Retooling For Growth in a Dynamic Market CAR MANAGEMENT BRIEFING SEMINARS August 1, 2017
Mike Jackson Executive Director, Strategy and Research Original Equipment Suppliers Association
[email protected] +1-248-430-5954
Retooling for Growth in a Dynamic Market
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Championing the business interests of the automotive OE supplier community: Founded in 1998, the Original Equipment Suppliers Association (OESA), serves as the voice of the automotive supplier and a valuable resource for member organizations. Throughout the supply chain and on legislative and regulatory issues, OESA represents the collective voice of suppliers.
Exclusively for automotive suppliers: Supplier membership is exclusive to original equipment automotive suppliers that directly provide components, tools, materials and services to the OE light vehicle industry.
Strength in numbers: Membership is comprised of approximately 375 Tier 1,2, and 3 automotive suppliers with North American OE sales that range from $10 million to $5+ billion. Affiliate members support the supplier community with thought leadership, industry analysis and other key information.
LED By supplier industry executives: OESA’s interests are guided by a board of directors consisting of CEOs from member companies of all sizes.
Staff that works for members: Members enjoy direct access to a staff of dedicated association employees in Detroit and Washington, D.C.
Retooling for Growth in a Dynamic Market
AGENDA • Vehicle Sales Dynamics
• Production Outlook • Supplier Implications • Summary
Retooling for Growth in a Dynamic Market
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US: New Light Vehicle Sales Pace has slowed since late 2015, but still on pace for a strong year Monthly Sales (SAAR, millions) “Keep America Rolling”
22
“Employee Pricing For All”
20 18
“Cash For Clunkers”
16 14 12 10 8 6
Total
Car
2016
2014
2012
2010
2008
2006
2004
2002
2000
1998
1996
4
Light Truck
Source: Wards, US Bureau of Economic Analysis
Retooling for Growth in a Dynamic Market
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US Light Vehicle Incentives and Inventory Vehicle Inventory (millions)
Vehicle Incentive Spending (thousands)
25%
4.0
15%
3.5
5%
0% 3.0 -25% -50%
Y/Y (%)
US Inventory
$4.0
$3.0 -5%
2.5
-15%
2.0
-25%
Thousands
25%
4.5
Millions
50%
$2.0
Y/Y (%)
US Incentive/Unit
Source: Automotive News Data Center, Autodata
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US: Light Vehicle Sales Outlook Forecasts vary among firms – impact of sales taper is key assumption Annual Sales (millions) 18 17 16 15 Trend: 1968-2008 Rising 125K/year
14 13
12 11
History
PWC-Autofacts
IHS-Markit
LMC
2018
2016
2014
2012
2010
2008
2006
2004
2002
2000
1998
1996
1994
1992
1990
1988
1986
1984
1982
1980
1978
1976
1974
1972
1970
1968
10
Wards Auto Intel
Source: PWC-Autofacts, IHS Markit, LMC Automotive, Wards Auto Intelligence – June 2017
Retooling for Growth in a Dynamic Market
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Lease and Fleet Share Retail Slowing, Industry Reverting to Bad Habits? Current Strength Borrows from Tomorrow Lease and Fleet Share of New LV Registrations
Lease Originations (millions) 5.0
26%
4.5 24%
4.0
3.5
22%
3.0 2.5
20%
2.0 18%
1.5 1.0
16%
0.5 14%
0.0 2010 2011 2012 2013 2014 2015 2016 2017 Lease Share
1996
2000
2004
2008
2012
2016
Fleet Share
Source: Cox Automotive, IHS Markit, Manheim Consulting
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Manheim Used Vehicle Value Index Industry Holds Positive Momentum, yet segments reflect dramatic divergence Manheim Index (Jan 1995=100)
Change in Wholesale Auction Price (YTD, YOY)
130
35%
30%
125
1 my old
25% 120 20%
2 my old 3 my old 4 my old
115
15%
110
10%
105
5% 0%
100 -5% 95
-10%
90
2017
2015
2013
2011
2009
2007
2005
2003
2001
1999
1997
1995
-15% Industry Compact cars
Midsize cars
Luxury cars
Pickups
SUV/ CUV
Vans
Source: Manheim, monthly, Adjusted for mix, mileage and seasonality
Retooling for Growth in a Dynamic Market
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Fleet Sales Boom Can Leave Extended Impact Unique OEM Strategies Top Fleet Shares Change in Fleet Sales (Year over Year)
+17% +400K
35%
15%
5%
-5%
-15% GM
FCA
Nissan Hyundai- Toyota Kia
Honda
27%
11% 8% 8%
30%
8% 11% 17%
DAILY RENTAL
2015 vs '14
COMMERICAL
25%
GOVERNMENT
2016 - 2.8M 2015 - 2.6M 2014 - 2.5M 2013 - 2.4M
2016 vs '15
Ford
8%
28%
2013 2014 20%
22%
2015 2016
Source: Automotive News Data Center
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Millions
US Light Vehicle Sales Outlook By Type 2016 - ∆ 2024
20 18 16 14 12 10 8 6 4 2 0
17.5
16.6
-5% (865K) No Change
(6K)
+16% 1,180K
Car Utility
-30%
Truck
(2,039K)
2005
2010
2015
2020
Source: Wards Auto Intelligence
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AGENDA • Vehicle Sales Dynamics
• Production Outlook • Supplier Implications • Summary
Retooling for Growth in a Dynamic Market
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OESA Supplier Barometer Index: SBI Score = 40 Inventories, production volumes and the political environment drive sentiment down Describe the general twelve month outlook for your business. Over the past three months, has your opinion become…?
