Entering a New Phase in the Industry
Those industry participants who survived the 2009 automotive implosion will all note with pleasure that this difficult time is firmly in the rearview mirror. Bankruptcies, capacity consolidation, a teetering supply base, and much inherent risk consumed the industry a mere five years ago. The subsequent rise in production volumes (nearly double from 2009 to 2014) has stretched capital and human resources to the edge—a nice problem to have. Luckily, those who survived 2009 have been able to achieve strong financial returns as essentially, all boats are floating for now.
As we enter the back half of this decade we also enter a new industry phase. Though volumes in Europe are slowly climbing, issues in Brazil, India and other locations provide a steady list of challenges. In North America, volumes are climbing albeit at a slower rate than before with some road bumps emerging. The industry needs to be aware of a spate of other factors signaling a new era and thus also underscoring that success will be more difficult and “different” in the future.
Front and center will be the march of required technology advances required to meet stiffening fuel economy legislation and consumer demands. The industry will use this legislation as the “stake in the sand” from which all other decisions evolve. OEMs and suppliers of all tiers will need to drive these technological solutions to production faster and with greater oversight than ever before. Given the recent spate of recalls from virtu-ally every OEM there will be a greater focus on ensuring the long-term viability/reliability of new technologies. The drive towards an average fuel economy improvement of 5% per annum required by the North American fleet going forward will stretch the industry to adopt some technology faster, test more quickly and speed required tools for programs which have shorter lifecycles than before.
Suppliers that can embrace an industry driving innovations into the fleet faster than before will need to succeed in other areas. Collaboration with other industry players will be paramount to offering solutions to the market which offer value and differentiate versus competitors. The days of endless financial resources, a low regard for risk, and little time urgency for success to establish a new capability are behind us. Those companies that work collaboratively to offer new systems, cover a new geography to aid a customer or enable a more efficient process through thinking out of the box will find more open doors in the future. As cadence tightens, the need to react quickly is critical.
Other market differentiators are emerging. We have written at length in past columns the impact of globalization of a supplier and those in their supply base. Geographic, resource and political risks can be too much for some companies, causing many to consolidate or liquidate. As the Detroit 3 will account for less than 50% of North American production by 2020, expanding to new customers is critical. While the Asian and European OEMs building in North America have design support here, many decisions and heavy development efforts are made elsewhere, complicating and extending the decision process and support footprint required. Logistically, many of these OEMs are not in the U.S. Midwest, spurring capital investment decisions to support locally and reduce logistics costs.
Another differentiator is critical. As the industry reaches 17 million units of light vehicle production this year, new capacity is necessary to ascend to new levels. To this point, productivity gains, clearing output bottlenecks, and employment of 3 crew/3 shifts have enabled for higher OEM/supplier output. The “easier” production gains are behind us. The combination of the need for more capacity and a spate of new processes driven by materials and structural changes will spur more brick and mortar (read increased fixed cost). Successful suppliers will be able to juggle all these balls in the air while focusing on the fundamentals. Again, it is a new era for the industry.