Why Automotive Leaders Must Break Rules

[Transcript]

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[00:00:39] This episode is brought to you by Lockton. Rising benefit costs aren't inevitable for you or your employees when you break through the status quo. Independence matters, it means Lockton can bring you creative, tailored solutions that truly serve your business and your people. At Lockton, clients, associates, and communities come first, not margins and not mediocrity. Meet the moment with Lockton.

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[00:01:40] But the large OEMs, they don't ever think about outsourcing the engine. That rule of not outsourcing the engine, my guest is betting on the fact that that rule is about to break, and I am thrilled to bring on the show today Tom Lewis. Tom is president of Horse USA. Now, Horse, you might think, "What's that?"

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[00:02:34] Tom, welcome to the show.

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[00:02:36] Happy to be here.

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[00:02:38] Tell us, Horse, what is it all about? You have said yourself that you are challenging the traditions and the norms of the auto industry. What does that mean?

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[00:03:00] There has been, in the recent history a big shift in investments and planning towards battery electric vehicles. OEMs bet big on that. They've reduced their investments, their focus on internal combustion engines and hybrid systems. They've bet big on battery electric vehicles.

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[00:03:36] And this technology is fresh. We've been developing this for European and Asian markets over the last several years. We have the greatest and latest designs, the technology that brings our engine efficiency to industry high levels, and this is available today for us to sell to external customers.

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[00:03:58] Why would an OEM want to invest all the capital and the energy into developing its own engine or system or next generation, whatever it needs? And this idea of collaboration, there's a lot more talk about that now than I've ever heard of before. Why does every single OEM do their own thing?

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[00:04:43] Why don't we collaborate more? And now you see the Japanese OEMs, you see, the CEO of Toyota talking about how do we collaborate more in the industry, the Japanese OEMs. The Nissan CEO coming out saying the same thing. So this idea of collaboration at an OEM level is starting to get some traction.

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[00:05:07] Thomas Lewis: That's right, and it's particularly difficult when OEMs try to collaborate with each other. There is a bit of worry, a bit of stress about prioritization and what happens when the partner wants to focus or prioritize for their own reasons, their own purposes.

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[00:05:35] We're here to work together with them to craft solutions that fit to their vehicles, in a way that is unbiased. Some call us a tier 0.5. You may call us a tier one. We make fully assembled engines and transmissions and provide that to customers.

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[00:06:15] Jan Griffiths: And you say, you know, we want to develop partnerships and work together collaboratively, but let's be honest, Tom, we've been talking about doing that in this industry since I started, which is a very, very long time ago. The reality of you now going into an OEM with this product, it's gonna be very different, 'cause you're not dealing with a traditional purchasing organization, you're dealing with a whole different cadre of senior level executives.

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[00:07:25] Many of the hybrid solutions that are used today, especially in the US, are based on pretty old technology. Engines that were developed and released at the start of the millennium. And Horse Powertrain looks at that and says, "Look, we expect by 2040, still half of the vehicles produced are gonna have some kind of internal combustion engine," whether that's a pure ICE vehicle, a hybrid, or a range extender, and somebody needs to take care that that technology is continuing to evolve, that it continues to meet regulation, that it continues to meet consumer demand, that it continues in a sustainable way, too.

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[00:08:17] Jan Griffiths: Yeah.

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[00:08:21] We're doing the right thing for our customers to bring them solutions that they need at a lower cost of entry, and we're doing the right thing for the consumers because we're giving them the type of powertrain that is evolving with their needs, becoming better and better. And by the way, there's a lot of room for hybrids to be better, yeah?

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[00:08:55] And, they answer the type of needs that consumers here like. We like range. We like power. We like low cost.

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[00:09:03] Thomas Lewis: And now more than ever, I mean, vehicles are very expensive nowadays So finding a way to bring the cost down in a way that is fun, fast, and affordable is what we do.

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[00:09:28] Thomas Lewis: I think that it can happen, but, it's not easy. Yeah, so yes, we're a tier one, but we were carved out from OEMs. Yes. So we were carved out from Renault, Volvo, and Geely, their full powertrain organization, the R&D centers, the plants. And then came together as a joint venture which gave us that scale that I was talking about.

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[00:10:03] Jan Griffiths: Yeah.

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[00:10:08] It's almost prophetic. Like, how did they know?

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[00:10:11] Thomas Lewis: And that took several years to get there. So I think at this time, the iron's hot to make changes now to bring the next-generation powertrain solutions, to bring next-generation hybrids that don't exist here yet in the market.

