Contact: Pierre Deraëd
Head of Corporate Communications, Munich office
pierre.deraed@mercermc.com

Mercer Study on "Automotive Safety Technology": Vehicle Safety is a Growth Market

• The rapid evolution of technology over the next ten years will make automobiles much safer than ever before
• Driver assistance systems promise the fastest growth rates
• Equipment supplier companies will fall into two types: system suppliers and specialists

Munich, 6 May 2004. Blue skies ahead for car users: the automotive industry is paying heed to their growing need for safer autos by creating new technologies and many inventions. Over the next few years they will improve all existing safety systems in the automobile and introduce a large number of new technologies. These are the findings of the Mercer study "Automotive Safety Technology," which draws on a poll of industry executives and a secondary evaluation of existing studies. The greatest improvements will affect active safety, i.e. such accident avoidance systems as ESP, ABS and adaptive cruise control for maintaining automatic distance in traffic. For component suppliers, these developments represent both an opportunity and a danger: the intensive networking of electronic and mechanical components required by the new technology will favor the industry majors. Small companies will have an opportunity to position themselves as specialized component manufacturers, while medium-sized companies will become an endangered species.

The seat belt and the airbag were milestones in the evolution of safety technology over the last thirty years. They helped reduce the annual death toll on Germany's roads from more than 21,000 in the early 1970s to less than 7,000, even though the number of registered vehicles tripled from roughly 14 million in 1970 to 45 million today. These "passive" systems of passenger and pedestrian protection are now standard automotive fare. But the potential is far from exhausted. Active safety systems such as the antilock brake system (ABS) and the electronic stability program (ESP) have only begun to have an effect on the statistics. Their growing distribution and huge evolutionary potential will have a far greater impact on vehicle safety than the passive systems ever managed to attain.

The movement for greater safety in the automobile is driven from many angles. "For one thing, the rapid evolution of technology implies that automobiles can become much safer in the future," claims Dr. Jan Dannenberg, automotive expert and director of Mercer Management Consulting. "For another, driver safety will remain one of the top criteria for buying a car. Depending on which study you read, safety is first to third on the list of purchasing criteria." Further, many new legislative bills are forcing car manufacturers to incorporate more safety technology: over the next few years the United States will demand the step-by-step introduction of intelligent restraint systems, and the European Union plans to call for more pedestrian protection beginning in 2005. Today the approaches to pedestrian protection are many and varied, but all of them have huge growth potential: automobile manufacturers such as Ford, Honda and Mazda, for instance, are banking on a liftable hood. DaimlerChrysler is investigating the use of more flexible materials in order to minimize the danger of serious injury to pedestrians. Autoliv is testing airbags in the vehicle's A pillars to prevent direct impact on the windscreen.

Active safety systems are witnessing above-average growth
As the Mercer study points out, the total market for vehicle safety will grow from EUR 48 billion in 2003 to about EUR 62 billion in 2010. In Europe and North America, brake systems will profit on average by 1.4 percent annually, while passive passenger protection components such as seat belt systems and airbags will attain 4.3 percent and active safety systems (so-called driver assistance systems such as lane departure warning and adaptive cruise control) will skyrocket a full 14 percent. Electronics will make up an ever-greater proportion of the value in active and passive safety systems alike: today they account for some 27 percent, while by 2010 they will amount to 35 percent. "The key factor in automobile safety is less the isolated systems than their intelligent networking into a unified whole," explains Dr. Dannenberg, the author of the Mercer study. Manufacturers are using a wide array of innovative solutions in an attempt to improve the protection of vehicles, passengers and pedestrians. Thanks to the Pre-Safe System in its S-class models, Mercedes-Benz is the first manufacturer to present a system that networks active and passive safety components in order to make them more effective. With the aid of ESP sensors, for example, accidents can be instantaneously detected so that the seat belt tightener can be activated and the driver placed in a favorable position. Many equipment suppliers are now working on even more ambition systems of the same kind. Examples include Delphi with its Integrated Safety System (ISS) and Continental with its Active-Passive Integration Approach (APIA).

Today, with safety passenger compartments, advanced seat belt systems and sophisticated airbag systems, passenger protection is already highly evolved. As a result, there will only be incremental improvements in the future. The most important innovation is interlocking interior sensors that detect the size, position and motion of the passengers and adjust the safety systems accordingly. The networking of all passenger protection components coordinates the seat belts, seat position and airbags for every imaginable situation. There will be electrical seat belt drives, variable seat belt tighteners, inflatable seat belts, new belt materials and multi-level airbags for practically every area in the car.

The next decade belongs to driver assistance
Active automotive safety serves to avoid accidents, e.g. through intelligent brakes and chassis or through environmental sensors. Several active safety systems already exist: ABS, ESP, parking aids and tire control systems. Relatively new are adaptive forward lighting and adaptive cruise control, which automatically maintains the distance from the car in front.

