OESA News 2019 Third Quarter Edition 2

NEWS

Original Equipment Suppliers Association

2019 Third Quarter │ Edition 2

2019 AUTOMOTIVE SUPPLIER CONFERENCE Featuring Jim Collins, Author, "Good to Great” and “Built to Last”

Wednesday, November 13, 2019 • Suburban Collection Showplace • Novi, MI

IN THIS ISSUE...

2 4 5 7 9

The Suppliers' Voice MEMA News Guest Column: Warner Norcross & Judd Technology Update Guest Column: Plex

11 13 15 18

Guest Column: Slalom Welcome New Members OESA Events Council Update

This edition is sponsored by:

PROTECTING YOUR LEGAL RIGHTS in a rapidly-changing automotive industry

Our automotive attorneys are focused on auto suppliers. That’s why multinational Fortune 500 companies to family-owned suppliers look to Warner for counsel and representation.

We navigate relationships between parts suppliers and vehicle manufacturers, automotive regulators and the emerging autonomous vehicle market—keeping you ahead of the curve. » » »

Learn more about our automotive, autonomous and tariff legal practices at wnj.com.

1 │ OESA News - 2019 Third Quarter

200+ automotive suppliers choose Warner Recognized leaders in every area of law that impacts the global automotive industry Co-founders of MICHauto

Voice

SUPPLIERS' VOICE

The Suppliers’

Join us at the 2019 OESA Automotive Supplier Conference The OESA team is looking forward to hosting more than 700 automotive executives at the 2019 OESA Automotive Supplier Conference, and we hope you will join us. The annual conference will feature leading business and industry thought leaders to discuss the outlook of automotive – from the supplier perspective. They will provide valuable information and actionable insights on the industry’s latest trends, forecasts, challenges and opportunities.

Julie A. Fream President and CEO OESA

Confirmed Speakers:

Mitch Bainwol Ford Motor Company

Morning keynote speaker Jim Collins, author of “Good to Great” and “Built to Last” will discuss what companies must do to lead in the new mobility era.

Dr. Elaine Buckberg General Motors

Jacqui Dedo Aware Mobility LLC

Bill Foy DENSO

Jeff Jorge Baker Tilly

… with additional speakers to be announced.

Jeff Schuster LMC

Deb Schroeder Toyota North America

Scott Thiele FCA

Ann Wilson MEMA

The event will be held on Wednesday, November 13, 2019, at the Suburban Collection Showplace in Novi, MI. We hope you will join us for this thought-provoking day.

For additional information and to register for the conference, visit oesa.org or call 248.952.6401.

As always, please feel free to contact me at 248.430.5963 or jfream@oesa.org.

Julie A. Fream President and CEO OESA

OESA News - 2019 Third Quarter

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2019 Automotive Supplier Conference November 13, 2019 • Suburban Collection Showplace • Novi, MI

Featuring Jim Collins, Author of "Good to Great” and “Built to Last” Additional speakers: Mitch Bainwol, Chief Government Relations Officer, Ford Motor Company Elaine Buckberg, Chief Economist, General Motors Jacqui Dedo, Co-founder, Aware Mobility LLC Bill Foy, Senior Vice President, Engineering, DENSO Jeff Jorge, Principal, Baker Tilly John McElroy, Host, Autoline Jeff Schuster, President, Americas Operation and Global Vehicle Forecasting, LMC Deb Schroeder, Vice President – Purchasing, Direct Parts, Toyota North America Scott Thiele, Chief Purchasing Officer, FCA Dustin P. Walsh, Senior Reporter, Crain’s Detroit Business Ann Wilson, Senior Vice President, Government Affairs, MEMA ...and more!

Limited sponsorship opportunities are available.

Contact Drew Rhodes at drhodes@oesa.org.

Register to attend at OESA.org.

3 │ OESA News - 2019 Third Quarter

MEMA NEWS

An Evolving Trade Environment Creates Challenges for Motor Vehicle Parts Suppliers Ann Wilson Senior Vice President, Government Affairs, MEMA 202.312.9246 │ awilson@mema.org

The international trade environment has become tumultuous, adding significant stress to the supplier industry. From tariffs on $300 billion on imports from China to imposed tariffs on steel and aluminum and threatened tariffs on autos and motor vehicle parts — as well as the renegotiation of NAFTA and threatened tariffs on all goods crossing the border from Mexico – longstanding trade policies and relationships have been set aside and a new era of uncertainty has begun. President Trump may have given a reprieve on China tariffs in June and Mexico tariffs in May, but these actions may not be permanent. The bottom line is that uncertainty seems to be here to stay, and motor vehicle parts manufacturers, who depend on a reliable global supply chain, must adapt.

The Motor & Equipment Manufacturers Association (MEMA) and OESA have been in constant contact with the Trump administration on these and many other trade-related issues.

Our concern, which we have expressed consistently, is that a lack of certainty will cause investments in new autonomous vehicle, artificial intelligence and fuel efficiency technologies to leave the United States. Our message is clear: motor vehicle parts suppliers are the largest sector of manufacturing jobs in the U.S., and supplier jobs will be at risk if our industry cannot compete in the global marketplace. And finally, these uncertainties will increase the cost of vehicles for consumers.

Actions can be taken to minimize the risks and provide the clarity and certainty that is necessary for our industry to continue to thrive and grow.

First, stabilizing trade with our North American neighbors is critical. MEMA/OESA has encouraged Congress to pass the United States-Mexico-Canada Agreement (USMCA) without delay. The USMCA is a winner for the motor vehicle parts manufacturing industry. NAFTA was ready for an update, and the USMCA addresses concerns that have emerged in the last 25 years — such as digital trade, services liberalization, state enterprise restriction, and even addresses labor and environmental issues. Every other major manufacturing hub around the world has a similar trade agreement with its neighbors. It is critical that U.S. companies can grow with a stable, reliable trade agreement with Mexico and Canada.

Second, although President Trump has lifted Section 232 tariffs on steel and aluminum from Canada and Mexico, these metals tariffs are still in place on important trade partners such as the EU and Japan. Section 232 tariffs on autos and motor vehicle

parts, from these trade partners and others, are still possible.