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[00:10:31] Jan Griffiths: Yeah. Well, I think the US auto industry, as we know, is under a tremendous amount of pressure from the Chinese OEMs, and I've said this, time and time again, we don't see those vehicles here in the US, so we don't feel that pressure.

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[00:11:09] So we've got this incredible amount of pressure on us, and we're gonna have to do things differently. And the structure that you've created with Horse, you're almost forcing the OEMs to think differently, whether they want to or not. I believe in the very core of my being, I hope that they do it. So that they can spend their energies on developing something else, on doing something else that will advance the industry.

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[00:11:37] Jan Griffiths: So I believe in you. I believe in Horse. I believe in the principle behind it, but I also see the challenges.

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[00:11:59] Wow, okay. Tell me about that from a culture perspective. Does that present any challenges?

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[00:12:06] Jan Griffiths: Of course. Well, Geely, Volvo

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[00:12:13] Thomas Lewis: That's right. And I say it that way, 'cause you're absolutely right from a company perspective.

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[00:12:28] Jan Griffiths: Great, so let's add the Spanish into the mix. Great, yeah.

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[00:12:34] Jan Griffiths: Yeah.

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[00:12:59] It was something that I'm no stranger to. I've been in past big companies, big German companies with many divisions, and we always tried to break down silos and try to work together across divisions and regions. And even that is challenging, and there's different cultures involved.

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[00:13:38] The Spanish side as well, so we have core technology that has been developed by our Spanish team. I see a level of respect between those organizations that is very high, and doesn't seem forced. And I think that's one of the key enablers to get the teams to work together.

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[00:14:20] I was watching Geely from the outside as an automotive tier one supplier, and it's impressive how fast they've moved, how passionate they are for bringing new technology to the market, and there's something very respectable about that as well. So we have the European side, the Chinese side coming from different backgrounds and respecting each other for different reasons, and in both, uh, situations, creating technology that is complementary. The Chinese consumer is more similar to the American consumer than I expected.

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[00:15:14] In Europe, they focused more on smaller displacement, high-efficiency engines. And both of those are complementary to what we're trying to do today at Horse Powertrain, especially here in the US because BEV, Battery Electric Vehicles that now have the latest and greatest technology, the best infotainment systems, ADA systems that our OEM customers have come up with, they're not selling in their current form as pure electric vehicles.

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[00:15:58] Jan Griffiths: Brought to you by UHY.

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[00:16:12] Check out the white paper. The link is in the show notes.

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[00:16:33] so what you're telling me then, it is possible to merge the Chinese OEM culture with a legacy automotive culture.

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[00:16:58] We have a chief operating officer who's responsible globally for our manufacturing and our footprint, a chief procurement officer who's globally responsible for our purchasing operations. So that in that way, let's say, they are structured in a way that they have to work together. They have common leadership.

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[00:17:47] And then we have, on the Chinese side, newer organization that is building super fast, very creatively, not landlocked at all, and making these brand new investments, very big lines, but can learn, from the European side as it relates to the types of manufacturing that they've done in a very efficient way.

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[00:18:09] Now, we've set the stage about Horse Powertrain.

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[00:18:15] Thomas Lewis: Yeah.

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[00:18:19] Thomas Lewis: I love that question, and I think not enough people in the automotive industry ask themself that question or have answered it. I would say I'm a catalyst, and there's a few aspects of being a catalyst which I could point to.

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[00:18:40] Yeah, and to expand on those each. Ambition, so for me, I love thinking big. Yeah, I've always loved big opportunities, big ideas, things that can bring a company into, a significantly different or brighter future.

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[00:19:20] And, bring that home with everybody involved jointly to create, hey, what is our vision as a team? And that is, that has worked wonders for me, as a leader through various situations. Whether I was coming into a team that hadn't been working very well together or there were some conflicts, that's a way you can kind of bring them onto the same page, or growing a new team where they don't yet have a vision and you're filling a void in the strategy to help them get onto the same page. Creativity for me is huge. I love asking the questions that nobody's asked.

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[00:20:03] Thomas Lewis: I love that. That's part of what gets me up in the morning. You know, I love extracting ideas. And I think that's so important as a leader. And I think that through that you can help to overcome limiting beliefs. When somebody says something is impossible, you could say, "Under what conditions could that be possible?"

