OESA News 2017 Fourth Quarter, Edition 1

NEWS

Original Equipment Suppliers Association

2017 Fourth Quarter │ Edition 1

IN THIS ISSUE...

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The Suppliers' Voice Industry Outlook

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Guest Column Legal Corner

This edition is sponsored by

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OESA Events Calendar of Events

AGILE. RESPONSIVE. POWERFUL. ROADTESTED. We get the automotive industry. That’s why multinational Fortune 500 companies to family-owned suppliers look to Warner Norcross for counsel. Through strategic guidance, we maneuver relationships between parts suppliers and vehicle manufacturers, automotive regulators and the emerging autonomous vehicle market. For more information about our experience and expertise in the fast and furious automotive market, visit wnj.com.

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A BETTER PARTNERSHIP‰

GUEST COLUMN

Voice

The Suppliers’

Julie A. Fream

President and CEO

OESA’s Annual Conference “Outlook Panel” to Deliver Important Insight

We are just weeks away from our 2017 Annual Conference: The Industry’s New Landscape. This year’s event will be held on November 13, 2017 at the Suburban Collection Showplace in Novi, MI. Our ever-popular Industry Outlook Panel discussion, titled Cycle Dynamics: The Industry Outlook Panel, promises to deliver unique perspectives and important insight from established industry experts: • Dr. G. Mustafa Mohatarem, Chief Economist, General Motors, will discuss the new fundamentals of the automotive economy. General Motors continues its dual focus on its core product portfolio and expanding its capabilities in the emerging new ride share and autonomous landscape.

• John Murphy, Managing Director & Lead US Auto Analyst, Bank of America Merrill Lynch and lead analyst for the annual “Car Wars” study, will provide the Wall Street perspective on the automotive industry. Murphy will discuss the current automotive cycle and the industry’s competitive dynamics, new business models and drivers that investors are closely monitoring.

• Michael Robinet, Managing Director, Automotive Advisory Services, IHS Markit and OESA Board Member, will provide the industry’s forecast parameters from the supplier perspective. Robinet’s data is both informational and actionable as the industry plans for the future.

This year’s agenda also features presentations from senior OEM executives and other industry thought leaders, including: • Craig Giffi, Vice Chairman and U.S. Automotive Leader, Deloitte • Jeff Jorge, Principal, Mobility Market Leader, International Growth Services Practice Leader and Latin American Desk Leader, Baker Tilly • Steve Kiefer, Vice President, Global Purchasing and Supply Chain, General Motors • Mahesh Kodumudi, Executive Vice President, Purchasing, Volkswagen Group of America • Jerry Lavine, Vice President, Advanced Product Development, Magna • Sherif Marakby, Vice President, Autonomous Vehicles & Electrification, Ford Motor Company • Ziad “Z” Ojakli, Group Vice President of Government & Community Relations, Ford Motor Company • RJ Scaringe, CEO, Rivian Automotive • Susan Smyth, Chief Scientist, Global Manufacturing, General Motors • Rob Wildeboer, Executive Chairman and Co-founder, Martinrea International Inc. • Shinichi Yasui, President, Toyota Engineering & Manufacturing North America • Bob Young, Vice President, purchasing, Toyota Engineering & Manufacturing North America

I hope you will join us at the 2017 OESA Annual Conference. As always, please feel free to contact me at 248.430.5963 or jfream@oesa.org.

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INDUSTRY OUTLOOK

DRIVING MARKET OPPORTUNITIES WITHIN THE LUXURY SECTOR Mike Jackson Executive Director, Strategy and Research 248.430.5954 │ mjackson@oesa.org

As the demand of luxury brand entries in the U.S. and beyond continues to outpace total market sales, this segment represents a unique opportunity for suppliers. Through June 2017, U.S. light vehicles sales slipped 2.1 percent to 8.45 million units. During the same period, luxury brand sales in the U.S. grew by 2.3 percent to 1.0 million units, or a 12 percent share.

Despite considerable policy uncertainty in Washington, D.C., the market continues to experience strong fundamentals including historically low interest rates, tight employment markets, low energy prices, a recordhigh stock market and sharply higher home values – all of which enhance the wealth effect and bolster consumer sentiment.

This is important as luxury brands typically command a meaningfully higher price point within respective segments, offering additional profit potential.

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INDUSTRY OUTLOOK

Suppliers also benefit from increasing global luxury segment demand as automakers leverage their U.S. production to export more vehicles.