Our message to the Trump administration has been consistent in this case as well: tariffs are taxes on U.S. companies, and the burden these tariffs do or could place on businesses in the United States puts them at a disadvantage. The United States could lose its ability to lead the world in new technologies that save lives and the environment and create high-quality, dependable jobs.

Third, MEMA/OESA has long argued that China has been engaging in unfair and unethical trade practices, including IP theft and forced technology transfers. We support the administration’s goal to put an end to these practices. MEMA encourages the two parties to develop a trade deal that will restore this important trade relationship while protecting U.S. companies and their valuable intellectual property. We are encouraged that the two countries are talking and that hopes of a workable trade deal are still high.

Finally, President Trump took many of us by surprise when he announced he would impose a five-percent tariff on all goods coming across the border from Mexico, with the plan to increase that tariff every month until Mexico stopped the flow of illegal immigrants into the United States. That threat was lifted – even if temporarily — when a deal with Mexico was announced in June. This action would have been particularly hurtful to motor vehicle parts manufacturers. As the 90-day mark approaches, we are keeping a close eye on the administration and urging them to end this tariff threat.

As I have said many times, if you are not at the table, you are on the menu. OESA members, via MEMA, are indeed at the table.

Talks with legislators and the Trump administration on these and other issues continues daily. We understand these are complex — and even emotional — issues for many Americans. We will make sure that our members are represented well, and we will continue to advance the business interests of motor vehicle parts manufacturers, who are such a critical part of the U.S. economy.

“OESA members, via MEMA, are indeed at the table.”

OESA News - 2019 Third Quarter

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SUPPLIER BAROMETER

Slight Rebound, Yet Concerns Persist Mike Jackson Executive Director, Strategy and Research 248.430.5954 │ mjackson@oesa.org

According to the 3Q 2019 OESA Automotive Supplier Barometer Index (SBI), supplier pessimism continues to weigh upon the automotive supply base. Results posted a negative reading of 37 for the period; 13 points below a neutral reading of 50.

Pessimism is attributed to the continued trade tensions and the market shift away from passenger car sales.

OESA Supplier Barometer: Q3 2019 Results Describe the general twelve month outlook for your business. Over the past three months, has your opinion become…?

Current Supplier Outlook (Share of Respondents)

Supplier Barometer Index: (SBI and 6m Average) 80

60

37

Jan-2019

Jan-2016

US Fiscal Cliff

Jan-2014

20

Jan-2009

Significantly more pessimistic

Somewhat more pessimistic

Unchanged

Somewhat more optimistic

Significantly more optimistic

30

Japan Tsunami/ Grexit Crisis

Jan-2015

Euro Crisis Begins

Jan-2013

40

Jan-2012

20%

3Q SBI shows a dramatic decline in sentiment compared to 1Q 2018, when U.S. tax reform fueled robust optimism.

Lehman Collapse

Jan-2011

50

Jan-2010

40%

0%

US Tax Reform

70

60%

Jan-2018

Q3 2019

Jan-2017

Q2 2019

80%

293 responses

SBI Score = 37; increased 2 points from Q2, but remains in negative SBI Score = 53; drops 4 points from thedeep Q1 level of 57 territory on continued trade tensions, poor sales ofwhile programs and weakness in pessimism the U.S. economy Tax reform supports optimism tradesupplied and declining sales drive 1

Q3 2019 OESA AUTOMOTIVE SUPPLIER BAROMETER

The 3Q 2019 OESA Supplier Barometer, sponsored by RSM US LLP, focused on Supply Chain and Globalization.

The results indicate: • Trade policy remains the greatest industry threat to automotive suppliers • Cost pressures have caused net profitability to deteriorate across most system areas and program segments • 30% of materials needed for production are procured from countries outside of the U.S., highlighting the industry’s global footprint and sensitivity to changes in trade policy.

• Weaker financial metrics and quality concerns have prompted heightened vigilance as respondents increase the number of sub-tier suppliers on internal ’watch lists’ to mitigate risks of supply chain disruptions (see chart).

Despite extraordinary market uncertainty, the supplier industry continues to capitalize on strong industry sales and production levels, as leading suppliers proactively focus on mitigating supply chain risks and delivering strong results.

Direct Supplier Risk

Quality issues and financial metrics increased the percentage of “watch list” suppliers What percent of your North American direct material suppliers are currently on your “watch list?”

23%

None

Quality

23%

33%

29%

> 8%

10%

20%

30%

Percent of Respondents

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Q3 2019 OESA AUTOMOTIVE SUPPLIER BAROMETER

40%

28%

2019 2018

24%

3% 3% 3% 4%

Other

6% 0%

13%

Management related

10% 10%

31%

21% 20%

Capacity constraints

11%

6% - 8%

23%

Delivery performance

32%

3% - 5%

26%

Financial metrics

24%

1% - 2%

What is the primary reason companies are being added to or continuing on the supplier “watch list?”

0%

10%

20% 30% Percent of Respondents

40% 3

Results highlight that respondents are keen to employ processes that enhance visibility and offer increased flexibility to counter dynamic economic and policy related volatility.

The industry continues to post strong demand, with U.S. sales expected to approach 17 million units as North American production is on pace to achieve a similar level. Expect the heavy bias favoring light trucks and SUVs to continue. Even in the face of lower passenger car demand, automakers and the supplier community have enjoyed sharply higher transaction prices for a wide range of light trucks, serving to offset negative pricing dynamics weighing down the passenger car sector.

To this end, GM boosted second-quarter 2019 financial performance due to strong sales of its new T1-based full-size pickup programs, raising profit margins in North America to 10.7% in the period. Furthermore, FCA also posted robust 2Q results by growing market share through its legacy strategy for the Ram 1500 pickup and robust sales of the Jeep Gladiator pickup, raising profitability in the region to 8.9%.

When looking to identify new growth opportunities, the environment is becoming more challenging. While light truck output is on pace to grow incrementally in unit terms, it will also unleash higher levels of competition – leading to profit margin compression.

Product lifecycle cadence will become an even greater factor going forward. Suppliers must optimize their planning efforts in a dual-pronged strategy, by first targeting the right program opportunities and second by working quickly to systematically phase out under-performing programs.

Despite historically strong vehicle sales in the U.S., the industry is more globally integrated than ever before and the negative impact of sharply lower sales in China, down 12% through June, can’t be overstated.

