By Derek Kaufman, partner, Schwartz Advisors
 
Our team at Schwartz Advisors stays close to the pulse of the industry to identify issues and trends, and anticipate their impact on aftermarket businesses. This month, our focus is on the six technologies aftermarket companies should watch as they plan future strategies.  
 
Two factors are driving technologies that will change the service requirements for future vehicles: the 54.5 miles per gallon (MPG) automotive Corporate Average Fuel Economy (CAFE) regulations and the Environmental Protection Agency (EPA)/National Highway Traffic Safety Administration (NHTSA) 20 percent fuel consumption reduction goals for the medium and heavy-duty truck market. The six technologies to watch are: powertrain electrification, start/stop, electric drive turbochargers, downsizing/downspeeding, waste heat collection and natural gas.
 
Powertrain Electrification
Our view of electric drive is often skewed by the headlines of the day. Fisker Automotive, a producer of electric vehicles, is in trouble. Coda Automotive, another electric vehicle maker, has filed for bankruptcy. The Nissan Leaf and the Chevy Volt have not reached the sales volumes of original projections. But, these headlines miss the point of powertrain electrification. The fact is, nearly every original equipment manufacturer (OEM) has a significant electrification program in place, and the work on full battery electric vehicles and hybrid powertrains is increasing the application of lithium ion batteries and decreasing the per-cell cost of those systems. Our expectation is that 20 to 30 percent of automobiles will have some form of electric drive by 2020.
 
But electrification encompasses more than just traction control. Work is underway to drive Front Engine Accessory Drive (FEAD) components, such as power steering and water pumps, and A/C compressors, with highly efficient electric motors. In trucking, the application of variable speed electric auxiliary power units for sleeper bunk temperature control will eliminate the need to idle the truck’s engine to supply air conditioning. Early systems have been problematic, but the technology is improving and fleets are doing better with their battery management programs. We would expect 50 to 60 percent of all Class 8 sleeper cabs to use auxiliary power in the future.
 
Ultimately, electric drive will change our view of vehicle power. Once an engine can be mechanically decoupled from a driveline, the form factor of the vehicle is freed substantially. Our view is that hub mounted motors will ultimately control everything from traction to steering, suspension and braking.
 
In some manner, shape or form, your future will be electrified.
 
Start/Stop
Engine idling consumes approximately 3.9 billion gallons of gasoline each year according to Road and Track magazine. Approximately 40 percent of the cars in Europe and Japan are employing Start/Stop technology to reduce fuel consumption by reducing engine idle time at stoplights and in other non-moving situations. The only reason we have not seen the same adoption rate in the United States is that the EPA drive cycle does not take idling into account the same way the European and Japanese regulations do.
 
We expect most systems to incorporate either Belt-Alternator-Starter (BAS) or Integrated Starter Generator (ISG) technology, but the reducing costs of lithium ion batteries could also see the systems currently used on hybrid powertrains converted to work on Internal Combustion Engine (ICE) models as well.
 
The 54.5 mpg regulation will mean that a very high percentage of vehicles will need to eliminate as much idling as possible. Look for this adoption rate to move to more than 75 percent in the next five years.
 
Electric Drive Turbochargers
Subaru, VW and Audi are all introducing electric drive turbochargers and we expect to see a lot more of them in new cars and maybe even medium-duty diesel trucks. The first reason for this optimism is the improved technology of switch reluctance motors that can handle the 100,000-plus revolutions per minute (RPM) levels of turbochargers. The second reason is the combination of reduced fuel consumption and increased responsiveness they generate. Electric motors apply instant torque and rapid spool-up to eliminate the turbo lag typical of exhaust driven turbos. That results in higher combustion efficiency for better fuel economy and instant responsiveness to the driver’s input.
 
Downsizing/Downspeeding
We have already seen a significant downsizing of the standard engine size in nearly every car on the road. V-8s have given way to 6 – and 4-cylinder engines. But our outlook on parts consumption and engine remanufacturing is more focused on studying the effects of higher power/liter ratings, ethanol-based fuel formulas and new lubrication chemistries than it is on engine size alone. The debate on the effects of ethanol is ongoing. The Auto Alliance suggests negative effects from the alcohol content in ethanol, while the EPA continues its push for biofuel blends and ethanol adoption. Our outlook is that ethanol adoption could result in accelerated failures of older engines that are not designed for ethanol content. This could affect the repair and rebuild cycle as we now know it.
 
Our focus on downspeeding has been more truck oriented. Engine friction reduces by the square of RPM. Every 100 RPM represents a 1.5 percent reduction in fuel consumption in a Class 8 truck. So, we can expect a lot of work to be done to match electronic transmission controls to slower engine speeds in an effort to reduce fuel consumption by 20 percent for EPA/NHTSA’s 2014 to 2018 super truck period.
 
Waste Heat Collection
The Holy Grail of powertrain engineering is the conversion of waste heat to power. Currently, heat-capture-to-electric power conversion efficiencies are in the 8 to 15 percent range, which is not enough to eliminate the parasitic loads represented by the various belt driven components on today’s engines. But advances in nanotechnology and the materials science work with Tellurium and Strontium are showing the ability to move conversion efficiencies into the 20 to 35 percent range. This work is a few years from commercialization, but when introduced, it will make waste heat collection a viable addition to every powertrain.
 
Natural Gas
In the trucking industry, natural gas has taken the market by storm. Natural gas’s $1.50 per gallon price advantage over diesel is a compelling return on investment (ROI) even considering the amount of fueling infrastructure required and the uncertainty of the residual prices of natural gas power trucks at the end of their five-year trade cycle.
 
Can natural gas have the same effect on the automotive market? We think the answer is yes, and the ample natural gas reserves throughout North America will be a strong driving force to move us from trucks to cars in the near future. Organizations like America’s Natural Gas Alliance will be promoting the conversion of smaller vehicles to compressed natural gas (CNG) and we believe the work being done by the Clean Energy/General Electric partnership to build fueling stations will rapidly expand the current 600 retail stations into a nationwide network.
 
Chevrolet, GMC, Ford and Chrysler are selling natural gas-powered pickup trucks and Honda is marketing a CNG Civic. The Natural Gas Vehicles for America website estimates there are 120,000 natural gas vehicles (NGVs) on U.S. roads today, but the infrastructure work of GE, 3M, ExxonMobil and Shell will accelerate interest and result in an increase in models offering the NG option.
 
A natural gas truck engine can cost $30,000 to $50,000 more than its diesel equivalent, but that cost difference is more about manufacturing volumes than the actual cost of components. As natural gas engine volumes go up, the cost should be roughly equal.

Natural gas pickup truck engines are $8,000 to $10,000 more expensive than gasoline models. The ROI, therefore, will be dependent on the miles driven until overall volumes can drive costs down.
 
AT&T is betting on that reduction. It is are investing about $350 million in the conversion of its service truck fleet and we bet that others will follow its lead.
 
Derek Kaufman is a partner for Schwartz Advisors, a mergers & acquisition adviser and consulting firm to companies in the automotive aftermarket. For information, visit www.schwartzadvisors.com, email [email protected] or call 858-768-2623.