By 2010 the market for driver assistance systems will grow 14 percent on average to EUR 2.5 billion in Europe and North America alone. In the future, distance sensors will warn against rear-end collisions and road sensors will warn against ice. Lane departure warning systems, lane changing aids and automatic stop-and-go (ASG) will make freeway travelling and traffic jams more convenient to handle. Adaptive beams will automatically adjust road illumination to prevailing conditions, and on request a parking aid will drive you into a parking space all on its own. The automobile of the future will even detect the driver's lapses of concentration and issue a prompt warning. After an accident, the fuel pump will be automatically switched off and an SOS transmitted. In the future, rescue teams will be guided to the scene of the accident by GPS.

Even in the near future the present-day ESP with braking facility will be upgraded to ESP II with additional steering facility. Present-day power steering in compact cars will be replaced by electro-hydraulic steering, which is far simpler in construction. But its replacement by purely electrical steering control ("steer by wire") will already by the offing by 2010.

Safety as a core element of the automotive brand
Automobile drivers are demanding more safety in the vehicle. Some manufacturers, especially Audi, Mercedes-Benz and BMW, but even Renault and Volkswagen as well, will expand safety into a central element in their brand image and use it to differentiate their products more clearly. Two strategies can be recommended for the alignment of manufacturers and equipment suppliers.
Automobile manufacturers that make safety a key element in their brand image must expand their integration activities for safety systems and selected core components on their own premises. This particularly affects research, pre-development and concept development, but it will also entail software engineering in the development of mass-produced items and the creation of complex mechatronic components in production. Only in this way can active and passive safety solutions consistent with the brand image be ensured and above all safeguarded. Isolated components and modules will then be provided by specialists. These specialists may well include the industry's large equipment suppliers. Examples can be found in BMW, which itself designs the active chassis systems in all BMWs (e.g. dynamic stability and traction control), and Mercedes-Benz, with the electro-hydraulic brake system in its E-class models.

For all other vehicle manufacturers, safety will become a "commodity" to be purchased from the large outside system suppliers. Simpler systems that offer big improvements in safety at comparatively low costs will win out in the end. Instead of driver assistance systems with active intervention in the chassis, steering mechanism or brake system, early warning systems will take hold here.

The goal of development in active safety is a centralized electronic chassis system that simultaneously controls the brakes, steering and active suspension and that integrates all the functions of ABS, ESP and new assistance options. The same applies to passive safety. The traditional business designs of equipment suppliers will be endangered. The winners will be, on the one hand, large safety system integrators such as TRW, Delphi, Autoliv, ZF, Takata-Petri, ZF, Bosch and Continental, all of which supply complete integrated safety system packages, and on the other hand specialized component manufacturers as second-tier suppliers. The middle group, e.g. pure brake system suppliers, will be acutely threatened by the new technologies.
International partnerships in safety

Skilled employees in brake, chassis and steering systems must already be available for the further evolution of ESP to ESP II. In the development and manufacturing processes of the future, the traditional hierarchical interplay between automobile manufacturers, equipment suppliers and service providers will have to give way to value creation partnerships that redefine their previous roles. The right choice of partner and the management of such tight-knit value creation networks will play a critical role in the future success of brands and vehicle manufacturers.

These partnerships will also pay increasing attention to the demands of internationalization. Platforms and modularization strategies of vehicle manufacturers will cause identical vehicle architectures to be applied all over the world. Today Ford of Europe, Mazda and Volvo use the same platform in their B segment. GM's delta or epsilon platform is employed in various brands on an international scale, and VW is increasing its percentage of interchangeable parts on a global basis. German alliances, too, will have to be placed on an international footing in the future.

Mercer's Dannenberg sees the writing on the wall: "Not only automobile manufacturers but equipment suppliers too will have to invest in the right partnership at the right time. Besides position in the network, software competence will play another key role in the future of equipment suppliers. It will be the central 'value spot' in safety technology - the place where the greatest and most profitable value creation can be reaped in the future."

Contact:
Pierre Deraëd
Head of Corporate Communications
pierre.deraed@mercermc.com
Mercer Management Consulting
Marstallstrasse 11
D-80539 München, Germany
Phone: +49(0)89 939 49 599
Fax: +49(0)89 939 49 507
www.mercermc.de

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A camera-ready photo of Dr. Jan Dannenberg, automotive expert at Mercer Management Consulting, can be downloaded from www.mercermc.de - Medien Service Download Area.

Mercer Management Consulting
Mercer Management Consulting is part of Mercer Inc., New York, one of the leading corporate consulting firms in the world, with 160 offices in forty countries. Its 16,000 employees earn US$ 2.7 billion in revenue worldwide. The offices in Munich, Stuttgart, Frankfurt, Düsseldorf and Hamburg contribute to these earnings with 470 employees.

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