Market Snapshot: Automotive

Editor's note: Gregory Janicki presented some of the following information at the 2001 Fall Conference of the American Mold Builders Assn. in Dearborn, MI. 

As goes the automotive industry, so goes the nation. Few consumers realize the dramatic impact that the automotive industry has on U.S. manufacturing, but ask any industry analyst or economist and they all concur that automotive is the 1000-lb gorilla. 

Domestic Woes 
Gregory Janicki, vp of CSM Worldwide (Northville, MI), an analyst firm specializing in light vehicle and component production forecasts, notes that the Big Three (GM, Ford, and DaimlerChrysler) have all dropped in market share and sales since the last quarter of 2000. Inventory corrections at Ford and GM, leading to reduced capacity and delayed programs, have had a huge ripple effect among suppliers, says Janicki. "The Big Three corrected the year 2000 exuberance with fourth quarter 2000 and first quarter 2001 reductions," he adds. 

Feeling the squeeze, Ford is delaying a lot of high-profile product programs such as the Ranger pickup, risking future market share and competitive flexibility, Janicki says. This makes it "an easy target" in the key truck segment for GM and Asian automakers to step in and grab market share. 

To combat the downturn, the Big Three will begin using spin-off platforms to address new market segments, meaning that several vehicles will be built using the same platform. A new platform provides the opportunity for molders to produce all the various components for each of the vehicles in the platform. 

Global OEMs are scheduled to introduce 90 new programs in 2002, with 21 new platforms in North America. By 2005, 14 percent of the vehicle volume will be new vehicles—new platforms with major changes representing new or modified tools and additional components—and another 5 to 10 percent of vehicles will receive minor changes. In 2001 there were 74 platforms in North America, says Janicki, but by 2006 that number will be reduced to 62 with three name plates per platform. 

"There will be fewer platforms with more differentiation within those platforms," explains Janicki. 

Overseas Success 
Although the Detroit companies are in trouble, the "transnationals," as Janicki calls the foreign automotive companies, are doing much better. "The Japanese do very well at production schedules and keep production level," he says. "They choose to build cars here that sell well here." They are also good at product marketing, which also helps maintain steady production, Janicki adds. 

The door is open to further market share gains by transnational carmakers. And NAFTA is altering where parts are produced. "Mexico has established a strong production base. By 2006, Mexico will have 12.2 percent of automotive production," says Janicki. "Mexico is becoming an export market." 

The events of Sept. 11 didn't help matters. Border delays led to inventory transportation problems and affected manufacturing efficiencies. "OEMs have found an excuse to close some plants and level their inventory [of cars]," Janicki notes. 

Global Platforms 
While established markets such as North America, Europe, Korea, and Japan are seeing flat to negative growth, emerging markets like South America are seeing strong growth to accommodate the demand for cars in that region (all other countries will show the strongest growth later, but from a relatively small base; see chart). 

The implication for suppliers is that if they expect to manufacture for a specific platform, they must look at not only where design and sourcing decisions are made, but also where the platform is being produced. Even though suppliers might target a North American vehicle, they may be asked to support that same vehicle in South America. "If [manufacturers] don't have the capacity to support production in those other countries where that platform is being built, [they] might not get the opportunity to win the business," says Janicki. 

The good news for North America is the influx of foreign manufacturing operations. Among the global OEMs moving operations to North America is Volkswagen, which will localize more production primarily in the U.S. and Mexico. Overall, the trans-nationals (BMW, Honda, Toyota, Renault/Nissan, Mercedes, and VW) will add a combined 900,000 units of capacity from 2002 to 2006. Honda currently builds 40 percent of its vehicles in North America. 

The "new domestics," as Janicki calls the foreign automakers that now produce in the U.S., will increase production dramatically by 2006, with Renault/Nissan expected to see 11.3 percent growth, while the U.S. Big Three combined are expected to see only about a .3 percent growth rate over that period. These new domestics will pull in new suppliers. "Know who the major suppliers are to these new domestics," advises Janicki. "New suppliers equal new opportunities, new ideas, and new technologies." 

Survival Strategies 
Since consumers are the greatest influence in the rise and fall of the automotive market, it is significant to note that Janicki predicts that consumers may not return to the market until the third quarter of 2002. Chiming in from the molder side is John Szkutnik in sales and marketing at United Plastics Group (UPG, Southfield, MI). "Right now all the car companies are scrambling," he says. "You see it on television—0 percent financing. They're trying to move the vehicles." 

To entice consumers back to auto showrooms, automotive OEMs have searched for ways to cut costs, passing this mandate on to Tier Ones and their suppliers. Give-backs are not optional, but the key to survival, says Szkutnik. "That has become really just the ticket to the game," he notes. "It doesn't guarantee you business—it gives you the right or ability to quote new business with these Tier Ones." 

UPG prepares six months in advance to try to accommodate its customers' annual requirements of 3 to 5 percent piece-price reductions so that they don't eat into profits. By implementing SMED (single minute exchange of die) and lean manufacturing principles—examining methods to reduce the amount of time it takes to change anything—UPG stays ahead of the curve. "Right now, as a company, we are very focused on getting to be the lowest-cost producer," Szkutnik says. 

Even with the industry slowdown, Szkutnik explains that UPG has been able to increase its automotive growth, which is currently 15 percent of its business. Consolidations, bankruptcies, and acquisitions have left far fewer competitors on the field with "the right global footprint and engineering resources," he says. 

While UPG felt some short-term "hiccups" resulting from the Sept. 11 attacks—orders pushed back when lines went down—the long-term effects are, for the most part, still unknown. "Everybody is watching this with bated breath to see what is going to happen," says Szkutnik. "It's going to depend on what happens in this world we have right now."