Posted by JULIE CRIDLER
on
12/9/2011 10:17 AM
The IRN Pricing Survey results are in! One of the dynamics we study in our survey is the balance of power between suppliers and their OEM and Tier One customers. Again this year, suppliers are reporting good vibes regarding their own power relative to their customers. Most of the respondents in our survey reported either no change or that their power over their customer had increased since last year. This is likely a lingering result of the restructuring and cost structure rationalizing that was rampant in the supply base during the downturn. Going through that rigorous process gave suppliers a closer, more intimate knowledge of their own cost structures, and along with that came a clearer view of the line in the sand where it does not make sense to cave in to a customer’s demands. Along with being stronger operationally, suppliers have more of a context with which to “take charge” of their customer relationships and this ultimately will lead to more stability within the supply base.
Check back often for more previews of this year's results. Or, if you don't want to wait, order a copy of the report today! Click here to order.
Posted by JULIE CRIDLER
on
10/7/2011 2:25 PM
It is official - the IRN pricing survey is now underway. In the last couple years, the results of our survey have illustrated the point that suppliers have continued to steadily gain both the willingness and the power to say no to a customer’s request for a price reduction. The consequences for refusal have continued to become less dire. But, as everyone who lives in the auto industry knows, things can change dramatically from one year to the next. As the overall economy teeters on the brink of a mild recession, what will we see in the results this year?
Hopefully, Toyota’s recent announcement that they are asking their suppliers in Japan to reduce prices or be replaced (by overseas suppliers) is not a foreshadowing of this year’s survey results. A return to the early days of our pricing survey results – the days where suppliers acquiesced to whatever demands the automakers placed on them – would be a disappointment, to say the least, after the significant progress that has been made. To be fair, Toyota’s move is largely necessitated by the appreciation of the yen against the dollar, which causes them to lose significant operating profit. In some cases the OEM is reportedly asking suppliers to reduce prices by up to 50%. Yikes!
We are eagerly anticipating the survey results this year to see what new trends are appearing. Please take a moment to weigh in on your experiences with customers and prices reduction requests by clicking on the link below and completing the survey. The survey is open for responses through Friday, October 28th.
http://www.think-irn.com/survey11/
Posted by MELISSA ANDERSON
on
9/27/2011 11:28 AM
Headlines in Automotive News this summer paint Mexico as the Mecca of the day for the automotive industry: “Mexico stages comeback as hub for light vehicle output,” “Mexico braces for influx of Japanese suppliers,” “Honda plans $800 million Mexico plant to build subcompacts for North America,” and “Toyota Eyes Engine Factory in Mexico,” are a few examples. This message is being reinforced by Marca Pais – Imagen de Mexico, a public-private initiative “to help promote a positive image of Mexico as a global business partner and an unrivaled tourist destination abroad,” with press releases such as, “Mexican Automotive Manufacturing Market Attracting Global Investments.” But how will the country square this with other trends that are getting less airtime but indicate some headwinds?
The Corpus Christi (TX) Caller Times newspaper published an Associated Press story in May under the headline “U.S. businesses leaving Mexico; Drug violence is costing the country billions.” With escalating drug cartel violence, particularly in the Monterrey area, only half of the US firms surveyed by the U.S.-Mexico Chamber of Commerce said they planned to proceed with new investment plans in Mexico. Problems of cargo theft and graft associated with organized crime are also reportedly widespread enough for companies to consider it part of the ordinary cost of business in the country. An employee at one of IRN’s clients was recently turned down for life insurance on the basis of his occasional travel to their facility in Mexico. The fact that it was too risky for their financial formula was somewhat jarring to him! The Mexican government needs to take serious steps to address personal safety and company security in order to leverage the opportunity currently presented by rising labor costs in China.
Beyond that, we have heard of several instances recently where automotive component suppliers are encountering issues with workforce capabilities at their Mexican plants. It takes stellar systems to be able to set up Mexican capacity that operates in a completely consistent manner to US facilities. Most companies do not have that degree of discipline and are comfortable adapting to local circumstances anyway. Without having all processes completely spelled out and standardized, though, there is a risk, as two stamping companies we know have found, that complex components and assemblies are too difficult for the local workforce to handle. The moral of that story seems to be to assume nothing – make sure that the jobs are appropriate for an environment where low labor costs may also equate to limited skill sets, or that you bring in a systematic training process at the same time.
