So far, 2018 hasn’t lived up to expectations for the automotive industry and its supply chain, especially after the boom in 2017 with $10.3 billion in tooling spend. “We expected 2018 to reach over $11 billion,” commented Laurie Harbour, President and CEO of Harbour Results Inc. (HRI; Southfield, MI), a leading authority to the manufacturing industry. “However, due to a number of vehicle cancellations and delays, we are predicting the year to be closer to $9.2 billion.”
Leading the disappointing numbers in 2018 were 14 vehicle launches dropped or not started through Q3, resulting in $2.2 billion below forecasted tooling spend.
The analysis of the Harbour IQ in-depth study on the current state of the automotive vendor tooling industry predicts 2019 automotive vendor spend to be $8 billion. The key factor driving the decrease is a reduction in the number of vehicle launches between 2019 and 2021—153 compared with 183 in North America between 2016 and 2018. Furthermore, said the report, the Detroit Three automakers, which source most of their tools in this region, are forecasted to source only nine vehicles in 2019.
Total utilization in tooling shops for Q3 dropped 6 points to 79%. Tooling shops have gotten larger in size, driven by sales and a 20% improvement in efficiencies over the last five years, which opened up a lot of capacity, Harbour explained. “This created a difficult time, putting pressure on moldmakers to reduce pricing,” said Harbour during a webcast covering the report. "The eleven largest mold and die shops will continue to drive efficiencies and win work. They will also pull back outsourcing [to smaller shops], which means small shops will get less work.”
Progressive payment terms, long a thorn in the side of moldmakers, were at a “record low,” from 68% in Q1 2017 to 57% in Q3 2018, a 19% drop. Accounts receivable paid on time fell from 71% in Q1 2017 to 52% in Q3 2018.
Currently, the automotive industry is experiencing a global slowdown, with North America, Japan/Korea and Europe becoming stagnant, Harbour reported. In 2016-2017, more than 17 million units were produced. In 2018, 16.2 million units are projected to be produced.
Seventy-five percent of industry growth is focused on emerging Asia. Harbour pointed to several factors creating this situation, including volume reduction, negative trade impact, used car substitution and a flat to negative economy.
As U.S. demand drops, OEMs will fight for market share. HRI’s OEM forecast shows that 44% of the work for tooling shops with sales under $5 million is for the Detroit Three (Ford, GM and FCA). For shops with $5 million to $10 million in sales, that number drops to 42%. Tooling companies with $10 million to $30 million in sales have 56% of their work with the Detroit Three. Larger companies (over $30 million in sales) get 68% of their work from the Detroit Three.
“With one million fewer units coming from the Detroit Three by 2025, Detroit will have less of the product share,” said Harbour. “Moldmakers that have been largely focused on business from the Detroit Three will see actual demand for tooling drop. They should be thinking about diversifying.”
That said, HRI anticipates that some of what was planned for 2018 will spill into 2019 to help level out the tooling spend for the next three years. In addition to the 2019 forecast, Harbour IQ estimates future North American tooling spend to remain relatively stable, with 2020 totaling $8.2 billion and 2021 at $9 million.
“This forecast is based on current data and information, but issues like tariffs, automaker restructuring and an economic recession could drastically impact the forecast, resulting in a dip in tooling spend by as much as $2 billion,” said Harbour.
“As the tooling market contracts, it is important that shops, specifically small shops that benefited from the increased outsourcing in 2017, prepare for the future,” Harbour advised. “It is important that tool shops continue to focus on improving operations, investing in people and technology and performing strategic planning to remain competitive in the near and long term.”