OESA News - Third Quarter - Second Edition

NEWS Original Equipment Suppliers Association

2022 Automotive Supplier Conference

THE FUTURE IS CALLING...

HOW WILL YOU ANSWER?

REGISTER NOW! Monday, November 7, 2022 Suburban Collection Showplace

2022 Automotive Supplier Conference November 7, 2022

IN THIS ISSUE...

1 On Your Behalf by Julie A. Fream 2 OESA Automotive Supplier BarometerTM 4 RSM Commentary: OESA Automotive Supplier BarometerTM 6 Things to Consider Regarding CO2 Emissions 8 OESA Events

10 Council Highlight: Warranty Management Council 11 Welcome New Members 12 Tune into Automotive Insiders hosted by Jason Stein 13 OESA Event Calendar

2022 Third Quarter │ Edition 2

Warner Legal Corner AUTOMOTIVE LEGAL TOPICS Volume Seven, August 2022

Post-Pandemic Travel Brings Greater Antitrust Risks

The transition from COVID-19 pandemic response to recovery has led to a resurgence in business travel, including a return to inperson trade shows, trade association meetings and other events attended by multiple competitors. This return to the road presents positive, lawful opportunities for businesses and employees alike.

Given historical antitrust enforcement in the auto parts space and the U.S. Department of Justice’s renewed focus on antitrust under the Biden Administration, it’s important to remember that events like trade shows or trade association meetings can be venues conducive to illegal competitive coordination — such as price fixing — under antitrust laws.

With that in mind, businesses should consider the following Dos and Don’ts as they return to travel and potential in-person interactions with competitors:

Do brush up on and follow your company’s antitrust compliance program (and if your company doesn’t have one, implement one).

Don’t discuss prices or competitively sensitive information with competitors, even informally with friends who may work for competitors.

Do end or leave discussions that veer into inappropriate areas and seek guidance on them from counsel.

Don’t use a third party, such as a customer, as a conduit to exchange competitively sensitive information with competitors.

Do be mindful, when reducing any observations from a trip to writing, that a future enforcement authority might misinterpret any statements you make. Assume your written communications could be on the front page of the Detroit Free Press or the New York Times.

Don’t make statements that could be read to suggest you doubt the legality of your actions or you are coordinating with competitors. So rather than saying, “There is a movement among all competitors to do X,” say, “According to Trade Publication A, Competitors B, C and D might do X.”

For more information from Warner’s Automotive Industry Group, visit their webpage or log onto www.wnj.com.

Michael Brady

Partner mbrady@wnj.com 313.546.6032

Tom Manganello

ATTORNEY SPOTLIGHT

Charlie Quigg Charlie Quigg is a problem solver who represents clients in complex civil and criminal matters, guiding them smoothly through every step of the process, from pre-suit investigations to appeals. A quick study, Charlie’s experience includes matters in a variety of substantive areas, including commercial law, antitrust, public corruption, campaign finance, the False Claims Act, administrative law, health care, bankruptcy, intellectual property, tax and environmental law.

Charlie’s background includes working as in-house counsel for an international engine parts manufacturer with headquarters in the United States and facilities in Mexico, Spain and China. This experience gives Charlie an insider’s perspective on legal matters facing automotive suppliers. Even more importantly, Charlie’s unique profile helps him better understand the business and manufacturing issues that affect the legal matters he handles for clients. He is passionate about clients’ businesses and learning how things are made, and it helps that Charlie is fanatical about all things cars.

Much of Charlie’s practice centers on high stakes internal and government investigations and appeals. He frequently represents clients in both federal and state matters of that nature. Charlie also has extensive experience in related issues, such as the preservation, collection and review of documents in complex matters involving millions of documents. Charlie also counsels clients prior to litigation ever becoming an issue, setting them up to proactively manage and resolve misunderstandings and/or conflicts before they ever evolve into a formal and costly dispute.

Charlie has been named to the Ones to Watch List by Best Lawyers in America© in the areas of White Collar Criminal Defense and Antitrust Law. Charlie also serves as the editor-in-chief of Bar & Bench, the newsletter for the West Michigan Chapter of the Federal Bar Association.