OESA Supplier Barometer: Industry Profitability For each of the following system areas, please indicate the direction of profit margins.

Passenger car programs

*Net Profitability

SUV programs

*Net Profitability

Truck programs

*Net Profitability

Overall

*Net Profitability

Powertrain

-0.48

-0.13

-0.11

-0.29

Chassis

-0.46

-0.14

-0.13

-0.31

Exterior

-0.42

-0.16

-0.16

-0.27

China has been the growth -0.36 -0.07 -0.13 -0.15 Interior/HVAC engine of the global auto 0.07 0.09 -0.04 -0.21 Electrical/Electronics industry for the past two decades and in the process, 0% 50% 100% 0% 50% 100% 0% 50% 100% 0% 50% 100% has received a disproportionate Net profitability is deteriorating nearly all system areas program SBI Score = across 53; drops 4 points from the Q1and level of 57 segments; share of supplier investment, Net reform profitability increased for electrical/electronics for SUVsales and Truck programs Tax supports optimism while trade and declining drive pessimism which in an abrupt turn is now *Net profitability is a weighted average where increased profitabilitygoing = 1, Competitive pressures are increasing and they will only continue to intensify 2forward. underperforming. This provides unchanged = 0, and decreased profitability = -1 especially important context as it is widely understood that mature markets offer limited volume growth potential over the forecast horizon.

Increased Profitability

Unchanged

Decreased Profitability

Q3 2019 OESA AUTOMOTIVE SUPPLIER BAROMETER

Suppliers must recognize that most of the industry operates in a low growth environment, forcing a dramatic shift from incremental volume growth toward a greater focus on operational excellence. The market offers a tremendous number of opportunities, yet it is crucial for suppliers to be selective when choosing where they will allocate their valuable resources of time, talent and capital.

The results for the entire 3Q OESA Supplier Barometer are available in the Resource Center at oesa.org.

About the OESA Automotive Supplier Barometer: The OESA Automotive Supplier Barometer captures the pulse and analyzes the twelve-month business sentiments of supplier executives in the automotive industry. It is a survey on commercial issues, the business environment and strategies that influence the supplier industry. The Barometer is distributed to suppliers, OEMs, financial institutions, governmental officials and the media to provide an on-going profile of supplier industry trends.

OESA News - 2019 Third Quarter

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GUEST COLUMN

Automotive Industry Group

INTRODUCTION

Three Month Automotive Legal Series In the mid 2000’s the auto industry was on a roll: volumes were high, profits were hefty and discipline was (unfortunately) erratic throughout the Automotive OEM and Supply Chain community—with some engaged in, shall we say, slopping business practices. When the mortgage crisis hit in 2007, real estate values fell off a cliff, light truck and auto sales plummeted and the auto industry suffered a depression while the rest of the country was in a deep recession. In the 10 years following that event, our industry not only recovered but has been on a roll. Its rebound was unprecedented, profitability was up, and for a large percentage of Automotive OEM’s and their Supply Chain, proper discipline coupled with smart business resulted in 10 years of unprecedented profitability.

However, good business practices have not been true for everyone in the automotive industry and even wellrun entities are increasingly challenged by unpredictable tariff policy, slumping sales volumes, talent shortage and several new program launches all while the industry is transforming into electrification, connected vehicle and automated driving challenges. Yes, the decade of unparalleled recovery growth and profitability may be ending, and sooner than many anticipate.

Over the next two OESA Newsletters, Warner Norcross + Judd will be providing a series of short articles addressing protection against tariff policy through diligent contracting, monitoring for distressed customer and supplier risk and legal dispute resolution—picking your legal battles carefully.

Along with the rest of the industry, we don’t believe that the challenges on the horizon are anywhere near those the industry endured 10 years ago, but if your company is adversely effected, it doesn’t matter what the rest of the industry experiences.

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ARTICLE I

Unpredictable Tariffs Homayune Ghaussi

Automotive + Tariff Attorney hghaussi@wnj.com

Since mid-2018, new and unpredictable tariffs have become an inescapable part of the automotive supply chain. Tariffs applicable to automotive products started with tariffs on steel and aluminum imports. Within months, tariffs were imposed on Chinese imports. The Chinese tariffs have come in waves that have increased to the point of soon, possibly, maybe including almost all imports from China. Since the initial announcements, the tariffs have been delayed at times, countries have been exempted, negotiations have been had, and particular exclusion applications have been denied and granted.

What may happen next as negotiations continue with China and we await a delayed potential imposition of automotive tariffs, no one knows. But which side, buyer or seller, is liable to pay the tariffs is knowable and predictable.

Types of Unpredictable Tariffs Section 232 Tariffs Tariffs on steel (25%) and aluminum (10%) have been imposed under Section 232 of the Trade Expansion Act of 1962, commonly referred to as “Section 232 Tariffs.”

Since imposition, several countries have negotiated exemptions, including Canada, Australia, and Mexico.

Other countries are exempt, but subject to quotas on imports. For steel, Argentina, Brazil, and South Korea are exempt from tariffs, but subject to quotas. For aluminum, Argentina is exempt but subject to a quota. Countries subject to quotas cannot import steel or aluminum once the quota levels are reached, which are determined on a quarterly basis. Importers may seek exemptions from the

quotas, which, if granted, would allow for import beyond the quota subject to the applicable tariff.

After the tariffs were imposed, an exemption application process was put in place for importers to request exemption from the tariffs on a product-by-product basis.

Since its inception, over 70,000 exemption applications have been filed for steel tariffs, with 16,000 granted and 46,000 denied, with the remainder still in process. For aluminum tariffs, over 10,000 applications have been filed, with 3,000 granted, 500 denied, and the remainder are still in process.

In addition to the steel and aluminum tariffs, the Administration has also made announcements about tariffs that may be imposed on automotive products.

There is no clarity as to whether these tariffs will apply to automobiles, automotive parts, after-market automotive parts, automotive related products from a particular country or region, or all of the above. The rate of the tariffs also is not clear, but there have been mentions of an additional 25% tariff being imposed on such products.

As of May 2019, the final decision on these tariffs has been put off for six months.