BMW and Mercedes-Benz now export an average 70 percent of their annual output of their wildly popular, U.S. manufactured sport utility.

A key factor for luxury brand supremacy is for an OEM to have sufficient coverage across all product categories.

The dramatic shift in consumer preferences toward sport utilities has resulted in declining sales for luxury brands with incomplete product portfolios. In evaluating sales of the top U.S. luxury brands through June 2017, the dramatic increase in sport utility demand helped push emerging brands higher as newer entries, including the Jaguar F-Pace, the Tesla Model X and Infiniti QX30, posted sizable gains.

At the same time, more established manufacturers with stronger passenger car portfolios experience declining sales.

The growth of luxury brands offers unique opportunities for suppliers to be affiliated with and to contribute to the prestige, refinement and performance of vehicles that encompass opulence, exclusivity, and aspirational appeal.

Supplying the needs of luxury customers highlights an organization’s ability to meet rigorous quality parameters and may open the door to new opportunities across a wider range of prospective customers.

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GUEST COLUMN

Mobility technology advances reroute supplier strategies The traditional vehicle ownership model is changing with advances in mobility technology and shifting consumer preferences. As the automotive industry moves toward an autonomous, shared-vehicle model, OEMs will seek supplier partners who understand, and will adapt for, the future — successfully implementing significant changes to the vehicle’s interior, exterior, powertrain, and chassis.

Seizing new opportunities will require a realistic assessment of your business and its role in tomorrow’s industry. The capital requirements and investment risks at play in this dynamic market can be daunting. Here’s a snapshot of what you can expect.

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You may need to acquire rather than invent product technology — a fact that’s fueling a great deal of joint venture, merger, and acquisition activity. For example, BorgWarner acquired traction motor maker, Remy International, to position itself to better serve the electric and hybrid electric vehicle market, while Bosch will use Nvidia’s chips to power its self-driving supercomputer.

You’ll have savvy competition as tech companies and private equity firms move into the automotive space. Samsung acquired Tier 1 electronics and software provider Harman; Intel is acquiring autonomous driving technology firm Mobileye; and Qualcomm is acquiring NXP Semiconductors. The competitive landscape is changing that quickly, and if you don’t begin to imagine the future, it will slip through your fingers.

GUEST COLUMN

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Autonomous sharing will grow as self-driving capabilities improve ride- and vehicle-sharing opportunities for customer access. For example, Uber is planning a driverless fleet by 2030.

OEM investments in mobility technology and in ride- and vehicle-sharing applications and platforms will also continue to increase. Ford created Ford Smart Mobility to speed development of advanced technology; General Motors has launched a fleet-sharing subsidiary, Maven, invested in Lyft, and acquired autonomous technology startup, Cruise Automation, as examples.

The convergence of autonomy and ride-sharing will have vehiclewide implications.

Suppliers can expect bumper-to-bumper changes in everything from materials and visual displays, to sensors and controls. There will be a need for increased technology integration, faster component replacement in many instances, and new technologies and infrastructure to support self-driving capabilities.

Electric vehicles will become increasingly viable. The increased asset utilization enabled by autonomous technology can enhance EVs’ annual fuel savings and strengthen the EV return on investment and business cases, along with meeting the environmental requirements to reduce hydrocarbon emissions that many major cities will be adopting.

What’s a supplier executive to do?

Identify the potential impacts on your product portfolio as mobility technologies are applied throughout the vehicle, and make strategic decisions on the direction you want to go. Prepare to invest more in R&D, innovation, mergers and acquisitions, and/or new customer segments to support growth of new business. You’ll need to be extremely focused with your resources.

If certain products or services don’t fit the future direction you’ve identified, you may have to make difficult decisions about carving them out, as hard as that may be to do, to ensure a sustainable position in the value chain.

Simplify complexity Change can be daunting. Let us help you balance competing priorities and make smart investment decisions.

Daron Gifford

Partner, Strategy Consulting Services Leader 248-223-3709 daron.gifford@plantemoran.com

Stay in the know: subscribe.plantemoran.com

plantemoran.com

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LEGAL CORNER

SUPREME COURT TO HEAR CHALLENGES TO THE INTER PARTES REVIEW PROCESS: PRIVATE OR PUBLIC RIGHT? Michael Brady Partner │Warner Norcross & Judd LLP vciaravino@wnj.com │ 248.784.5179

Earlier this year, Ford Motor Company successfully defeated a patent owned by non-practicing entity Paice, LLC. The patent, directed to hybrid vehicles, was canceled following an “inter partes review” at the patent office. Later this year or early next year, however, the Supreme Court will hear arguments that broadly challenge the authority of the patent office to cancel issued patents. For anyone involved in innovation, the impact of the Supreme Court’s decision is potentially massive.