Posted by JULIE CRIDLER
on
9/23/2011 4:31 PM
Since the new CAFE regulations were announced this summer, the industry has no choice but to put weight reduction front and center as the race for solutions to meet the 54.5 mpg standard by 2025 begins. Estimates from research groups in the industry suggest that in order to meet the standards of 2025, the weight of vehicles will have to drop by 10–15%. Indeed, at the Frankfurt Auto Show this year, automakers and suppliers alike are touting weight loss accomplishments and goals in vehicles and components.
Automakers are setting targets and creating specific job positions to monitor weight reduction in their portfolios. Jaguar Land Rover, for example appointed a head of lightweight vehicle strategy. Ford is planning to reduce the weight of vehicles introduced through 2020 by a range of 250 to 750 pounds. Audi unveiled its 2012 A6 which made extensive use of aluminum along with appearances by other lightweight materials. The vehicle reportedly weighs 175 pounds less than its predecessor model. Following a similar philosophy, the OEM introduced its own urban concept car, whose development was solidly rooted in the principles of lightweight construction. Suppliers are getting involved as well. In another example from the Frankfurt show, Eberspaecher showed a compact exhaust system for a four-cylinder engine which enables weight savings of up to 40%. Tower introduced its VarioStruct® multi-material components, with a sheet metal shell and cast light metal structure, which are capable of reducing system weight by 30%.
Alternative powertrain technology will continue to play a role in meeting CAFE regulations, and weight reduction is an important element there too. For example, Toyota plans to reduce the weight and packaging space for its Hybrid Synergy Drive system by 35% with each new generation of the product.
The general consensus in the industry is that the innovations which will ultimately lead us to meet the 2025 regulation are not yet developed. It will take a steady dose of new lightweight technology and cost effective materials being utilized in each vehicle model year to reach the elusive 54.5 mpg goal.
Posted by JULIE CRIDLER
on
9/14/2011 11:31 AM
IRN is preparing to conduct our ninth supplier price reduction survey, and this brings to mind the question of where the various OEMs will fall in the supplier relations spectrum this year. In general, the more aggressive OEMs are in asking for price reductions the worse their supplier relations tend to be. This is logical since OEMs that beat their suppliers up on prices typically do not value those suppliers for the non-price related contributions they make. Fortunately for the supply base, there are some exceptions.
BMW announced back in 2007 that the company planned to cut nearly $5 billion in costs from its parts and supplies budget by 2012. As could be anticipated, suppliers bristled fearing that the OEM was putting too much pressure on them to reduce prices. BMW had always been known as an OEM that valued technology and quality over price. BMW’s goal with the cost cutting program, however, was to increase their competitiveness, and a healthy supply base is a key component of that. Subsequent surveys relative to supplier relations showed that BMW understood that. Despite the aggressive targets, BMW ranked number two in popularity with suppliers in a 2008 survey by Automotive News Europe and SupplierBusiness. In the same survey for 2010, BMW rose from fifth place to number one in the category of attractiveness as a partner for components suppliers. Amazingly, BMW recently completed their cost reduction program well ahead of their 2012 goal. Now that the initiative has been successfully finished, the OEM will intensify its focus on innovation and quality. Already the worldwide leader in the premium segment, based on unit sales and profit margin, BMW is working to ensure that they maintain their position for the long term.
Posted by KIM KORTH
on
9/8/2011 11:57 AM
As if the recent economic news is not bad enough, we are getting calls from a few clients telling us that the old “pay to play” purchasing practices have reared their ugly head again. Remember when Collins & Aikman thought a great way to make money was to receive an upfront payment when new work was awarded? (It is getting long enough ago that some younger readers may not remember David Stockman’s notorious plastics supplier that went into bankruptcy in 2005.) Fortunately this attempt at supplier extortion died a quick death and we have not heard it referenced since the 2005-06 timeframe. Apparently some Tier Ones (we have not heard of any OEMs making this request) are trying to revive this practice. While the story line is a little different depending upon the commodity area and the customer, the process is described as follows:
• A supplier is told by the customer they have been awarded a new program(s). All of the negotiations have been “normal” to this point.