Section 301 Tariffs Under Section 301 of the Trade Act of 1974, commonly referred to as “Section 301,” the Administration, beginning in mid-2018, began imposing tariffs on imports of Chinese products. The tariffs initially started with 25% tariffs on about $34 Billion worth of Chinese imports. An additional $16 Billion of imports was added soon after, and then another $200 Billion tranche of goods followed.

The $200 Billion worth of products was initially subject to a 10% tariff, which increased to 25% in May, 2019.

Another 25% tariff is ready to be imposed on virtually all remaining Chinese imports, but has, for now, been delayed after discussions at the recent G20 Summit.

After imposition of these tariffs, exemption processes were put in place for importers and other interested parties to seek exemptions. The deadlines for the first two lists of products have passed. The third list of $200 Billion worth of products are still open for exemption applications until September 30, 2019. Exemptions have been granted for several product lines, lists of which can be found on the Office of the United States Trade Representative’s website.

Mexico Tariffs The volatility of potential tariffs was recently exemplified by the Administration’s announcement in May 2019, of

tariffs that would be imposed on all imports from Mexico under the International Emergency Economic Powers Act of 1977. The tariffs were to begin with a 5% tariff effective June 10, 2019, which would increase by 5% each month up to 25%. Within a few weeks, the tariffs were cancelled, with a statement that they may be imposed if the Administration is not satisfied with Mexico’s efforts to curtail migrants crossing its borders.

Predictability Through Contracts The Section 232, Section 301, and the Mexico tariffs have made one point clear: nothing is clear. Throughout the tariffs process, the percentage of tariffs, when the tariffs would be imposed, what products would be subject to the tariffs, or what countries would be subject to the tariffs have always been in the air until imposition of the tariffs, and sometimes even after. Whether the tariffs on Mexican imports will be imposed again, whether and when the final tranche of Chinese tariffs will apply, and what may be included in the automotive tariffs remain unknown.

Such unknowns can be problematic for businesses in the automotive supply chain engaged in quoting products and calculating future costs and expenses. These businesses can provide for predictability by controlling their contracts.

In this new tariff world, it is important to negotiate and review some key terms in your contracts that address liability for payment of such tariffs. Start with the delivery term. Where is your product being delivered to or delivered from? What is the delivery term and how does it address liability for tariffs? What components are included in the price? Is the price for your products subject to raw materials indices? Do those indices include tariffs in calculating price? If you are contractually liable for these tariffs, is there a way out? Is the contract duration or quantity an opening to renegotiate? Can you claim force majeure?

All of these questions require a contract-by-contract and product-by-product analysis. By understanding tariffs under your current contracts, and negotiating your future contractual terms to specifically address tariffs, you can provide the predictability in your own business that may be lacking in our new world of tariffs.

For more information on Warner’s Automotive Industry Group, visit us at wnj.com. This article is not intended as legal advice. For additional information, please contact the author of this article.

OESA News - 2019 Third Quarter

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TECHNOLOGY UPDATE

Advanced Vehicle Technology: Electrification, Advanced Safety Systems, and Automation Brian Daugherty Chief Technology Officer, MEMA 248.430.5966 │ bdaugherty@mema.org

As we rapidly move through 2019, we are witnessing a global vehicle powertrain revolution unlike anything previously seen. More than $300 billion in electrification investments have been announced by automotive OEMs around the world in order to make their fleets more fuel efficient and comply with increasingly stringent fuel economy regulations. As a result, we will see many more hybrids and fullbattery electric vehicles (BEVs) in the next few years.

While the future growth rate of BEVs is the subject of many forecasts and much debate, powertrains are definitely changing and the impact will be significant.

I think that we’ll see rapid growth in global hybrid volumes as OEMs work to meet the regulatory demands for fuel economy improvement. Most of the hybrid volume growth will be at the low-cost end of the hybrid spectrum in the form of stop-start technology and 12- or 48-volt mild hybrid systems.

BEV volumes in the near term will likely continue to grow at a steady rate rather than a sharp “S-type” curve due to the cost differential versus internal combustion engines or hybrids along with uncertain consumer acceptance. While battery cell and pack costs have declined significantly, they still result in a price penalty versus Internal Combustion Engine (ICE) powertrains. Much of the BEV growth over the next few years will be due to government policy.

Globally, countries with the highest percentage BEV sales either have large incentives or — as in the case of Norway and China — have large disincentives in the form of additional taxes, tolls and registration fees on gasoline- and dieselpowered vehicles.

Advanced vehicle safety system and automation developments also continue to progress rapidly.

While automated vehicles remain very much in the development phase as the leading robo-taxi 7 │ OESA News - 2019 Third Quarter

developers try to figure out how to remove their safety drivers, many Advanced Driver Assistance Systems (ADAS) are rapidly becoming standard equipment on new vehicles. With OEMs working to add Automatic Emergency Braking (AEB) on almost all U.S. cars by 2022 and light trucks and SUVs by 2025, more radar- and camera-based technology will soon be on vehicles than ever before. Systems are also getting smarter and more integrated. The “fusing” of camera and radar sensor data results in improved threat detection range and performance by combining the best aspects of each sensor type.

As systems continue moving from issuing warnings to actually assisting drivers, they have become significantly more user-friendly. In addition, many of the newest systems have the ability to “selfcalibrate” while driving and therefore require less precision alignment during installation or repair than previous generations.

Rapid ADAS advancements are not limited to the light vehicle market. I recently had the opportunity to test a number of heavy truck ADAS technologies — both on the test track and on public roads — with two member companies. The systems performed very well and illustrate that ADAS and low-level

automation technology is rapidly advancing in the heavy-duty vehicle space as well. This is important because heavy trucks and commercial vehicles were involved in accidents that resulted in 4,761 fatalities in 2017 — the most recent year that full data is available — which represents a 9% increase from 2016. Of those fatalities, 82% were people in light vehicles or pedestrians. The commercial vehicle market is obviously different in many ways than the light vehicle industry. One major difference is that the end customer is typically a fleet. Fleets are constantly looking for ways to improve both safety and efficiency. If a technology is available that offers either of those effectively — they order it. Most of the large fleets have been quietly testing ADAS technology over the past several years. These tests have demonstrated impressive reductions in the number of collisions and severity when they do occur. As a result, well over 50% of class 8 trucks are now being ordered with ADAS — up from almost none several years ago — and the application rate is expected to continue increasing in the future.