What are Inter Partes Reviews?

Inter partes reviews were created by Congress in 2011 as an administrative procedure for challenging a patent at the patent office—effectively requesting that the patent office reconsider whether the patent should have granted in the first instance. Inter partes reviews have a narrower scope than district court litigation, focusing only on the validity of a patent. Discovery is not as far reaching, and inter partes reviews are typically concluded within 18 months.

In view of these differences, many businesses now turn to inter partes reviews as a lower cost alternative to defending against a patent in district court. Across all industries, inter partes reviews have favored patent challengers, with the success rate remaining near 70%.

Within the auto industry, Ford, Toyota and MercedesBenz are among the more prolific users of inter partes reviews, each having initiated over 30 separate inter partes reviews since 2013.

The Supreme Court Appeal Not surprisingly, inter partes reviews have been challenged under various grounds since first implemented in 2013. Sometime during the upcoming October Term, the Supreme Court will hear the latest challenge in Oil States v. Greene’s Energy Group.

Among other issues, the Supreme Court will consider whether patent owners are entitled to have a jury decide whether a patent should be canceled as being invalid.

At its core, the issue centers on whether a patent is 8 │ OESA News - 2017 Fourth Quarter

a private right or a public right. Generally, deprivation of a private right requires a trial by jury under the seventh amendment, while deprivation of a public right does not. If patents are determined to be a private right, inter partes review proceedings may be deemed unconstitutional.

The impact of the Supreme Court’s decision in Oil States could have far reaching effects. If inter partes reviews are unconstitutional, many commentators expect patent infringement filings to return to pre-2013 levels. If inter partes reviews are left intact, however, the number of petitions filed each year could increase.

For example, over 1,500 petitions for inter partes review have been filed within the last 12 months. This number could rise over the next 12 months, particularly if the Supreme Court’s decision is viewed as an endorsement of Congress’s authority to delegate to the patent office the ability to cancel invalid patents.

Takeaway The Oil States appeal is not the Supreme Court’s first exposure to inter partes reviews. Last June, the Supreme Court upheld the patent office’s practice of interpreting patents broadly in inter partes reviews. The upcoming oral arguments should offer an initial insight into the thinking of the several justices regarding this most recent challenge. If inter partes reviews are an important aspect of your business, or if you would like more information regarding the Oil States appeal, please contact Vito Ciaravino or any of the intellectual property attorneys in our Automotive Industry Group.

About the Author Vito Ciaravino is a patent partner at Warner Norcross & Judd LLP. He guides clients through the patent process by preparing and prosecuting patents in the U.S. and abroad. He specializes in the mechanical and electrical arts, and in product development and acquisition.

OESA EVENTS

OESA & HARBOUR RESULTS, INC. 2017 AUTOMOTIVE TOOLING UPDATE | NOV 2 The Original Equipment Suppliers Association (OESA) and Harbour Results, Inc. (HRI) announce the 2017 Automotive Tooling Update on Nov. 2, 2017, at The Dearborn Inn, Dearborn, MI. This meeting will provide attendees with automotive tooling market intelligence and insights critical for the health of the entire automotive industry.

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

OESA Board of Directors Executive Committee Chairman of the Board Mike Mansuetti President Robert Bosch LLC Immediate Past Chair Samir Salman CEO NA Region Continental Automotive Systems, Inc. Vice Chairman Ramzi Hermiz President and CEO Shiloh Industries, Inc. Officer Julie A. Fream President and CEO Original Equipment Suppliers Association Officer Steve Handschuh President and CEO Motor & Equipment Manufacturers Association

Directors

EMERGING INTELLECTUAL PROPERTY LEGAL TRENDS FOR 2017 AND BEYOND NOV 7 OESA and Warner Norcross & Judd LLP invite supplier executives to a breakfast briefing addressing emerging intellectual property (IP) legal trends.

The event, "Emerging Intellectual Property Legal Trends for 2017 and Beyond," will be held on Nov. 7, 2017, at the Detroit Marriot Troy in Troy, Mich.

In the fast-moving world of today's automotive industry, it is essential for suppliers to have the latest information on protecting intellectual property (IP). Warner Norcross & Judd attorneys Janet Ramsey, Gregory DeGrazia, Michael Azzi, Vito Ciarvino, and Deloitte consultant Christopher Ongena will discuss IP legal and strategic decisions as well as challenges that may impact business.

