Peering forward has always been difficult when it comes to the automotive industry. Taking the time and resources within an organization to understand the future landscape is critical to decisions about direction, capital and resources. The world is littered with companies that failed to see the signs requiring course correction to continue to be prosperous. As we enter the new year, what are the key trends which every supplier needs to understand?
Volume: North American light vehicle production will hit new highs in 2015 (17.5 million) and again in 2016 (18.2 million). Keeping up with this industry pace has been difficult—stressing maintenance, people, logistics, etc. Companies need to be able to stand back and contemplate the way forward as a number of factors will alter the future operating environment.
Other Markets: The industry is dealing with unprecedented slowdowns in Brazil (down 20% in 2015) and Russia (off 28% in 2015)—two of the four BRICs are anchors around the industry. To be able to supply global platforms, many suppliers have to co-locate in these regions due to inventory, local value-added and currency issues. In hindsight, being in Brazil and Russia are necessary evils for many. How will non-North American markets develop and what are the risks involved?
Legislation: Events of the past two months have shone a spotlight on global emissions and compliance. The key now is “over-compliance” as OEMs and suppliers alike face required emissions/fuel economy improvement of ~5% year going forward. Pressure to increase powertrain efficiency and lightweight will be relentless. Material change (towards aluminum and advanced high-strength steel) will be swift and broad-based as many OEMs face compliance deficits in several key, profitable segments. In the critical D-segment (mid-size CUVs and sedans), OEMs will be facing gaps of 15 to 20% by the end of the decade—action is required and costs will rise.
Automated Driving: Driven by consumers and OEMs alike, the impact of increased automated technology in the vehicle and infrastructure will be swift. Several governments are pressing this agenda in an effort to improve safety and reduce fatalities. Automated driving will not only alter the running gear but vehicle interiors, styling and how we interact with our vehicles.
Logistics: OEMs and suppliers are dealing with the balance of achieving lower per unit production costs with the need to lower logistics costs through locating output closer to the final production site. The latest mantra for bulking components which do not ship well are to locate within 25 miles of the final site. This is causing significant consternation within the supplier community as this group wishes to maintain profitability and not burden the balance sheet with additional fixed costs and “location risk.”
People: The challenge to attain both skilled and unskilled labor is very challenging—holding back the ability to expand existing operations, launch new programs and establish incremental global locations. Challenges include pulling existing human resources away from current operations to establish incremental capabilities or channel more efforts towards R&D. Lack of the right people is already holding back several suppliers.
Global Platforms: More volume with fewer over development resources will be key going forward. Over the last two decades we have witnessed the shift to global structures—first being a nuisance for some to becoming a barrier to move forward if a supplier did not grasp the implications and modify their approach. Global scale is here to stay as consumers and legislators slowly converge and enable the industry to reduce geographic variations.
Faster Cadence: Faster, more extensive and with faster launch curves. The pressure to execute faster and flawlessly will continue as competition heats up. We are seeing the reduction of vehicle cadence to 5 years for all-new and major programs impact Tier 2 and 3 suppliers not used to the frantic pace. Powertrain cadence is slimming as well.
Navigating these and a number of other critical trends while maintaining profitability and moderating risks will be an ongoing challenge.
Michael Robinet has been a managing director of IHS Automotive since 2011. Prior to that, he was the director of Global Production Forecasts for IHS Automotive. His areas of expertise include global vehicle production and capacity forecasting, future product program intelligence, platform consolidation and globalization trends, trade flow/sourcing strategies, and OEM footprint/logistics trends.
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