On the light vehicle side, the application rates for ADAS features are much lower. This points out an interesting issue for the light vehicle industry: without educated fleet buyers, how do OEMs and their suppliers convince their end customers to purchase this life-saving technology? More education is one answer, but including multiple, integrated ADAS features as standard equipment — as a number of automakers are now doing — is the most effective solution.

The concept of driverless cars is headline-grabbing and the technologies being developed are very impressive. Someday they may offer significant benefits, but lifesaving ADAS technologies are available today.

Let’s make sure that we don’t let the hype surrounding fully autonomous vehicles distract us from the path to increased ADAS and lower-level vehicle automation that will save many more lives in the near term.

OESA News - 2019 Third Quarter

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GUEST COLUMN

Don’t Make These Industry 4.0 Mistakes

By Richard Murray, Chief Product Officer, Plex Systems Right now, a pivotal transformation is taking place within manufacturing companies throughout the industry. Technology advancements, external market pressure, and global expansion have all converged into Industry 4.0—which is characterized by automation, connectivity, machine-to-machine communication, and real-time data. Industry 4.0 moves the needle forward, focusing on “smart factories,” and for companies to fully take advantage of the benefits it offers, they must often undergo a digital transformation.

Early adopters like leading automotive supplier Toyotetsu America, Inc. (TTAI) are finding that connectivity and visibility into shop floor operations eliminates manual processes and streamlines productivity. But like any change management initiative, there are lessons to be learned from undertaking a digital transformation. A common pitfall is what McKinsey calls pilot purgatory, where an Industrial Internet of Things (IIoT) or digital transformation pilot project gets off to a great start and then stalls. Here are three key areas where manufacturers get stuck, and how to avoid them.

Don’t let your first foray into digitization become a pet project.

Large or small, it is imperative to understand the business value of digitization.

Solving one problem in one plant is good but it’s also important to understand the larger benefits to the company. Think about how the solution could scale prior to implementation and build your proof of concept accordingly.

TTAI initially saw its ERP implementation and PLC integration as two separate projects, designed to serve separate needs. However, when they realized their ERP system could further automate and synthesize information generated through the PLC initiative, they combined and launched them together, helping fully maximize the investment in their digital transformation.

KEY TAKEAWAY: Evaluate all of the digital manufacturing programs in place. Are they working together as a single technology stack?

What could this mean to the greater organization?

Don’t gloss over the core problem.

Consider your challenges carefully. Getting to the root cause will enable you to design the solution to solve it from a holistic perspective. Do not fall into the common trap of picking the technology, then adapting it to solve the problem. Complex problems don’t just stem from a single source, department, or unit. In order to create a strategy that will truly make a difference, consider the entire process and everything it touches—the shop floor to the top floor, from supplier to customer.

9 │ OESA News - 2019 Third Quarter

TTAI identified visibility as its core opportunity. From this holistic point, the company digitized operations, becoming a leader for its customer and for others in the supply chain while connecting all parts of their business.

KEY TAKEAWAY: Dig into the true problem, before identifying the technology to solve it.

Don’t forget that habits need to change too.

There’s a reason why many IT projects are called “change management” initiatives.

Along with the technology, user habits have to be considered as well.

Other manufacturers may build their own spreadsheets or paper-based processes because they don’t trust in the data being generated. Digitizing data not only makes it more accessible but also more trustworthy if it’s gathered at the manufacturing moment. It will show you what’s happening in real time.

Even for the most advanced manufacturers with the most sophisticated processes, they may be surprised to see the differences between data entered manually and data automatically collected. For instance, TTAI thought it knew what its run rates were based on historical data entered manually, and believed one of its 250 machines was running at 90%. After PLC implementation, the company discovered the machine was running at 50%. It wasn’t until the team automated the recording process that they were able to expose the opportunity to fully maximize its machines.

KEY TAKEAWAY: Digital transformation is as much about people and their habits as it is about the technology.

TTAI today digital manages its lean processes, including Kanban, just-in-time (JIT), and sequencing, helping the company maintain a maximum of two hours of inventory in a million-square-foot facility.

As TTAI successfully demonstrated, the key is to think about the company as a whole—the strategy, the business goals, and the people who make it happen. This approach will help you avoid common mistakes and pitfalls between digitization as an idea and digitization as a transformational initiative.

Richard Murray is Chief Product Officer of Plex Systems, Inc.®, which delivers industry-leading ERP, MES, and Industrial IoT solutions to manufacturers across process and discrete industries. Plex pioneered cloud solutions for the production line, connecting suppliers, machines, people, systems, data, and customers with capabilities that are easy to configure, deliver continuous innovation, and reduce IT costs. Learn more at www.plex.com.

OESA News - 2019 Third Quarter

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GUEST COLUMN

Auto-Mobility: The Auto Industry’s Identity Crisis Opportunity

Slalom is a modern consulting firm focused on strategy, technology, and business transformation. In 28 cities across the U.S., U.K., and Canada, Slalom’s teams have autonomy to move fast and do what’s right. They’re backed by seven regional innovation hubs, a global culture of collaboration, and partnerships with the world’s top technology providers. Founded in 2001 and headquartered in Seattle, Slalom has organically grown to over 7,000 employees. Slalom was named one of Fortune’s 100 Best Companies to Work For in 2018, and is regularly recognized by employees as a best place to work.

Technological and societal forces are bringing about the biggest shift in the transportation ecosystem in our lifetimes. While this seismic shift may bring dangers, we believe the opportunities are even greater. The technological change is dizzying. We’re long past the point where simply making great cars will be enough. Winners will focus on meeting the evolving customer expectations for a complete data-powered mobility experience that’s immersive, personalized, flexible, and integrated with the new “connected city.

"The auto industry is dead. Long live the mobility industry."

"The automobile industry as we know it is changing stealthily yet dramatically, transforming itself from a very distinct automotive industry to a more fragmented mobility industry. The winners in this process will be the manufacturers, suppliers and new entrants whose leaders are involved in shaping this change.”