Topics to be covered include:

Oscar Albin Executive President INA, Industria Nacional de Autopartes A.C. Paul Barnett President Principal Manufacturing James Bradbury President Grand Rapids Controls Company LLC Françoise Colpron Group President Valeo North America Frederick Cartwright Executive Director Clemson University International Center for Automotive Research (CU-ICAR)

• International Intellectual Property Strategies

David C. Dauch Chairman and CEO American Axle & Manufacturing, Inc. (AAM)

• Trade Secrets and the Automobile

(Continued on page 10)

• Automotive Impact of Recent SCOTUS IP Decisions

• Autonomous Vehicle IP Redux • Licensing and Monetization of Intellectual Property ► SUPPORTING PARTNER

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OESA EVENTS OESA Board of Directors Executive Committee

OESA MOBILITY SUPPLIER FORUM Q4 NOV 28

Jacqui Dedo Co-Founder Aware Mobility, llc

The Original Equipment Suppliers Association (OESA) is pleased to announce the formation of a “Mobility Supplier Forum” – intended to help automotive suppliers on the west coast to advance their business interests as they relate to connected and transformative technologies.

This new group will meet quarterly in 2017 in the California “Silicon Valley” area, and each meeting feature a half day of OEM presentations and updates, as well as insights from industry leading experts on issues of common concern for automotive suppliers.

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Paul Doyle CEO Coastal Automotive John Dunn President and CEO, The Americas, Plastic Omnium Auto Inergy Division Douglas J. Grimm Industry Advisor Michael Haughey President North American Stamping Group, LLC Ken Hopkins President and CEO Neapco Holdings, LLC Don Manvel Chairman AVL Americas Chris Obey President, Automotive Flex Lon Offenbacher President and CEO Inteva Products Michael Robinet Managing Director Automotive Advisory Services IHS Markit

For additional registration and program information, contact OESA at 248.952.6401 or info@oesa.org.

OESA 2018 CONSUMER ELECTRONICS SHOW SUPPLIER BRIEFING | JAN 8 The Original Equipment Suppliers Association (OESA) is pleased to announce the 2018 Consumer Electronics Show (CES) Supplier Briefing on Jan. 8, 2018. The event will be held at the MGM Grand in Las Vegas. Senior industry analysts from IHS Markit will discuss innovative technologies and provide attendees with an expert preview of what to look for and be aware of at the 2018 Consumer Electronics Show.

A team of IHS Markit automotive technology experts will share insights on automotive electronics, automotive semiconductor, connected cars, software trends, ADAS and more. A detailed speaker lineup will be announced prior to the event.

Dan Sceli President and CEO Peterson American Corporation

OESA encourages members to register for the CES Briefing as soon as possible as space is limited. For additional registration and program information, contact OESA at 248.952.6401 or info@oesa.org.

Wes Smith President and CEO E & E Manufacturing Co., Inc.

► SUPPORTING PARTNERS:

Armando Tamez CEO Nemak Jim Teets President and CEO ADAC Automotive James Verrier President and CEO BorgWarner Inc.

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OESA EVENTS

CALENDAR OF EVENTS UPCOMING EVENTS Oct

17 Nov

02 Nov

07 Nov

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NAFTA Negotiations: Implications for Canada and the U.S. Detroit Regional Chamber Detroit, MI OESA and Harbour Results, Inc. 2017 Automotive Tooling Update The Dearborn Inn, A Marriott Hotel Dearborn, MI Emerging Intellectual Property Legal Trends for 2017 and Beyond Detroit Marriott Troy, MI

Nov

28 Dec

01 Jan

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OESA Mobility Supplier Forum Q4 TBD

SAVE THE DATE! OESA Members Only Ford Town Hall Ford World Headquarters OESA 2018 Consumer Electronics Show Supplier Briefing MGM Grand Las Vegas, NV

2017 OESA Annual Conference The Industry’s New Landscape Suburban Collection Showplace Novi, MI

UPCOMING OESA COUNCIL MEETINGS* Oct

Legal Issues Council OESA Conference Center Southfield, MI

Oct

Communication Executives Council OESA Conference Center Southfield, MI

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Oct

Human Resources Council OESA Conference Center Southfield, MI

Oct

Automotive Public Relations Council OESA Conference Center Southfield, MI

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*Open to peer group council members and invited guests.

For more information and to register for OESA events and council meetings, visit oesa.org, or call 248.952.6401.

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