Check out Charlie’s full bio here.

Partner tmanganello@wnj.com 313.546.6007

Elaine Taylor

Business Development etaylor@wnj.com 586.876.4045

Click here to access Warner’s Legal Corner Resource Page on OESA’s website.

On Your

Behalf

Planning for the 2022 Automotive Supplier Conference is underway at OESA, and my team and I are excited about this year’s annual event. The focus of this year’s conference is on the future of the automotive industry: The Future is Calling…How Will You Answer?

The call for new vehicle innovation and collaboration throughout the industry continues to change the automotive supplier landscape. New opportunities and challenges abound as the industry evolves to electric vehicles and a new infrastructure. Conference attendees will gain firsthand knowledge on how the industry is answering the call of new vehicle innovation. Bring your entire team to hear from some of the industry’s key thought leaders, including executives from AFS, Bain and Co., Ford, General Motors, Infor, Rivian and Zoox.

Also presenting at this year’s conference is Detroit native and New York Times best-selling author, Josh Linkner. He is an expert on innovation and the author of Big Little Breakthroughs: How Small, Everyday Innovations Drive Oversized Results, and several others. Other event highlights include an all-new EV Purchasing Panel, the ever-popular Industry Outlook Panel and new Tedtalk like “Industry Briefs” on some of the most pressing issues in automotive.

The event will be held on Monday, November 7, 2022 at the Suburban Collection Show Place in Novi, MI. It is a must-attend event to network with other automotive supplier and OEM professionals, and gain actionable insight on the future of automotive.

We hope to see you at this year’s Automotive Supplier Conference and learn how the industry is answering the call from the future.

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 - 2022 Second Quarter

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OESA AUTOMOTIVE SUPPLIER BAROMETER

Inflation Pressures and Recession Prospects Pull Sentiment Lower Yet Focus on Innovation Remains Mike Jackson Executive Director, Strategy and Research 248.430.5954 │ mjackson@oesa.org

According to the Q3 2022 OESA Automotive Supplier Barometer Index (SBI) – a gauge to measure the sentiments of North American automotive supplier executives – The outlook for the third quarter fell deep into pessimistic territory due to continued concerns over production shutdowns, and heightened concerns over a weakening U.S. economy. Results reflect a highly pessimistic reading of 32 for the period, 18 points below a neutral level of 50 and a further 8 points below the already pessimistic results from Q2 2022. Sentiment deteriorated sequentially across firms of all sizes but fell drastically for mid-level suppliers. The largest, most globally exposed suppliers’ outlook remained deeply pessimistic The Q3 2022 OESA Supplier Barometer, sponsored by RSM US LLP, focused on Capital Markets and Innovation. The results indicate: •

•

•

•

Continued shortages of semiconductors and other components and materials continue to place immense cost pressure on the supply base. Growing concerns over the strength of the U.S. economy and continued issues with labor scarcity depressed the outlook further. Supplier executives estimate a recession is more likely to occur in the coming 12 months than not.

Fortunately, most feel at least somewhat prepared if a recession were to occur.

Capital needs are expected to broadly increase in terms of use and by company size. The industry expects the capital needed to support new program launches and production volumes will increase 4.7% and 6.2% in 2022 and 2023, respectively.

Terms of commercial loans and credit lines are expected to continue to tighten over the coming year with the only exception being the maximum size of commercial loans. Confidence in capital acquisition remains at strong levels, and suppliers are more confident they will be able to access their needed capital in comparison to last year for all use cases.

Forty-five percent of suppliers believe they are ahead of the industry’s pace of innovation while eighteen percent feel they are behind. Focusing on technological R&D and developing products that support the EV market are common practices by firms that consider themselves the most innovative. Firms that are catching up with the pace of the industry are investing in their engineering teams, R&D, and engaging in ongoing discussions with customers to determine their needs.