Friederichs, Bohner, Linquist, & Payan (2011)

As this quote says, the days of the “automotive industry” are numbered, if not gone altogether. Everyone who once worked in that industry now works in something called “mobility.” That means a lot of things, but at the most basic level, mobility means looking beyond individual vehicles to a holistic view of the evolving system in which vehicles operate—the data-driven and ever-more interconnected environment that includes ride-sharing, vehicle-sharing, and other emerging models. Technological innovation is driving the development of these models at an unprecedented rate. Success means staying on top of this evolving business model.

What success will look like: Mobility winners of the future will have a few things in common: • Successful organizations will be intensely customer-centric, placing customers and end users at the center of the strategies and thinking. “Customers and target groups in the automotive industry will no longer be just direct buyers of vehicles, but all users of the products—in private and shared usage models. Software-based, direct interaction with every user will lead to higher revenues over the lifecycle of the customer relationship” (Schmidt, Kofler, & Schreiber 2017 11).

• This means traditional OEM’s need to look at their business models to start evolving to a more customer- and human-centered design that integrates into the mobility journey without neglecting the core business that funds today.

• Success will also involve keeping the revenue flowing with current business model.

• Heed the young: Generational differences will also play a role in shaping the future as ownership preferences continue to evolve to a younger generation that is more cost per mile conscious. “Younger, technically savvy generations will be a significant driver in the development of more sustainable and convenient mobility solutions in the next few years” (Schmidt, Kofler, & Schreiber 2017 13).

• Successful operators will be full participants in the gradual shift from full ownership to a blend of ridesharing, fleet, and eventually autonomous vehicles that will start in densely populated locations and grow over time.

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So how should you navigate the automotive, sorry—the mobility industry?

Meet Slalom’s Mobility Framework. Let’s get into some of Slalom’s specific recommendations for success in this new world. The four key components of the future of mobility include:

Biz Model &Strategy

Customer Experience

Vehicle

Connected City

Strategy & OrgTransformation

Everything related to theperson

Hardware + software =Data

Everything outside the vehicle

• BusinessModels

• Human CenteredDesign

• Cloud

• Smart City

• Organizational Transformation

• Brand loyalty

• Sensor fusionsupport

• Ecosystem

• Data Monetization • Ideation andinnovation • ProductManagement • New revenue generation

• User experience

• Data modeling

• Partnerships

• In-carexperience

• Safety &Warranty

• ValueChain

• Personalization

• Performance & Predictivedata

• Accessibility

• Full customer life cycle

• Application intergration

• TAAS • Informatics

Biz Model & Strategy

Customer Experience

Start by looking at your current business model strategy. With the changing landscape, clients are looking to create new top-line revenue growth that extends beyond the traditional models. New revenue generating opportunities are emerging that can change your current business model and help to future proof your organization. Examples include multi-modal journeys, fleet management, digital services, data monetization, partnerships and smart cities amongst others.

Once your strategy and organization’s culture goals have been established, focus like a laser on the customer. The mobility industry is currently suffering from the problem of “equal plausibility.” As we’ve said, many factors are converging in unprecedented ways with unprecedented pace—including emerging technologies, new customer expectations, new business models, evolving operations, new competitors, and supply chain innovation. Human-centered design tames this complexity by giving us clearer insight into what the next big thing will be.

Vehicle Even as car ownership declines and new mobility models emerge, the vehicle itself remains the primary touchpoint for the seamless, increasingly automated user experience that society is coming to expect. The continuing electrification of vehicle architecture and advancement of sensor technology are resulting in an explosion of data points that offer opportunities to connect with drivers like never before, but that must be managed strategically in line with an OEM’s data monetization and analytics roadmap.

Connected City A good customer-centered design and vehicle technology to support it are the building blocks for the connected city of the future. While technology and research specify what can be done, government entities specify what should be done, therefore public-private partnerships are essential in this initial phase of defining what a connected city can be. City, state, and federal governments need to be transparent about how taxpayer funds are being used to execute the smart city and mobility strategies.

So what’s next for mobility companies?

Slalom’s approach is to take all of this in stages: Define your Strategy Have a structured approach to defining your business strategy, culture, customer experience, and vehicle technology—with an eye toward integration with the emerging connected city.

Put the Customer First Focus on a holistic, immersive customer experience that extends beyond the trip. Seek out partnerships and knowledge from other industries. Customers will demand a full end-to-end experience that does not start and stop with the vehicle or product.

Respond Quickly Respond to nimble new competitors from outside the traditional auto industry: Last, traditional automotive industry leaders will continue to be challenged by new entrants to the market who are often not encumbered by outdated culture and methodologies. There will be a race to capture new market share in this space with a focus on user loyalty.

By: Seth Vogel Key contributions from: Ben Samuel, Greg Hodges, Rachel Grunwerg, Rick Whitney, Steve Young, Brit Zindel, Cindy Tran, David Kurtz, Sam Andrews, Michael Lumb, Elizabeth Keblaitis, Gilbert Wong, Dave Uhler, Steve Bacon, Poppy Johnson, Greg Taylor, Scott Brittain, Chris Groscurth, Brian Donovan, Saken Kulkarni, Bob Croker, Joy Hughey, Hema Rajagopal, Derek Case

Learn more about Slalom’s Mobility Framework—and the real-world experiences that helped shape it—email us at mobility@slalom.com.

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WELCOME NEW MEMBERS Accenture

ArcelorMittal Tailored Blanks

1001 Woodward Avenue 4th Floor Detroit, MI 48226 (313) 887-2000 Accenture.com

8650 Mt. Elliott Detroit, MI 48211 (313) 332-5600 ArcelorMittal.com

Member Representative: Brian Irwin, Managing Director, NA Industrial and Automotive Lead Alternate Representative: Megan Kelley, North America Automotive Marketing Accenture is a leading global professional services company that provides a broad range of services and solutions in strategy, consulting, digital, technology and operations. Combining unmatched experience and specialized skills across more than 40 industries and all business functions — underpinned by the world’s largest delivery network — Accenture works at the intersection of business and technology to help clients improve their performance and create sustainable value for their stakeholders. With 477,000 people serving clients in more than 120 countries, Accenture drives innovation to improve the way the world works and lives.

®

Member Representative: James Head, Director, Automotive Alternate Representative: Paul DiLaura, Vice President, Enterprise Carbon’s mission is to reinvent how polymer products are designed, engineered, manufactured, and delivered towards a digital and sustainable future. Based in Silicon Valley, Carbon brings together innovations in software, hardware, and material science to deliver industry-leading digital manufacturing solutions.

