Two automotive surveys were released in October, and both showed that OEMs and their suppliers (Tier 1 and Tier 2) continue to see strong sales. Projections for the future, while always subject to swift change, give both groups hope that 2014 will keep pace with 2013. Still, there is some hesitancy putting a damper on the hopefulness.
The Original Equipment Suppliers Association's (OESA) September report released this month, showed the Automotive Supplier Sentiment Index increased to 66 from July's index of 60, the highest level since January 2012. Fifty-nine percent of the 85 survey respondents were "somewhat more optimistic." The only revenue subgroup indicating a 'somewhat more pessimistic' view were the companies with more than $1 billion revenue, and even that opinion was lower than July levels, said the survey overview.
The reason that the big multinationals are feeling a bit more pessimistic is most likely due to the fact that they have a very big dog to feed, and when you're depending on the automotive industry to provide the food there's always a level of uncertainty in that scenario.
That is reflected in both the "internal short-term challenges" and the "external short-term concerns" in reaching their 2013/2014 business plans, noted the OESA survey. Capacity constraints, launch management and margin protection along with capital equipment planning are a concern for suppliers internally. Externally, for suppliers the challenges are market demand and uncertainty (will vehicle sales remain high? Can we trust that the OEM will come through with the volume to pay for [capital equipment] required to meet demand and scheduled launches?), along with supply constraints (can the Tier 2 suppliers keep up?), pricing pressures, raw material markets, and customer launch schedules.
Internal long-term challenges (two to five years) include human resources (hiring, retention and development of employees, and the challenges the Affordable Care Act is presenting for employers), capital planning, capacity planning, maintaining profit margins, productivity and cost containment. External long-term challenges for the respondents are market demand, globalization ("Cost! Continued flight to Mexico," commented one respondent.); government regulations/policies, maintaining profit margins, capacity and capital planning.
Many taking the survey responded with comments that indicated they don't fully trust the OEMs, and several mentioned, "lack of commitment to suppliers" and payment terms ("Customers up to their same 'ol money grab," said another respondent.) It seems that the uneasy, love-hate relationship between automotive OEMs and their suppliers is back to normal.
Booz & Co./Bloomberg US survey
In another survey from Booz & Co./Bloomberg US, the conclusions were similar, and "shows that both OEM and supplier auto industry leaders are reaping the benefits of their restructuring during this period of recovery, without kidding themselves about the future."
"Suppliers will need to make clear choices on where and how to compete in the future," the survey concluded. "With stronger and more focused competition, increasingly demanding customers, and the need for continuous product and process innovation, suppliers can no longer try to be everything to everyone. Suppliers must focus, narrowing in on those product and segments where they have a clear right to win and apply investments, capability building, and management attention to driving step change improvement in these areas relative to competitors."