• When they start to ask to receive formal purchase orders for the work that has been awarded, they are informed that P.O.’s will not be sent unless the Customer receives a 5% upfront payment for the new contract.
• When the supplier objects, they are told that the Customer will reopen the process and the supplier probably will not get the work if they refuse to pay the 5%.
A couple of comments from IRN’s perspective:
• Say no to this request and be willing to walk from the business.
• Say “Hell no” to this request and be willing to walk from the business.
While playing a “bait and switch” like this is not illegal, it is stupid and should be a huge red flag to any supplier that this is a customer they probably should avoid. These instances still appear to be quite isolated. We would appreciate hearing from any of you that have had this request, so please let us know.
Posted by MELISSA ANDERSON
on
9/6/2011 3:50 PM
In my post on August 23rd, I shared some observations from a quick review of the Q2 financial results for publicly-held auto suppliers. Of the set of 20 companies we looked at, 14 had year-over-year revenue growth of greater than 20%. Clearly, many suppliers were able to pick up new business and continue their recovery from the trough of 2009. A closer look at the full financial results, however, shows that companies experienced a range of performance regardless of how much their top line grew. The sales force seems to be seizing the day, but as a former colleague who was fond of quoting the Tom Hanks movie, Joe Versus the Volcano, always said, “He can get the job, but can he do the job?”
The companies in our sample set fell into three groupings of net income as a percentage of sales, as shown in the table below.
The companies that had more than 20% revenue growth compared to the second quarter of 2010 appear in every performance category, so volume alone is no guarantee of success. In some cases, it may actually have been part of the problem. Stoneridge, Inc. straightforwardly cited the impact of strong demand from the commercial vehicle market on its North American wiring business in Q2, increasing its operational costs with premium freight, in addition to the effects of higher commodity costs and the strengthening of the Mexican peso on its Mexican peso-denominated costs.
Cooper Standard, maker of sealing systems, engine and body mounts, and fluid handling systems said that its net income was “favorably impacted by higher volumes and mix, partially offset by higher raw material costs, additions to engineering and customer support staff, and launch costs.”
For Goodyear, much of the company’s improved price/mix was eaten up by higher raw material costs for its tires. The company also noted that it anticipates its raw material costs for the remainder of 2011 will increase more than 30% compared with the prior year. It is, apparently, a tough time to depend on rubber.
If you are in the midst of a big acquisition (Amerigon) or significant organizational events like restructuring and refinancing (Visteon), there isn’t much you can do to avoid taking hits in the short term. You might not be suited for occupying a highly profitable niche like Gentex, but there are solid hitters like BorgWarner who could say, “While growing our sales in the quarter, we also successfully managed costs, commodity pressures and the impact of the Japanese earthquake.” It takes a combination of clear strategy and strong systems to be able to perform consistently. The industry is sufficiently volatile that we do not expect every company to be able to maintain their standing year in and year out, but the fact remains that some are better at it than others. Helping suppliers identify their strategic growth path, structure their organization, and apply a disciplined approach to execution is something that IRN has been doing for over 25 years and we haven’t finished yet!
Posted by JULIE CRIDLER
on
8/31/2011 12:41 PM
The consumer confidence rating from the Conference Board was recently reported, and it fell precipitously to 44.5 for August, compared to 59.2 in July. For the Conference Board’s rating, this is the lowest since April 2009, which was a few months before the Great Recession officially ended. The rating at that time was 40.8. The other consumer confidence measure, from the Reuters / University of Michigan survey, fell as well, from 63.7 in July to 55.7 in August. The U of M rating is at its lowest point since November 2008 when the U.S. was in the throes of recession and reportedly the fourth lowest rating since the inception of the measure.
Other economic indicators reported for July, however, painted a different and rosier picture. During that month it was consumer spending that was the bright spot in the economic metrics, and this is important since consumer spending accounts for nearly 70% of the U.S. economy. Furthermore, the July spending level was the highest in five months. Much of the increase was attributable to strong demand for motor vehicles. Of course, that was before the height of the Congressional antics on the debt ceiling and the S&P credit downgrade for the U.S. Indeed, many of the participants in the University of Michigan survey for August indicated that they believe the economy is deteriorating, and they are thus putting off purchases of big ticket items, including cars.