With Carbon’s ground-breaking Digital Light Synthesis™ technology and broad family of programmable liquid resins, manufacturers can unlock new business opportunities such as mass customization, on-demand inventory, and previously impossible product designs. The Carbon Platform allows customers to build uniquely differentiated products while reducing waste and time to market.

13 │ OESA News - 2019 Third Quarter

ArcelorMittal Tailored Blanks, a subsidiary of ArcelorMittal, is the company’s specialized business unit for tailored blanks or laser-welded blanks — a manufacturing technology that improves the performance of our customer’s vehicles. Improving safety performance while reducing weight and cost, ArcelorMittal Tailored Blanks produces laser-welded blanks that are stamped and assembled into the following components: door rings, door pillars, door inners (front and rear), structural rails, cowl sides and structural body-sides.

EG TranSpire

Carbon, Inc.

1089 Mills Way Redwood City, CA 94063 (650) 285-6307 Carbon3d.com

Member Representative: Ben Orler, Chief Operating Officer Alternate Representative: Keith Dusina, Chief Technical Officer

550 Stephenson Hwy, Suite 360 Troy, MI 48083 (248) 588-4870 Member Representative: Rob Simon, Vice President Business Development Alternate Representative: Karen Mobley, Director of Finance EG Industries is a leader in the manufacturing of plastic injection molded parts for some of the biggest original equipment manufacturing (OEM) companies, as well as major Tier I suppliers in the automotive industry. Through our EG TranSpire subsidiary, EG Industries has been designing, developing, and manufacturing a wide range of components and sub-assemblies for the automotive market for more than 35 years.

WELCOME NEW MEMBERS G-TEKT North America Corp.

HBPO North America, Inc.

Member Representative: Takashi Tate, Assistant Division Manager Alternate Representative: Jason Becker, Sales Manager

Member Representative: Calvin Jennings, Director, Sales & Marketing Alternate Representative: Diana Mannino, President

G-TEKT works closely with automakers from the development stage of new vehicle models. It is here that it uses its technologies for adding strength to ensure passenger safety and reducing weight to improve fuel economy. G-TEKT provides the optimal design of parts for both safety and environmental requirements.

Its highly productive, streamlined manufacturing plants enable it to consistently deliver high-quality, low-cost parts that help support automakers around the world.

Car manufacturing is a complex process and development resources are at a premium. That’s why so many companies rely on the know-how of HBPO North America. Its extensive experience in producing integrated front-end modules is the reason why it is able to offer overall solutions – from design and development right through to assembly and logistics. HBPO’s aim is to constantly upgrade the benchmark in cost-effectiveness and technological innovation – to the satisfaction of customers across the world.

IRISO U.S.A., Inc.

Pirelli Tire North America

Member Representative: Roy Thorson, President Alternate Representative: Akemi Sullivan, Account Manager

Member Representative: Maureen Kline, VP Public Affairs & Sustainability, North America Alternate Representative: Ernest Bedia, VP Original Equipment, North America

325 Cramer Creek Court Dublin, Ohio 43017 (614) 3898200 G-TEKT.jp/english/

34405 W 12 Mile Rd., Suite 237 Farmington Hills, MI 48331 (248) 324-9783 IRISOconnectors.com

IRISO Electronics is a global manufacturer of electronic plug connectors based in Japan. It conducts business in a very traditional way, aspiring to provide value to any process and focusing not just on the products it sells, but on the application of those products to help solve bigger problems.

Petro-Canada Lubricants Inc. 2310 Lakeshore Rd. West Mississauga ON L5J 1K2 (905) 467-0277 lubricants.petro-canada.com/en-us

Member Representative: Jim Putz, Manager, Global OEM Sales For over 30 years, Petro-Canada lubricants has researched, developed and produced more than 350 world-class advanced lubricants, specialty fluids and greases.

Its products continue to perform beyond expectations in virtually every industry around the globe. Located in Mississauga, Ont., Canada, Petro-Canada Lubricants’ base oil refinery is one of the largest in the world. It has an annual capacity of more than one billion liters.

700 Tower Drive Suite 250 Troy, MI 48098 (248) 823-7080 HBPOgroup.com

546 5th Ave, 8th floor New York, NY 10036 (212) 497-8818 Pirelli.com

Pirelli was founded in Milan in 1872 and today stands as a global brand known for its cutting-edge technology, high-end production excellence and passion for innovation that draws heavily on its Italian roots. With 19 production plants in 12 countries and a commercial presence in over 160, Pirelli has 31,500 employees and a turnover in 2018 of about 5.2 billion €. It is among the world’s major producers of tires and associated services.

Join OESA Today!

Become a member of OESA and let us champion your business interests throughout the supply chain and in government affairs.

For membership information, contact: Brenna McCann 248.430.5970 bmccann@oesa.org.

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OESA EVENTS Register now for the Automotive Raw Materials Summit / Aug. 15 Join OESA at the OESA 2019 Automotive Raw Materials Summit for comprehensive materials market outlook, a legal review of contracting safeguards, and an understanding of material cost management tools and strategies. The summit will be held on Aug. 15, 2019 at the MSU Management Education Center in Troy, Mich.

The event features the following industry insiders and subject matter experts: David Brooks, Senior Vice President, Global Metals Jon Efken, Director, GCB Head of Commodities Sales, Bank of America Merrill Lynch Andrew Fromm, Member, Brooks Wilkins Sharkey & Turco PLLC Jason Killips, Member, Brooks Wilkins Sharkey & Turco PLLC Chuck Venezia, Senior Vice President, Global Petrochemicals Attendees will also have the opportunity to ask questions during the Q&A session and network one- on-one with the presenters.

Sponsored by:

Don’t miss the 3Q Mobility Supplier Forum & AutoConnect Matchmaking Event / Sept. 5 Automotive suppliers looking to learn the latest in automotive technology and to partner with advanced vehicle technology companies are invited to attend the OESA 2019 3Q Mobility Supplier Forum & Matchmaking Event on Sept. 5, 2019 at SRI International in Menlo Park, California.

In cooperation with Warner Norcross + Judd and the Capstone Financial Group, OESA, AASA and HDMA are pleased to host the Silicon Valley event designed to help automotive suppliers advance their business interests in connected and transformative technologies.