Supplier sentiment reflects very real cost pressures due to record high inflation levels and is compounded by concerns over recessionary impacts - yet innovation strategy and sound capital expenditure planning are recognized as key drivers to mitigate such forces and bolster a stronger competitive position. Capital needs continue to increase, fueled by higher program launch activity, product innovation, and robust R&D efforts to support advanced technologies and battery electric vehicle efforts while nearly 40% of supplier executives characterize current M&A activity as either moderate or substantial to support their innovation objectives.

The Q3 SBI chart and a full copy of the Supplier Barometer results are available on the OESA website at: https://www.oesa.org/q3-2022-automotive-supplier-barometer. See page 4 to view the RSM US LLP commentary on the Q3 2022 OESA Supplier Barometer results.

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OESA Supplier Barometer: Q3 2022 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) 90

52% 44%

80 60

40

Jan-2022

Jan-2021

Jan-2020

Jan-2019

COVID-19 Pandemic

Jan-2018

Jan-2017

US Trade War Escalates

Jan-2015

Jan-2014

10

Japan Tsunami/ Grexit Crisis

Jan-2016

Euro Crisis Begins

20

Significantly more pessimistic

Somewhat more pessimistic

Unchanged

Somewhat more optimistic

Significantly more optimistic

32

30

1% 1%

Jan-2013

10%

Lehman Collapse

50

15% 10%

Jan-2012

21%22%

Jan-2009

23%

20% 0%

US Tax Reform

70

40%

Jan-2011

60%

Q3 2022

Jan-2010

Q2 2022

111 responses

The 12-month outlook for the third quarter fell deeper into pessimistic territory as concerns over production shutdowns continue, coupled with increased risk from a weakening U.S. economy.

Q3 2022 OESA AUTOMOTIVE SUPPLIER BAROMETER

Link to comments

1

OESA Supplier Barometer: Industry Threats What are the greatest threats to the industry over the next 12 months?

0%

20%

40%

60%

80%

100%

Average Rating July May

Production shutdowns shutdowns due to supply chain issues Production due shortages to supplyand chain…

2.5

2.8

Weakness in the U.S. Economy Weakness in the U.S. Economy

3.2

4.6

Labor availability constraints Labor availability constraints

3.4

3.5

4.1

3.7

Likelihood of higher interest rates Likelihood of higher interest rates

4.4

5.0

sales of vehicles in programs supplied Poor sales Poor of vehicles in programs supplied

5.2

5.8

External "black swan" event (geopolitical, natural disaster, etc.)

External "black swan" event (geopolitical, natural…

5.4

4.5

Continued issues to the COVID-19 pandemic Continued issues related torelated the COVID-19 pandemic

5.5

4.7

Implementation of new government regulations Implementation of new government regulations

6.4

6.6

ChangesChanges in government trade policy in government trade policy

6.6

6.8

Inability to fulfill customer volumes (component and raw material Inability to fulfill customer volumes (component and… shortages)

1=Greatest Threat

2

3

4

5

6

7

8

9

10=Smallest Threat

Production shutdowns due to supply chain shortages and issues remain the largest threat to the 12-month outlook. Risk associated with a weakening U.S. economy made a substantial increase sequentially.

Q3 2022 OESA AUTOMOTIVE SUPPLIER BAROMETER

Link to comments

2

OESA Supplier Barometer: Recession Probability and Preparation Please estimate the probability of a U.S. recession occurring in the next 12-months.

35%

Pct. Responding

30%

100%

33%

90%

Median 63%

25%

How prepared is your company if a U.S. recession were to occur in the next 12-months?

27%

24%

12%

10%

35%

35%

49%

50%

80% 70%

60%

35%

50%

20%

40%

16%

30%

15%

20%

10%

10% 0%

5% 0%

15%

0%

Between 0-20%

Between 20-40%

Between 40-60%

Between 60-80%

Between 80-100%

4%

4%

Overall Wtd. Avg. = 3.4

Less than $1 Bils.

Wtd. Avg. = 3.5

48%

Greater than $1 Bils.

Wtd. Avg. = 3.4

1=Completely unprepared 2=Somewhat unprepared 3=Neutral 4=Somewhat prepared 5=Completely prepared

Supplier executives estimate a recession is more likely to occur in the coming 12 months than not.

