicular electronics: Supplier issues,” presentation at prevalent, traditional suppliers of motor were not entertain- Automotive Outlook Symposium, Detroit, MI, June 2, available at www.chicagofed.org/ vehicle parts (e.g., producers of seats) digital_assets/others/events/2011/automotive_outlook_symposium/smitka_0602211.pdf. ment related: Top- have adapted to provide electronic capa- ping their wish lists bility in their products. were voice-activated wireless communi- the basis of their distinctive approaches Connectivity cations and a dashboard display of real- to connectivity. Ford Sync is designed In contrast to electronics’ increasing time local information. to differentiate Ford’s vehicles from the competition, said Buczkowski, espe- role in enhancing vehicle performance, In reaction to consumer surveys like the cially among younger buyers who ex- the greater use of electronics to provide one conducted by the CEA, automakers pect to continue mobile phone calls as more in-car connectivity is more likely have had to redesign the dashboard. The they enter their vehicles and search for to lead to fundamental changes in the radio is still there, but communications nearby restaurants online while driving. auto industry. Long gone are the days and information functions, including when the radio in the dashboard was the navigation, have taken up more of the The increasing use of electronics to meet only connection to the outside world dashboard’s space. Designing and inte- the rising demand for in-car connectiv- while driving. Portable electronic devices grating these connectivity functions have ity presents many difficult challenges that provide connectivity, like smart- been especially challenging for auto- for automakers beyond those of the ­ phones and tablet computers, have be- makers. Instead of going it alone, auto- initial design and integration of new dash- come nearly ubiquitous. So consumers makers have forged partnerships with boards. Consumer electronics evolve at have come to expect the ability to stay established players in consumer elec- a pace that is much faster than what is connected via wireless phone or Inter- tronics. For example, Ford has worked typical for automobiles: Consumer elec- net while driving safely and lawfully. Such with Microsoft to create a connectivity tronics companies introduce new versions expectations for in-car connectivity have system called Ford Sync.3 According to of their products every year or two, begun to shape the way automobiles are Buczkowski, 70% of Ford vehicles sold whereas auto manufacturers make major being used, designed, and marketed. in 2011 were equipped with Sync. changes in their vehicles only once every four to six years. Furthermore, despite Until recently, entertainment was the Four principles underlie Ford’s con- the fact that most of the connectivity principal purpose of in-car electronics. nectivity strategy, Buczkowski explained. hardware and software applications re- Kurfess reviewed the history of in-car First, Ford has decided to leverage ex- side in the vehicle’s dashboard, they entertainment. Galvin Manufacturing isting technology standards and formats tend to originate from a group of sup- Corp., which became today’s Motorola, rather than invent unique electronics pliers outside the traditional realm of introduced a fitted car radio in the 1930s. systems for its vehicles. Second, the automotive parts manufacturers. Con- Blaupunkt first offered FM receivers for company will “ride along” with tech- sequently, automakers need not only ­ cars in 1952. The 8-track tape player nology changes, such as the switch from to fundamentally restructure their in- was introduced as an option for in-car 3G to 4G mobile phone technology. ternal electronics capabilities, but also entertainment in 1965, followed by the Third, Ford will provide consumers to interact with electronic hardware and cassette player in the 1970s, the com- with a wide range of options so that software companies that change their pact disk player in the 1990s, the DVD they can express their preferences— products at a much faster rate than player in 2002, and the MP3 player such as the ability to reconfigure and auto companies are used to. and satellite radio in 2003. personalize displays. Fourth, Ford’s in- Entertainment continues to be one of car connectivity must operate seam- Given the disparity in product cycles the main reasons why people want tech- lessly with the consumer’s home, office, for motor vehicles versus consumer nology in their vehicles, according to a and portable electronics. Automakers electronics, automakers will likely need survey by the Consumer Electronics ­ increasingly market their vehicles on to make