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[00:20:44] When people have asked me, when I've had a good day and when I've had a bad day, I have a good day when we're being creative, but also when we're making progress. And for me, it's a frustrating day if I see that things are stalled, and that we aren't going anywhere.

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[00:21:17] Jan Griffiths: Yeah. I agree with you, and I wanna go back to your point about vision. Yeah. 'Cause I haven't touched on that a lot lately in my interviews, and I'm thrilled that you brought it up, because I'm a firm believer that you need a team to come together around, call it vision, mission, purpose, something.

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[00:21:55] But clearly, articulating that vision, coming up with it together as a team, not pulling some corporate speak, or running into an AI tool and say, "Give me a vision statement," and then slapping it on the wall and hoping that people will somehow get it. Y- no, you have to do it the hard way.

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[00:22:21] Thomas Lewis: Yeah. Yeah, it really is.

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[00:22:36] They need their own thing that they can really drive. If you don't create that vision in the first place, how can you make sure that your team is moving forward in a coherent, consistent way? They need that vision first. I completely agree with you. That's the start.

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[00:23:08] Thomas Lewis: Yeah. Absolutely.

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[00:23:20] So that to me is setting the vision, and then when you set that and everybody's playing towards where we wanna be, not where we are today, that's how I take that quote and take it into the automotive world.

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[00:23:47] Thomas Lewis: Yeah. Absolutely.

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[00:24:08] They're not used to that, and it's something that you have to kind of train them, and say, "It's okay to make your own decision."

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[00:24:19] Jan Griffiths: There are many. There are many. There are many. We know this industry has a lot of fear in it.

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[00:24:35] Tell us when you've broken the rules along the way.

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[00:24:56] So an example, when I was in, in charge of sales in a past company, and we were growing in a new area, a new business area, and my company hadn't been seen as a leader in that space yet. Yeah? And so we weren't even given the RFQ, for some business. But of course we wanted it. And we were targeting that type of product.

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[00:25:28] And so I kind of played into that. I said, "Okay, I understand where you're coming from.

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[00:25:50] And it gave me some insight. Especially in this case, it was a high voltage inverter, and the suppliers at that time had all been trying to meet the power requirements but couldn't do it with a single power module. So they needed to have two power modules. I said, "Oh, interesting. Maybe if you could give me that specification, I can work within my team for that future opportunity, and we can see what might be possible sometime in the future."

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[00:26:32] We know we're gonna have the best solution, the cleanest solution, and exactly what they want." So we got to work. We had brilliant engineering team. Asked some of those creative questions, that I talked about earlier, and we found a way. Yeah? So we found a way to make it work, and I loved the energy surrounding that.

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[00:27:06] Even though we didn't have the RFQ, I slid that to the purchasing manager who was in charge, and of course, they couldn't say no. Yeah? So From that point, we were front-runners in the business. We never looked back. We stayed in the front through all of their quote rounds. We continued that intensity and that passion.

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[00:27:40] Jan Griffiths: Yeah. I'm sure you had some pushback, though, internally, didn't you, with the company? Because I'm sure people went, "Oh, we don't have an RFQ. Sorry, can't work on that." I mean, did... There had to be some of that, right? Because we do love to follow the rules.

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[00:28:00] Yeah. This isn't in our sales plan. You don't even have an RFQ.

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[00:28:07] Thomas Lewis: We did it anyway. Part of that is showing them that it could be possible. Yeah. So I did have to do a little bit of work beforehand, before we involved the head of the business unit, because we had to, in a small skunkworks team, figure out, could this maybe be possible?

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[00:28:32] Jan Griffiths: We need more of that, Tom. We need more of that spirit that is just focused on the customer to do the right thing, and I'm not suggesting that we throw out every rule book in the automotive industry tomorrow.

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[00:29:00] Thomas Lewis: Yeah ...

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[00:29:18] Thomas Lewis: Yeah. No, absolutely we do. And I think that drive has to come back, especially here in the US. Yeah. I think that we are at a turning point now where we need that kind of creativity. We need to work with more passion, more purpose, and a vision. I think that especially in the powertrain space, automakers have been rocked recently.

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[00:29:54] Jan Griffiths: Yeah.

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[00:29:55] Jan Griffiths: And I think that what frustrates me is that we've had the tools that we need to be able to challenge the system and operate at speed. In legacy automotive, we've had the tools for 30 years. And I released a solo episode just before this episode, and I talked about that. I was a facilitator for Allied Signal: Total Quality Through Speed. And they coined this phrase 'cause for pause'.