Fortunately, most feel at least somewhat prepared if a recession were to occur.

Q3 2022 OESA AUTOMOTIVE SUPPLIER BAROMETER

Link to comments

3

To learn more about automotive supplier sentiments and economic and industry trends, contact Mike Jackson, Executive Director, Strategy and Research, at mjackson@oesa.org.

OESA News - 2022 Second Quarter

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RSM COMMENTARY: OESA AUTOMOTIVE SUPPLIER BAROMETER

4 │ OESA News - 2022 Second Quarter

RSM COMMENTARY: OESA AUTOMOTIVE SUPPLIER BAROMETER

OESA News - 2022 Second Quarter

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THOUGHT LEADERSHIP

Things to Consider Regarding CO2 Emissions Brian Daugherty Chief Technology Officer 248.430.5966 │ bdaugherty@mema.org

The automotive industry and the world in general are currently facing a wide array of concerns. It is a unique combination of geopolitical, regulatory, safety, consumer behavior, and “good ole” technologyrelated issues. So, I decided to write down all my questions and let you ponder the answers. I do not have answers to most of them – although I do have my own opinions.

As you think about how your company is approaching the global transition to lower CO2 emission vehicles, here are some questions and topics to consider: •

•

• •

• • • •

We will soon see if all the recent and increasingly optimistic battery electric vehicle (BEV) forecasts and projections are correct. Will internal combustion engine (ICE) vehicle volumes rapidly decline, or will the energy density and convenience of gasoline be harder to replace than is projected? The great thing about the world is that since everyone is “all in” – given the over $500B in global committed EV investment – we will see what happens quickly.

Will US consumers buy BEVs instead of cheaper, quicker-to-refuel ICE vehicles? If they do, will there be enough high-grade nickel and lithium along with cobalt and copper to supply the demand? Will we be able to ramp up enough mines and processing capability to keep up with the demand curve? If not, what happens? Will nations continue to try to corner the market on these raw materials? What happens to the cost of batteries?

Will mass market consumers pay for expensive BEVs as OEMs seem to think? Many OEMs appear to believe that a $60K to $100K vehicle is “mass market” and that the market for that price range is quite large.

Will OEMs even need to produce reliable and affordable entry level, high mpg vehicles or will the market consist of just expensive BEVs to balance out the fleet fuel economy for midsize and large ICE SUVs and trucks? How will this impact lower income segments of the population?

What will happen to these battery packs at the end of their fairly short useful lifespan? Will a new battery technology save the day with double the range, half the cost, half the weight and volume, and that contains no lithium, nickel, or cobalt?

How will these vehicles depreciate? What will happen to older BEVs that need a replacement battery pack that costs more than the vehicle is worth (see the internet for several amusing examples)?

Will replacement battery packs even be worth making for low volume vehicles? For that matter, will any replacement parts be worth making for low volume vehicles?

We see coal plants (high CO2 emitters) being brought out of mothballs in Europe even as nuclear plants with zero CO2 emissions continue to be shut down in Germany. Meanwhile, France is planning to build more nuclear plants (right next to Germany). Does any of this make sense? Could the Germans sell their mothballed or soon to be mothballed nuclear plants to France and save everyone a lot of trouble along with significant capital investment? I’m only half kidding. Where is all the electricity going to come from if BEVs make up a significant portion of the car parc?

6 │ OESA News - 2022 Second Quarter

•

•

•

• • •

What happens to the US or Europe if there is another Carrington Event (an extreme solar flare resulting in a coronal mass ejection from the Sun), a cyberattack, or an Electromagnetic Pulse (EMP) that takes the grid down for 3 to 9 months in a region? If all or a significant portion of our transportation becomes electricity dependent – and therefore grid dependent – how will we cope with no electricity? Especially if repair vehicles, heavy transport (to carry new transformers), and emergency vehicles are electric? This would seem to me to be a national defense/national disaster planning topic of extreme importance given the global push to BEVs, and yet no one seems to be discussing it. (PS If anyone wants to discuss this, I have a few suggestions).