some difficult adjustments in their approach to production. Chief turns out to be the most important factor electronics in vehicles is being driven among them should be to build greater behind the increased use of electronics by consumer demand, rather than gov- flexibility into their vehicles’ consumer in automobiles. This trend started with ernment regulation. In fact, regulation electronics interfaces so that consumers the Clean Air Act, which was first passed may be complicating the ability of auto- can swap in successive generations of in 1963 and then significantly amended makers and their suppliers to increase electronic devices. Achieving flexibility in 1970. Motivated by the recurrent smog in-car connectivity with electronics. For in the consumer electronics interfaces experienced in the Los Angeles basin, example, the rapid expansion of in-car will address not only the disparity in legislators, through the act, prescribed connectivity has raised a number of safety product cycles, but also the fact that that cars be equipped with catalytic concerns. Thus, the National Highway consumers typically keep their cars for converters to control their emission ­ Traffic and Safety Administration con- siders driver distraction from in-car elec- tronics to be a key policy issue.5 While Vehicle performance and connectivity are the two primary consumer demand for in-car connec- functions supported by the increasing use of electronics in tivity is likely to grow, the auto industry may have to clear new regulatory hurdles automobiles. to meet this demand.

What is ahead? much longer than their personal elec- of pollutants. Yet the three-stage catalytic tronics. Because of such factors, auto- converter necessary to control emissions In general, the panelists agreed that makers are now hard pressed to avoid to mandated levels required the oxygen the share of electronic content in vehi- obsolescence and to anticipate future level to be within a rather narrow range cles would continue to grow for some trends in personal electronics. in order for the vehicle’s exhaust con- time. For example, Kurfess said that trol to function well. Such precise cali- the number of processors in cars would At this time, it is unclear whose brands bration of the oxygen level could only double over the next five years. What will come to the fore in tomorrow’s auto- be achieved through the use of elec- will the additional electronic capability motive value chain. Competing with the tronic sensors. likely be used for? Current testing and auto assemblers (like Ford and Toyota) product trials suggest rather futuristic are the traditional suppliers (like Visteon A few years later, in 1973, vehicle safety applications—such as vehicle-to-vehicle and Renesas), as well as nonautomotive regulation required passive restraint communication that reduces the chance electronic hardware companies (like systems. By the mid-1980s, airbags had of collisions; advanced navigation systems Pioneer and Apple) and software com- become the safety technology of choice that adjust a car’s engine to features of panies (like Microsoft and QNX). In the to supplement seat belts.4 Today’s air- past, the branding power of the auto- bags include a number of sensors not makers triumphed over that of the parts only to assure fast and accurate deploy- Charles L. Evans, President ; Daniel G. Sullivan, Executive Vice President and Director of Research; makers. For example, Chevrolet, Chrysler, ment, but also to prevent unnecessary Spencer Krane, Senior Vice President and Economic and Ford remain popular brands to this deployment. Advisor ; David Marshall, Senior Vice President, financial day, whereas Delco radios, Bosch anti- markets group ; Daniel Aaronson, Vice President, Fuel efficiency regulation was put into microeconomic policy research; Jonas D. M. Fisher, lock brakes, and Hydramatic transmis- effect following the passage of the first Vice President, macroeconomic policy research; Richard sions have long since disappeared from Heckinger,Vice President, markets team; Anna L. law on corporate average fuel economy Paulson, Vice President, finance team; William A. Testa, most consumers’ minds. In the past, parts (CAFE) of new vehicles in 1975. What Vice President, regional programs, and Economics Editor ; makers’ products changed from novel, Helen O’D. Koshy and Han Y. Choi, Editors ; transpired after implementing this reg- branded technology to generic parts. ­ Rita Molloy and Julia Baker, Production Editors ; ulation represents another example of Sheila A. Mangler, Editorial Assistant. It is too early to tell if in-car consumer how the standards required by law could Chicago Fed Letter is published by the Economic electronics