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[00:30:33] Can we empower people? Can we reduce that? So we've had the tools. It takes leadership And culture to really change the operating model. And you are in this unique position where you're launching, you've just opened a new office in Southfield, Michigan. You're launching the business in the US. You're forming a new team.

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[00:31:07] Thomas Lewis: So, from my experience, what I would lean into is this creativity. And how can we craft solutions for our customers that are what the consumer needs and what our customers can afford?

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[00:31:47] So I'll certainly be leaning heavily into that. Leaning into empowerment because I think as we bring these opportunities up, we need people to feel that they own that they have their baby, their thing that they're working on with their cross-functional team and driving that to the solution, and that I'm there to encourage them to break down barriers, to resolve any issues, and to provide the speed that they need to move forward.

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[00:32:19] Jan Griffiths: Yes.

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[00:32:34] Jan Griffiths: I am familiar, yes

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[00:32:55] An example of that could be during the inflation negotiations that we had recently. And we had an opportunity to close a deal with a customer very quickly. And maybe a little bit on that, too, regarding breaking the rules, we had war gaming workshops and discussions, how can we achieve a deal with this customer, and a consultant involved leading this?

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[00:33:33] And, the consultant's like, "Well, what do you mean?" And I said, " What could we do to delight the customer in a way that we're doing something for them that they appreciate, that they like, which we don't have to do?"

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[00:33:46] Thomas Lewis: And we could give them that under the conditions that there's some quid pro quo.

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[00:33:51] Thomas Lewis: And what I think is crazy is a lot of us have gone through negotiation training. We know how to do a negotiation trade-off matrix and can understand, how to play one thing for the other in quid pro quo. But in those moments, people throw that out the window, and you get into these heated discussions, and they're only going one direction, so you need somebody to step in and say, "Wait a second".

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[00:34:15] Jan Griffiths: Yes.

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[00:34:33] Kind of set the tone that way. Actually, I created it on a one-pager to discuss with this customer that, hey, things can go in, in one of two directions. Just speaking openly and not in a threatening way, but this is naturally what two companies in this position will do, and these are four steps which either will take us both into a destructive path-

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[00:34:53] Thomas Lewis: or these are the steps that could take us both into a positive path. And the customer loved that. That went immediately to the CEO. And internally, I took that immediately to our CEO. And the reason why that's important from this perspective about decision-making and hierarchy, to craft that offer, there were things that were going to benefit one division more than another.

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[00:35:36] Jan Griffiths: No. 'Cause everybody would've protected their own little piece of turf.

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[00:36:14] You don't move without authorization.

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[00:36:29] Your heart, you know it's the right thing to do. And again, that's what we need more of in this industry. We need more collaboration, more common sense business negotiations. Not tit for tat, not you do this and, or I'm gonna stop shipping and then, we know exactly how that game plays out, right?

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[00:37:09] She said, "You both sit on the same side of the table." Visually, physically, you sit on the same side of the table, 'cause normally you go into a negotiation, one sits one side, one sits the other. She said, "No, you sit next to each other, and you talk about the problem being on the other side of the table."

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[00:37:34] Thomas Lewis: Yeah. Like you said, working together in a constructive way is how everybody wins.

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[00:37:39] Thomas Lewis: And communication is so important for that. I've seen just due to communication styles, thing that, things that resonate and they snowball in a positive way, or they resonate and snowball into a negative way.

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[00:37:58] Jan Griffiths: You're in this exciting role. You're leading Horse Powertrain in the US, and you're building a new team. What's that feel like?

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[00:38:13] At that time, just working for an employer of record. I actually had to incorporate the company as a US entity, Horse Powertrain USA Inc, before I could be hired into it.

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[00:38:27] Thomas Lewis: That's right. That's right. And then of course, the first person I hired was human resources.

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[00:38:49] This will be the core team that is winning business. This will be the core team that is signing the contracts for the business to expand. We're working through our industrial strategy as well. And I just can't wait to see where this goes. We have great ideas. We have a solid future ahead of us based on the technology that we have, the needs that are here in the market, the talent that we're bringing in.

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[00:39:23] Jan Griffiths: Yeah. Well, and it's a great way to close today.

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[00:39:29] Please keep breaking the rules, keep challenging the norms in our beloved automotive industry, and I wish you and Horse Powertrain every success.

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[00:39:41] Thomas Lewis: Thank you so much.

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