How will repair shops work on BEVs with 400 to 900 volt electrical systems? How will DIYers?

What is the liability if someone tries to fix their BEV without the correct training and tools? As an aside, the safety and repair procedures for BEVs are quite onerous – one OEM for example specifies a 16 foot keep out zone around the entire vehicle while it is in a repair bay. How many shops have that much space? If this becomes standard practice will shops need to charge three times the hourly rate due to the floorspace that is needed?

And what will BEV vehicle systems look like when they are 20+ years old? We know how to inexpensively replace worn out fluid lines, but will high voltage copper cables be inexpensive and replaceable? And, if they cannot make it to 20 years then we will have a much larger cost per year amortization problem to discuss.

Will the supply base continue to profitably produce ICE parts and vehicles as volumes decrease?

Given the highly fossil fuel based electrical generation mix in most countries, what if advanced engine technology hybrids actually reduce total CO2 emissions more quickly than BEVs? And my question of the last four years: Will anyone actually make money selling BEVs? (See recent reports of price increases and evaporating gross margins as battery prices increase).

Obviously there are lots of questions and not as many answers as we would like to have. As my father always told me: “the world is a grand experiment,” so let’s hope that this works out well.

OESA News - 2022 Second Quarter

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OESA EVENTS

Mobility Supplier Forum

Aug. 25 | 11:30 a.m. - 4:00 p.m. | SRI International | Menlo Park, CA The Original Equipment Suppliers Association (OESA) will host a Mobility Supplier Forum (MSF) on August 25, 2022, at SRI International, in Menlo Park, California. The MSF meets regularly in California’s Silicon Valley area and is intended to help automotive suppliers advance their business interests in connected and transformative technologies. Each meeting features insights from leading industry experts on issues of common concern for automotive suppliers.

This meeting will feature Ford Motor Company's James Buczkowski, Director, Electrical and Electronics Systems, Research and Advanced Engineering, to discuss Silicon Valley R&D projects, Ford’s electrification and AV-related development work, and how suppliers can assist Ford in these efforts.

Daron Gifford, partner, Plante Moran, will explain the impact of disruptive vehicle technologies on the industry, identify how these technologies will change manufacturing strategies and offer a general framework to address these challenges and compete in the quickly evolving automotive industry.

A team of partners from Foley & Lardner including Natasha Allen, Chris Grigorian and Mike Walsh will cover federal legislative and regulatory developments that address the areas of Autonomous and Electric Vehicles, Semiconductor and Other Supply Chain Challenges.

Natasha Allen Partner Foley & Lardner

James Buczkowski Director, Electrical and Electronics Systems, Research and Advanced Engineering Ford Motor Company

Daron Gifford Partner Plante Moran

Chris Grigorian Partner Foley & Lardner

Presenting Sponsors:

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

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

8 │ OESA News - 2022 Second Quarter

Mike Walsh Partner Foley & Lardner

OESA EVENTS

Stellantis Annual Supplier Diversity Matchmaker Virtual Event Sept. 22 | 9 a.m. - 2:00 p.m. | Virtual via Pheedloop

Powered by OESA, Stellantis North America will host its 23rd Annual Supplier Diversity MatchMaker Event on September 22, 2022 at 9 a.m. ET. The virtual event will give supplier businesses access to Stellantis Tier 1 suppliers and an opportunity to network with Stellantis buyers. It will also provide educational seminars to support business growth and provide access to several Michigan-based diversity councils and chambers of commerce to further cultivate business development.

Suppliers also have the opportunity to host exhibit space and share their capabilities. Each exhibitor will be able to build their own virtual booth, and have a maximum of three representatives.

Exhibits include: •

Supplier leadership contact information

•

Description of their company, products and/or services

•

Downloadable product information or presentations

•

Proof of minority certification

•

Exhibitors must identify the diversity category of their business as (where relevant): •

MBE - Minority Business Enterprise

•

WBE - Women's Business Enterprise

•

VBE - Veteran Business Enterprise

•

SDV - Service Disabled Veterans

•

DOBE - Disability Owned Business Enterprise

•

LGBTQBE - Lesbian, Gay, Bisexual, Transgender,Queer Business Enterprise

•

HUB - Historically Underutilized Business

•

8A – Small Disadvantaged Business

Exhibitors: The cost for the virtual exhibit space is $250 for OESA members and $550 for non-OESA members.