The following industry thought leaders will share their expertise in new business partnerships and automotive technology: Chris Bahlman, Head of Diagnostics & Services - North America Commercial Vehicles & Aftermarket, Continental Michael Brady, Partner, and Co-chair, Automotive Industry Practice Group, Warner Norcross + Judd Jeremy Carlson, Principal Analyst & Manager, Autonomous Driving & Mobility, IHS Markit Immediately following the Mobility Supplier Forum will be the inaugural AutoTech Connect 2019 Matchmaker Event. Tier 1 automotive suppliers, automotive after-market suppliers and commercial vehicle suppliers will have a unique opportunity to meet with pre-vetted startup companies that have developed advanced technologies for connected vehicles, telematics, EV and other applications.

Sponsored by:

OESA members and industry guests may register for events at www.oesa.org.

For registration assistance, contact OESA at 248.952.6401 or info@oesa.org.

15 │ OESA News - 2019 Third Quarter

OESA EVENTS Upcoming OESA Events

Aug. 17

2019 Terms and Conditions Event & Webinar MSU Management Education Center, Troy, MI

Get the latest information on OEM terms and conditions for BMW, FCA, Ford, General Motors, Honda, Hyundai, Kia, Mercedes-Benz U.S. International, Inc., Nissan, Rivian, Tesla, Toyota, Volkswagen, and Volvo. Registration includes the updated copy of the "North American OEM Production P.O. Terms and Conditions Comparative Analysis" by Butzel Long.

Aug. 18

31st Annual Canada/U.S. Automotive Business Luncheon

The Henry / 300 Town Center Drive, Dearborn, Michigan 48126 This annual event fosters collaboration between U.S. and Canadian automotive suppliers.

The keynote is the new Canadian Consul General, Joseph Comartin. He will share his priorities for the automotive section and will be joined by Flavio Volpe, President, APMA, and Ann Wilson, SVP, Government Affairs, MEMA for a panel discussion.

Upcoming Council Meetings:

Aug. 13

Environmental, Health and Sustainability Council

Aug. 15

Chief Purchasing Officers Council

Aug. 22

Young Leadership Council Graduation & Reception

Sept. 4

CEO Council

Sept. 12

Advanced Technology Council

OESA Conference Center, Southfield, MI

MSU Management Education Center, Troy, MI OESA Conference Center, Southfield, MI OESA Conference Center, Southfield, MI OESA Conference Center, Southfield, MI

Upcoming OESA Town Hall Meetings On an annual basis, OESA schedules Town Halls with their executives from purchasing and engineering teams to get the latest in vehicle production and sales, supplier relations and to strengthen supplier / customer relationships.

The remaining 2019 OEM Town Hall meetings include:

Aug. 20

FCA Town Hall – Register Now Suburban Collection Showplace, Novi, MI

Sept. 11

Honda Town Hall – Register Now Laurel Manor Banquet and Conference Center, Livonia, MI

Dec. 4

Ford Town Hall – Save the Date The Henry Hotel, Dearborn, MI

OESA members and industry guests may register for events at www.oesa.org.

For registration assistance, contact OESA at 248.952.6401 or info@oesa.org.

OESA News - 2019 Third Quarter

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AutoBeat Daily provides the latest automotive news directly to the inbox of automotive executives and key decision-makers every morning.

OESA members are eligible for a 50% DISCOUNT on new individual and corporate subscriptions to AutoBeat Daily.

Existing subscriptions do not qualify.

Call ROBIN PADGETT at 313.957.8947.

Provide the code OESA19 to sign up for your discounted subscription today!

17 │ OESA News - 2019 Third Quarter

COUNCIL UPDATE

Two popular OESA Councils for Technology and Sales Executives

Steve Horaney Vice President, Membership and Sales 248.430.5969 │ shoraney@oesa.org

OESA Executive Peer Group Councils are rated one of the most valuable member benefits for automotive suppliers. These councils are designed to bring together supplier executives with similar job functions and industry challenges. Quarterly meetings provide a forum to address issues of common concern, share best practices, and learn from industry thought leaders.

Two popular councils are the Advanced Technology Council (ATC) and the Sales Executive Council (SEC).

The ATC is geared toward senior supplier executives in engineering, business development and product development. Meetings focus on a wide range of new vehicle technology topics including cyber security, CAFE (regulations, materials, light weighting, powertrains), vehicle connectivity (V2X, telematics, OTA, infotainment), as well as autonomous and ADAS technologies. The next meeting is scheduled for Thursday, September 12, 2019 with a focus on lightweighting. Additional information will be announced soon.

Discussions at SEC meetings cover a broad range of commercial and business development issues. During the quarterly meetings, supplier sales leaders have the opportunity to query OEM representatives, receive market updates and network with industry peers. This is the largest OESA council. The next meeting is scheduled for Thursday, September 19, 2019, and will feature a 2020 industry forecast by Michael Robinet, Executive Director, Automotive Advisory Services, IHS Markit.

Eligible supplier executives for both the Advanced Technology and Sales Executive Council are welcome to attend a meeting.

OESA has a council for almost every function and role at a supplier organization: Advanced Technology Council

Human Resources Council

Automotive Public Relations Council

Legal Issues Council

Chief Executive Officer Council

Sales Executive Council

Chief Financial Officers Council

Tooling Council

Chief Purchasing Officers Council

Warranty Management Council

Communication Executives Council

Young Leadership Council

Enterprise Leadership Council

MEMA Government Affairs Council

Environment, Health, Safety and Sustainability Council

To determine eligibility requirements or attend a meeting as a guest, please feel free to reach out to me directly.

Learn more about the ATC, SEC and all other OESA Peer Group Councils at oesa.org/councils-and-committees.

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Original Equipment Suppliers Association 25925 Telegraph Rd., Ste. 350 │Southfield, MI 48033-2553 248.952.6401 │oesa.org │info@oesa.org Connect with us on OESA News is provided by members of the OESA Communications Team.

April Buford Senior Director, Communications

Jeff Laskowski Senior Manager, Communications

Abby Napier Communications Specialist

248.430.5964 abuford@oesa.org

248.430.5951 jlaskowski@oesa.org

248.430.5957 anapier@oesa.org