Supplier Barometer Index: (SBI 6m Average)
Current Supplier Outlook (Share of Respondents)
80
Q2 2017
60%
Q3 2017
70 40%
Lehman Collapse
60 50
20%
40
40 Significantly more pessimistic
Somewhat more pessimistic
Jan-2017
Jan-2016
Jan-2015
Jan-2014
Jan-2013
Jan-2012
Jan-2011
Jan-2010
Jan-2009
Jan-2008
20
Unchanged
0%
Somewhat more optimistic
30
US Fiscal Cliff
Significantly more optimistic
Japan Tsunami/ Grexit Crisis
Euro Crisis Begins
Source: OESA Supplier Barometer 3Q 2017
Retooling for Growth in a Dynamic Market
OESA Automotive Supplier Barometer- July 2017
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OESA Supplier Barometer: Threats to the 2017-2018 Outlook Rate the possible threats being considered in your current outlook over the next 12-18 months, 0%
20%
40%
60%
80%
100%
Average Rating
3.9
Changes in government trade policy Poor sales of vehicles in programs supplied
3.9
Weakness in the U.S. Economy
4.5
Implementation of new government regulations
5.4
Likelihood of higher interst rates
5.5
Terrorism or some type of international event
6.2
Inability to address internal labor constraints
6.7
Inability to fulfill customer volumes
7.7 1=Greatest threat
2
3
4
5
6
7
8
9
10=Smallest threat
Source: OESA Supplier Barometer 3Q 2017
Retooling for Growth in a Dynamic Market
OESA Automotive Supplier Barometer- July 2017
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NORTH AMERICA 2017-2019 Production Forecast Comparison (VOLUMES REPRESENT NA CAR, LT TRUCK CLASS 1-5)
2017
(in millions)
Forecast Average
1Q Actual
4.47
4.49 ↓0.06
4.21 ↓0.06
4.30 ↓0.12
17.47 ↓0.29
17.97 ↓0.22
18.65 ↓0.27
4.53
4.53 ↓0.08
4.20 ↑0.02
4.29 ↑0.06
17.56 Δ0
17.72 ↓0.19
17.90 ↓0.27
4.56
4.54 ↓0.18
4.24 ↓0.04
4.44 ↓0.01
17.78 ↓0.21
17.88 ↓0.46
18.02 ↓0.42
4.52
4.52
4.22
4.34
17.60
17.86
18.19
0.05
0.04
0.15
0.31
0.25
0.75
4.61
4.39
4.34
17.81
Forecast Spread 2016 Average
2018 2019 Forecast Forecast 2Q 3Q 4Q 2017 Forecast Forecast Forecast Forecast
4.47
Source: OESA Forecast Snapshot – June 2017
Retooling for Growth in a Dynamic Market
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North America – Industry Production Cycles
20
-26%
-42%
-19%
-10%
-48%
-2.2%
-3.8M
-6.4M
-2.6M
-1.7M
-7.8M
-385K
18
Millions
16
? Stress testing
14 12
-10%?
10 8
-20%?
6 4
NA Production Recession Linear (NA Production)
2
-30%?