For information about OESA membership, contact Erin Schrieber at 586.524.0436 or eschrieber@ oesa.mema.org. The deadline to register for a virtual exhibit space is September 12, 2022.

Non-Exhibiting Attendees: All attendees will have the opportunity to visit exhibitors in the virtual tradeshow environment and have private 1:1 networking sessions with suppliers and Stellantis buyers. OESA members and industry guests can register at a cost of $75 per person on or before September 12, 2022 and $90 per person after.

OESA News - 2022 Second Quarter

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OESA COUNCIL HIGHLIGHT

The OESA 2022 Comparative Analysis of North American OEM Warranty Programs is now available!

Ginger Juncker Vice President, Programming 248.430.5953 │ gjuncker@oesa.org

Warranty Professionals and those seeking insight on OEM Warranty Programs are invited to learn more about the !

OESA Comparative Analysis of North American OEM Warranty Programs. This publication is the work of the OESA Warranty Management Council (WMC), a group of quality and warranty professionals working within the automotive supplier community. The 2022 update maintains the same intention as early documents: to address suppliers’ ability to proactively manage the complexity of commercial warranty terms and customer programs. The document, updated every 3 to 5 years, compares warranty terms, process, parts return, and general information for the various OEM warranty programs.

This Comparative Analysis analyzes the OEM warranty management programs in North America for BMW, Ford Motor Company, General Motors, Mercedes-Benz Group, Nissan, Stellantis, Subaru, Toyota, and Volkswagen. The publication also includes an analysis produced by Clark Hill PLC. This year's update has been formatted for easier use, allowing users to filter the data. It is available in electronic form for OESA Members. (Members must sign a license agreement as part of the purchase.)

A special appreciation to Joe Zaciek, OESA. This update would not have been feasible without the tremendous work and support of the following WMC members: Claudinei Pincinato (Schaeffler Wendy Pewinski (Magna) John Connell (Neapco) Group) Catherine Lubchenko (Inteva Richard Kim (Hanon Systems) Paul Garand (Multimatic) Products) David Thacker (Webasto Group) Matt Dhom (Flex-N-Gate) Katie Altman (Inteva Products) Melody Dowell (Carlex) Michael Hirt (Warranty Jason Payne (JP Strategy & Linda Watson (Clark Hill PLC) Consultant) Intelligence) Dan Dulworth (Clark Hill PLC) The Warranty Management Council (WMC) is an automotive-centric forum for warranty professionals to discuss unique topics in their field, such as warranty management data systems and cost recovery processes. OEM representatives are invited to address the group at quarterly meetings. The WMC champions this comparative analysis of OEM warranty programs and supports the warranty audit process certification with AIAG. WMC members have also created other files and resources to help warranty professionals in their roles. If you are not yet a member and would like to join, please reach out to Ginger Juncker at gjuncker@oesa.org.

Click here to order your copy of the OESA Comparative Analysis of North American OEM Warranty Programs 2022.

Please note: Warranty Management Council members receive a complimentary copy of this document.

10 │ OESA News - 2022 Second Quarter

OESA MEMBERSHIP Welcome the newest OESA member

For OESA membership information,

Grammer Americas 1975 Technology Drive Building J Suite A Troy, Mi 48083 www.grammer.com

Member Representative: Ray Tonelli, Vice President Sales and Projects Alternate Representative: Bob Briggs, Chief Financial Officer

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

Erin Schrieber Senior Manager, Membership Recruitment and Development 248.430.5970 eschrieber@oesa.org

Adam Slaman Senior Manager, Sponsorship Sales and Membership Development 248.430.5958 aslaman@oesa.org

BENEFITS OF MEMBERSHIP FOSTERING COLLABORATION THROUGHOUT THE SUPPLY

PROMOTING THE SUPPLIER VOICE IN WASHINGTON, D.C.

