David E. Cole has worked in, studied, and invested in the auto industry for decades. At 76, he remains Michigan’s go-to expert in the state’s flagship industry. As the Big Three automakers have largely recovered from their near-death spiral of the Great Recession, Cole sat down with Bridge business correspondent Rick Haglund to talk about the future of the industry and how his “retirement” remains all about autos.
Cole is chairman emeritus of the Center for Automotive Research in Ann Arbor. He served as director of the former Office for the Study for Automotive Transportation at the University of Michigan. He has invested in several automotive technology start-up companies and was an engineering professor at U-M. His father, the late Edward Cole, was president of General Motors Co.
Bridge: You retired as chairman of the Center for Automotive Research a couple of years ago. But your retirement apparently didn’t take. What are you up to these days?
Cole: Several colleagues of mine and I have started AutoHarvest.org, which is sort of a nonprofit Amazon.com for intellectual property.
We’re creating knowledge in the auto industry at an incredible pace, but the implementation of knowledge is lagging. It’s been hard for people with a common interest in the industry to find each other.
We have a website and a social media tool that allows folks that may be looking to sell intellectual property to connect with buyers.
Bridge: So you’re sort of a Match.com for inventors and manufacturers in the auto industry?
Cole: We’re just getting people together who have a common interest. AutoHarvest is secure in that there’s no intellectual property detailed in the site, only a description. People can go into a secure space on the site and establish a meeting. We’re just getting cranked up in the beta stage with a small group of users.
Bridge: Haven’t the automakers been traditionally reluctant to buy new, untested technology from the outside? The 100-miles-per-gallon carburetor comes to mind.
Cole: The auto industry did a lot of its own research and development. But General Motors and the other automakers are doing a lot less basic research. They’re focused more on the near term and the mid term. They want to connect with sources of intellectual property on the outside. They are aggressively looking for technologies that can differentiate them in the marketplace.
Bridge: What else are you doing?
Cole: I’m involved in something called Building America’s Tomorrow. It’s a not-for-profit organization just in the fundraising stages that is aimed at developing a K-12 pipeline of talent for the manufacturing industry.
Kids don’t have manufacturing on their radar screen. As the baby boomers retire, we don’t have a pipeline of talent to replace them.
We have failed to get the message to young people about where the opportunities are in manufacturing. It’s not just in the auto industry; it runs the gamut of manufacturing in general. We’ve gotten away from idea that manufacturing is important.
One of the consequences is that it puts the economy at risk. One job in the auto industry creates eight or nine other jobs in the economy. We’ve gotten away from the idea that manufacturing is important.
Bridge: How are you bringing that message to schoolchildren?
Cole: Part of the focus will be on video presentations that show what making things is all about. The Society of Automotive Engineers “A World of Motion” curriculum, for instance, is fantastic. We want to see these things presented in the classroom.
Most of the emphasis on manufacturing careers is at the college level. The pipeline that feeds that doesn’t exist.
We’re also working on something we call Experience Connection that will use the social media tool on AutoHarvest to help connect retirees to short-term job opportunities in the auto industry.
GM has brought back a couple hundred retirees to help with new vehicle launches and other initiatives. There’s a need for experienced people in short-term projects that retirees can fill.
Bridge: Vehicle ownership rates by people under 30 are dropping. The New York Times had a headline recently saying the car culture was dying. What does that mean for the Detroit Three?
Cole: It’s hard to say. There may be a delay in purchasing new vehicles by younger people. Some of the delay may reflect rule changes in getting drivers’ licenses.
While people might not need cars in New York, there really isn’t a significant alternative to automobiles for most people throughout the country.
We’re adding a million households a year in this country. That means two million drivers a year will be added because of household growth.
A delay in purchasing a vehicle is one question. Never engaging in buying a car is another thing. Cars are expensive and many people have college loan debts. A lot of factors are involved.
Bridge: Can the restructured Detroit Three remain profitable in a recession?