0 1970
1975
1980
1985
1990
1995
2000
2005
2010
2015
2020
Source: Wards Auto Intelligence
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North American Production Demand Drives Divergent Growth
21
Millions
18 15
3.8
3.5
4.1
12 9
7.2 5.1
+1.3M 8.5
+19%
1.8
6 3
-271K -7%
2.7 6.9
6.5
4.0
6.0
-878K -13%
0 2004 2006 2008 2010 2012 2014 2016 2018 2020 2022 2024 Car
Source: IHS Markit
Retooling for Growth in a Dynamic Market
Utilities
Truck 17
Vehicle Production Categories – Winners & Losers Small +528K
3.2 0.7 2.0
1.5
3.5 2.5
+371K
-719K
3.1
2016
-0.5
2.7
Car Utility Truck
0.5
0.4
0.4
-0.5
2.5 1.5
2.8
0.5 Car Utility Truck
3.5
1.5
3.2
0.5 -0.5
0.8
3.5 2.5
Fullsize
Midsize
Car Utility Truck
∆ 2024
Source: IHS Markit
Retooling for Growth in a Dynamic Market
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AGENDA • Vehicle Sales Dynamics
• Production Outlook • Supplier Implications • Summary
Retooling for Growth in a Dynamic Market
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Future Launch Activity Average Transaction Price By Segment ($) – June 2017
50
Vehicles Cars Trucks
40
33 30
D-Segment
+46%
C-Segment
+39%
B-Segment
Utility +51% Car
29
25
20
13
34 10
19 19
25
16
16
20
Thousands
24 19 20 10
17
12 14
8
0
10
20
30
40
9
0
Source: IHS Markit, Kelly Blue Book
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Priorities & Positioning for Profitability
$17,250 profit/unit
~$10,000 profit/unit
.24 Million units sold - 2016
2.28 Million units sold - 2016
$4.1 Billion
$22.8 Billion
MARGIN COMPETENCY Retooling for Growth in a Dynamic Market
MARKET SCALE 21
Production Portfolio Comparison - 2016 OEM
Units
Car
SUV
Truck
General Motors Ford FCA
3,647 3,068 2,516
32% 25% 13%
34% 36% 61%
34% 39% 27%
Toyota Honda
2,125 1,957
47% 47%
36% 51%
17% 2%
Renault-Nissan Hyundai
1,846 859
56% 66%
28% 34%
16% 0%
411 354 517
0% 20% 98%
100% 69% 2%
0% 11% 0%
95% 6,866 39%
5% 7,130 40%
0% 3,829 21%
BMW Daimler Volkswagen Other Unit volume NA average
524 17,825
$
Source: IHS Markit
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Mexican Production Profile 2.5
30% 27%
1.5
24%
1.0
21%
0.5
18%
0.0
15% 2014 2016 2018 2020 2022 2024 NA Share
Car
Utility
Truck
Millions
Millions
2.0
5.0 4.5 4.0 3.5 3.0 2.5 2.0 1.5 1.0 0.5 0.0
0.2 0.2 0.1
1.8
1.8
1.3 1.7
1.9
1.5 0.4
0.8
0.9
2016 2018 2020 2022 2024 Other A4 US3 G3
Source: LMC Automotive
Retooling for Growth in a Dynamic Market
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Passenger Cars: Under Pressure Steady March To Reduce US3 Car Portfolios and Utilize Global Sourcing
Segment
A/B Fiesta
Sonic
C Dart
Volt?
Focus
Verano
Cruze?
D 200 Taurus
LaCrosse?
Impala?
CT6?
E Retooling for Growth in a Dynamic Market
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Top Automotive States Top 20 - Supplier Employment (000s) Michigan Ohio Indiana Tennessee Kentucky Alabama Illinois North Carolina South Carolina Texas California Pennsylvania Georgia New York Wisconsin Missouri Iowa Virginia
Regional Share % 5% 6% 32%
8%
0
50
Source: 2017 MEMA Economic Study – 2015CY ; Share of total direct employment
Retooling for Growth in a Dynamic Market
49%
100
US Vehicle Output - 2016 (Millions) Michigan Ohio Indiana Kentucky Alabama Tennessee Missouri Illinois Texas Mississippi South Carolina Georgia Kansas California
TRUCK
CAR
Regional Share % 5% 1%
S-East, 38% Midwest, 56%
0
1
2 Source: LMC Automotive, OESA Analysis
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OESA Supplier Barometer Survey: HR & Talent Focus SKILLS + CULTURE
∆ SKILL SETS
ACTION PLANS:
GAP
•SPECIALIZED •AUTONOMOUS •COLLABORATIVE
CROSS FUNCTIONAL TRAINING
63%
MODERATE TO WIDE
APPRENTICESHIPS
TALENT SCARCITY
NEW VALUES:
CHANGE ROLES TO FIT SKILLS
TIME FLEXIBILITY
Retooling for Growth in a Dynamic Market
• ENGINEERS • TECHNICIANS • HOURLY SKILLED
NEW HIRING PRACTICES 26
AGENDA • Vehicle Sales Dynamics
• Production Outlook • Supplier Implications • Summary
Retooling for Growth in a Dynamic Market
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Summary • Market: US demand slowing, divergent performance • Strategy: Cycle requires dramatic reboot, ‘engaged’ planning • Offense: SUV growth/Truck peak—bring opportunities and risks • Defense: Growing scope of passenger car dislocation, turbulence • Flexibility: Liquidity is key; vital to balance ‘Core’ vs Emerging • Stretch: Build on strong foundation, adapt to grow – reach higher
Retooling for Growth in a Dynamic Market
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Thank You... CAR MANAGEMENT BRIEFING SEMINARS August 1, 2017 FOR QUESTIONS OR ASSISTANCE, PLEASE FEEL FREE CONTACT ME:
Mike Jackson Executive Director, Strategy and Research Original Equipment Suppliers Association
[email protected] +1-248-430-5954