Members gain direct access to OEM executives

MEMA advocates for suppliers on legislative and regulatory issues

OESA is a member of several automotive manufacturer councils

Members have direct access to lawmakers on Capitol Hill

Tier 1, 2, 3 suppliers work together to address common issues

MEMA promotes the economic impact of the mobility sector

CREATING NETWORKING OPPORTUNITIES

HELPING MEMBERS MAKE MISSION-CRITICAL DECISIONS

OESA hosts more than 40 events annually to build relationships

The OESA Automotive Supplier Barometer TM provides the supplier pulse and economic sentiments

16 Peer Group Councils address the unique needs of suppliers OESA connects members to other international associations

Supplier Insights Videos share trends and perspectives from industry thought leaders The OESA Affiliate Forecast Matrix aggregates sales and production forecasts from leading firms OESA News - 2022 Second Quarter

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AUTOMOTIVE INSIDERS...LISTEN NOW OESA and automotive industry expert Jason Stein have joined forces to present the Automotive Insiders hosted by Jason Stein podcast. It covers a broad-range of industry topics and trends that are impacting the future of automotive.

The podcast is available on Amazon Music, Apple Podcasts, Google Podcasts, iHeartRadio, Spotify, Stitcher, and Pandora. New episodes are featured weekly.

To subscribe and listen, click here.

12 │ OESA News - 2022 Second Quarter

OESA EVENTS Upcoming Events: Aug. 25

Mobility Supplier Forum

Sept. 22

Stellantis 23rd Annual Supplier Diversity Matchmaker Event

Nov. 7

Automotive Supplier Conference

Upcoming 2022 OESA Town Hall Meetings

Mark your calendar for the Members-Only OEM Town Hall Meetings.

Registration information coming soon...

Sept. 20

Honda Town Hall

Nov. 29

Volkswagen Town Hall

Nov. 29

Ford Town Hall

Upcoming Council Meetings: Aug. 16

Environment, Health, Safety and Sustainability Council

Aug. 25

Tooling Council

Sept. 22

Operations & Plant Manager Council

OESA News - 2022 Second Quarter

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Insight from the McDonald Hopkins Automotive Practice Group

By Mark Masterson

Electrification of the auto industry is coming: Are your IP contract terms ready?

Member, McDonald Hopkins PLC Intellectual Property Practice Group

Electrification of the auto industry is becoming an important part of the advancements taking place. New components are being collaboratively developed while simultaneously, new uses of existing components are occurring. With this shift in the industry, it is time to review your terms of conditions with your customers and your suppliers, especially as it relates to intellectual property (“IP”).

Ownership of IP: Terms and conditions in many different types of agreements, e.g., supply agreements and master services agreements, development agreements and the like, in the auto industry include “standard” provisions requiring one-sided ownership of all IP developed during the engagement. This provision may not accurately reflect the desired outcomes of the parties, especially if one party has invested valuable resources to develop and create the IP incorporated in its products that may be subject to these agreements. The ownership provision of these agreements should be reviewed and amended to accurately reflect the real world posture of the parties. For example, while traditional automakers had the resources to vertically integrate and create their own internal combustion engines, the lack of know-how and cost of battery production forced them to enter into design agreements. In these instances, it is certainly appropriate to carve out and define different categories of IP (i.e., background, foreground, joint) wherein the parties may agree to a different ownership status in each category of IP. These categories become increasingly important when multiple parties are collaborating in developing a product pursuant to a joint development agreement.

The analysis doesn’t stop there. When engaging a service provider, ensure that the terms and conditions with the service provider match your obligations to the party with whom you are working.

For example, if you have a supply agreement with a third party and are outsourcing a portion of the supply, make sure your IP ownership in the service provider agreement matches or provides you with the rights you need to grant as part of the supply agreement. You want to avoid a situation where these rights don’t match – this could lead to a breach of the supply agreement.