Cole: I think the big thing is they dramatically lowered their break-even point. Their restructuring has resulted in huge layoffs and eliminated the health care benefit liabilities for a couple hundred thousand people.
Their cost foundation is such that subsequent economic downturns should have a dramatically lower impact on the automakers than in the past. I see a real reluctance to add capacity unless the market is very certain.
Bridge: Are two-tier wage rates permanent for the auto industry? Is $14 or $15 an hour now the pinnacle for new autoworkers?
Cole: Those are entry-level jobs. (In some cases) when somebody retires at the higher-wage level, a person in the lower tier moves up into that position.
Basically the Detroit Three automakers are extremely competitive right now. They’ve gone from have a $2,000 cost penalty against the foreign competitors to a $2,000 cost advantage.
Bridge: You’ve talked about skill shortage in the auto industry. Wouldn’t that shortage ease if employers paid higher wages?
Cole: One of the problems is the esteem with which we hold people who work with their hands is not very high. In Germany, it’s totally different. Here, if you work with your hands, it’s not cool.
Bridge: So the real problem is lack of people interested in going into the business?
Cole: Manufacturing is still viewed as second-class work. That’s the really important dimension. Wages will rise for those who go into the industry. We have a problem because of a lack of a pipeline of talent.
We don’t have enough skilled trades people and technicians. We need engineers and people in the field of mechatronics (which combines mechanical and electrical engineering with computer science).
The also are 3,000 unfilled CNC (computer numerical control) machine operator jobs in Michigan right now.
Bridge: How will car-sharing services, such as Zipcar, affect vehicle sales?
Cole: I think they’re part of the solution to providing transportation in densely populated areas, such as large cities and college campuses. They’re really getting traction. But I think they probably will have minimal impact on vehicle sales overall.
Bridge: Is there a danger of the federal government outlawing the use of hands-free technology in vehicles?
Cole: They could. We already have local laws affecting some of this. The distracted driving issue really hit the fan with texting. Anything that diverts the driver’s attention is a problem.
Bridge: What is the future of driverless cars?
Cole: I think they’re a ways off because of legal issues and the problem of meshing them with the existing fleet. What I think you’ll see more of is technology that supplements the abilities of the driver, such as adaptive cruise control that slows you down when you get too close to the vehicle ahead of you and a system that will stop your car at a stop sign if you don’t see the sign.
Bridge: There’s recent news about Detroit automakers seeking app designers for cars. Will there be increasing competition between Detroit and Silicon Valley for engineering talent?
Cole: It already exists. Silicon Valley is looking at a great market in the auto industry. Most people don’t realize how much technology is in cars because the auto industry has disguised it in the basic operation of vehicles.
The talent war is on. It’s going to get a lot worse. Companies are struggling with rules that limit bringing skilled immigrants into the county. The education system isn’t training people with the skills needed for the jobs of the future. The average person doesn’t realize this.
Bridge: How many vehicles must the Detroit Three automakers sell to be profitable in, say, 2020?
Cole: After their bankruptcy restructuring (Ford Motor Co. restructured outside of bankruptcy) the domestic automakers’ break-even point was about five million to six million vehicles in a 10 million to 11 million vehicle U.S. market. Their cost structures have improved dramatically.
They’ll be profitable with roughly 50 percent of industry sales in a given year. They are in a much more robust and healthy position than they’ve been in a long time.
Bridge: Do you see any storm clouds on the horizon?
Cole: There are some choke points that could shut off the ability of the industry to expand. The auto companies are running short of foundry capacity, and getting enough material from suppliers is an issue.
Another one of those choke points is the shortage of people. I think that has the most serious potential to shut down the industry’s ability to grow.
Rick Haglund has had a distinguished career covering Michigan business, economics and government at newspapers throughout the state. Most recently, at Booth Newspapers he wrote a statewide business column and was one of only three such columnists in Michigan. He also covered the auto industry and Michigan’s economy extensively.