will share the same fate. For ultimately only be met by using electron- Research Department of the Federal Reserve Bank example, if consumer electronics brands of Chicago. The views expressed are the authors’ ics. Automakers employed technology and do not necessarily reflect the views of the remain prominent inside an automobile, such as fuel injectors and electronic Federal Reserve Bank of Chicago or the Federal ultimate control of automotive branding Reserve System. engine control units to achieve CAFE and marketing may change from auto- © 2011 Federal Reserve Bank of Chicago ­ standards. The use of these types of makers to consumer electronics firms. Chicago Fed Letter articles may be reproduced in technology was possible because of the whole or in part, provided the articles are not ­ In the future, we may even see advertise- progress made in electronics—e.g., the reproduced or distributed for commercial gain ments for an “iCar.” and provided the source is appropriately credited. development of early integrated circuits, Prior written permission must be obtained for as well as solid-state sensors (sensors any other reproduction, distribution, republica- What drives the growth of vehicle tion, or creation of derivative works of Chicago Fed electronics? without any moving parts). Letter articles. To request permission, please contact Helen Koshy, senior editor, at 312-322-5830 or Smitka recapped the origins of perfor- In contrast to the increasing use of per- email [email protected]. Chicago Fed mance-related electronics in motor ve- formance-related electronics, the cur- Letter and other Bank publications are available at www.chicagofed.org. hicles, which go back to 1970. Regulation rent expansion of connectivity-related ­ ISSN 0895-0164 the terrain according to information on companies to complement their identi- 1 The rest of the AOS is summarized in the route traveled; and systems that find ties as engineering and design firms? William A. Strauss and Norman Wang, and reserve parking, as well as place And by accepting the strategic impor- 2011, “Economy to keep cruising along ­ vehicles into tight parking spaces. Ulti- tance of electronics to automobiles, how in 2011 and 2012,” Chicago Fed Letter, Federal Reserve Bank of Chicago, No. 289a, mately, cars may drive themselves (one can automakers most effectively inte- August. possible application of this capability grate electronic capabilities into their 2 Since 1980, the share of a vehicle’s con- would be “platooning,” where self-­ organizations? These are just some of tent that is provided by independent parts driving vehicles travel in tightly spaced the tough questions automakers will suppliers has grown substantially, but not groups on highways).6 The importance have to answer in the coming years. because of the increased use of electronics. of such applications will rise as traffic con- See Thomas Klier and James Rubenstein, In addition, the growing presence of gestion and urbanization increase in both 2008, Who Really Made Your Car? Restructuring electronics in vehicles will likely lead ­ developed and developing economies. and Geographic Change in the Auto Industry, to changes in the automotive supply Kalamazoo, MI: W. E. Upjohn Institute for While such applications offer a large chain—in particular, the auto assemblers’ Employment Research. potential for automakers to differentiate well-established relationships with their 3 The system’s full name is SYNC powered by their products from the competition, independent parts suppliers. Automakers Microsoft. Sync is part of Ford’s electronic the rising use of electronics in vehicles have already started to interact directly interface called MyFord Touch. also presents a set of organizational and with computer hardware and software 4 In the United States, airbags did not become management challenges for them. For providers, circumventing their traditional mandatory until the late 1990s. example, what best represents the core parts supplier networks. The growing 5 See www.distraction.gov. competency of vehicle producers when role of electronics in automobiles will 6 See also John Markoff, 2011, “Google some of their automobiles’ key features ultimately require lots of complex inno- lobbies Nevada to allow self-driving cars,” are defined by electronics? Will it con- vation, which in turn will lead to the New York Times, May 10, available at development of new skill sets for both www.nytimes.com/2011/05/11/science/­ tinue to be mainly mechanical engi- 11drive.html. neering? Or should automakers strive automakers and independent parts sup- to define themselves as technology pliers, as well as more partnerships with consumer electronics manufacturers.