Another consideration is how the product being supplied will be used. It is possible that an existing product used in a new way may be eligible for patent protection. If a product has been utilized in an existing combustion engine vehicle but now is utilized for an entirely different purpose in an electric vehicle, consideration should be given as to whether this “new product” could be subject to patent protection. It is important to consider the problems you are solving with this product. Are you overcoming a previous shortcoming? Failing to do this may result in losing valuable patent rights.

Licensing of IP: Although a buyer, such as an OEM, may not necessarily own the IP, licensing technology is commonly used to save money on development costs throughout the automotive supply chain. Suppliers should consider the value of their work relating to generating such background IP and related products and the permitted uses of such technology. It is reasonable for a supplier to grant a buyer a non-exclusive license to allow the buyer of its products to incorporate them into their system and sell the resulting products for at least the duration of the agreement. However, the parties may have to further negotiate the limits of such a license, such as if the buyer is forced to find a new supplier of the same technology due to warranty issues, supply issues, or insolvency. Moreover, consideration should be given to geographical limitations on the license, e.g., providing a

license to North America only while excluding Europe and Asia.

Importance of a robust trade secret policy: Trade secrets may play a big part in the electrification of the automotive supply chain.

Trade secrets are assets that have value because they are not generally known and are subject to confidentiality duties. As such, appropriate confidentiality provisions in auto supply agreements as well as the use of nondisclosure agreements (NDAs) are crucial for taking reasonable measures to protect trade secrets. Making a trade secret misappropriation claim can be a valuable tool to use if an ex-employee or collaborator absconds with confidential trade secret information. Also, due to the increasing reliance on electronic and physical security, companies are wise to also adopt a trade secret policy that incorporates at least the following measures in addition to appropriate confidentiality obligations in its contract terms: - Incorporate a detailed records retention system for research and development efforts both internally and with third parties.

- Incorporate strict measures of security to access electronic data and important locations used for product testing and development.

- Create a specific security team responsible for information protection policies and training.

- Tracking and evaluating efforts and techniques to sustain secrecy and compliance.

- Taking remedial measures based on evaluated efforts to enhance safeguards.

Infringement indemnification: Infringement indemnification language may be negotiated to be broadened or limited depending on the desired risk allocation of the parties. If a seller did not design a product, it should not agree to provide an infringement indemnification to the purchaser for this product. As such, a general rule to follow is: if you didn’t develop the product don’t indemnify for it or, at least, find a way to incorporate pass-through indemnifications from a sub-supplier. Further, infringement indemnification provisions may be limited to proportional indemnification to the extent a purchased product is incorporated into a system that is in violation of a third party’s IP. It is also important to know the use of the product you are supplying. If it is being used in a new manner, consideration should be given to whether you should indemnify for it or not. This may require you to conduct a patent clearance analysis to identify and assess the potential risk in providing the indemnification; this is especially important for products that relate to the wireless connection technology of products on electric vehicles. It isn’t enough to just evaluate the patents owned by the traditional car manufacturers. You will also need to assess the patents owned by wireless connective companies, as it greatly expands the amount of patents that could apply to the technology and can increase the risk of being obligated to indemnify for infringement.

The protection of IP rights, especially with the advent of electrification and the investments being made in the development of emerging technologies, must be carefully considered. Ownership and grants of licenses in technologies developed by collaborating buyers and sellers, and the injection of non-traditional technology developers into the automotive supply chain must be addressed. Agreements should reflect an approach that protects its IP interests, accounts for ownership and licensure, risk allocation, and confidentiality. These clauses should be carefully analyzed to protect a company’s IP investments, to maintain competitiveness, and to effectively market valuable IP.

mcdonaldhopkins.com 39533 Woodward Avenue, Suite 318, Bloomfield Hills, Michigan 48304 This content (©2022 McDonald Hopkins PLC All Rights Reserved) is designed to provide current information regarding important legal developments. The foregoing discussion is general information rather than specific legal advice. Because it is necessary to apply legal principles to specific facts, always consult your legal advisor before using this discussion as a basis for a specific action. This material is not intended to create, and your receipt of it does not constitute, an attorney-client relationship with McDonald Hopkins.

14 │ OESA News - 2022 Second Quarter

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