All of this is unfortunate for the auto industry, which fought so hard to reach its current position of recovery and relative stability. The effects of the previous recession are still etched in consumer’s minds and the abounding signs of uncertainty are likely to spook many would-be buyers into a holding pattern for the near term. Indeed many auto industry analysts, as well as automakers and dealers have begun to reign in their forecasts for the remainder of this year and for the next two years. In mid-August, GM’s CEO Dan Akerson stood by a forecast of 13 million unit sales for 2011, but also issued a cautionary note that there was a great deal of turmoil in the business so they were somewhat unsure of the numbers.
Consumers fuel the economy, and the problem is that the majority emerged from the most recent recession with a new mindset. The persistent unemployment problem has contributed to a very fragile state of stability for the consumer during the recovery. Many studies have been done which illustrate that consumers’ approach to purchases has been permanently altered. Consumers are more inclined to save and carefully scrutinize the necessity of a purchase before embarking. A quote from one of these studies, conducted in late 2009 by Ogilvy Chicago, sums it up well:
“It is an undeniable fact: The recession has created not only a universal sense of anxiety and fear, but a greater level of consciousness across all ages and genders. We can’t go back. We have heightened our perception; we are awake, alert, aware – whether we like it or not.”
Posted by KIM KORTH
on
8/26/2011 10:26 AM
As continued evidence from the "nobody has a clue what is going on in the economy" department, a series of positive and negative signals were reported this week. The latest negative downdraft was the GDP number released this morning that showed the economy only grew at 1% in the second quarter, one of the lowest levels since the recovery began in mid 2009. At this pace, any kind of sustained economic recovery is unlikely.
Earlier in the week, there was good news on consumer spending which rose 0.4% in the second quarter vs. the estimated growth of 0.1%. Most of that positive news, however, was dismissed because it was from April to June before the debt ceiling wars and the increasing concern over European debt. There was also good news regarding payroll growth and the confidence shown in several manufacturing sectors.
Probably the strangest negative indicator right now is the attempt by several large US banks to charge their wealthy customers a fee for depositing too much money in their accounts. According to one report, cash held in US banks rose to $1 trillion in July, up 27% from last July. In fairness to the banks, this huge temporary influx of money completely screws up their ratios and is extremely costly in the short term. It will be interesting to see if they get any regulatory relief.
In the final analysis, the current economy is all about confidence, both business and consumer. It has cratered since the debt wars and is unlikely to recover significantly this year. The best soundbite for this was a quote this week from Robert Niblock, President of Lowes, who was lowering his forecast for the remainder of the year. "Recent headlines regarding slowing growth and the U.S. credit downgrade underscore the continued weakness in the U.S. economy...the volume of negative news and the unsettling impact on equity markets is having a significant effect on an already fragile consumer mindset." Given the propensity of the media to feed on negative news, I wouldn't expect this to change anytime soon.
So what does this mean to an auto supplier? I would assume that the next 6-12 months will look pretty much like the last 6 months, and the expected improvement in production beyond 13 million units in 2012 has probably been delayed. We do NOT anticipate a significant downturn - just continued muddling along.
Posted by MELISSA ANDERSON
on
8/23/2011 2:04 PM
The second quarter financial results reported by publicly-traded companies in the automotive sector show the component industry settling into a period of solid growth, after the roller coaster ride that began in 2008. We looked at a set of North American-based companies recently to see how things are going. Of the 20 companies, 11 had year-over-year quarterly growth rates in the range of 20-25% (see table below). That’s an impressive degree of consistency, particularly given the fact that North American production was pretty much level between the two quarters and global light vehicle production was down during the same period this year by a couple percentage points. Our quick review yielded a few observations about what is driving these results.
Suppliers are active in the acquisition and joint venture fields again, particularly to expand their geographic footprint and catch a wave in a different part of the global market. Higher growth in the cases of Amerigon, BorgWarner, and Linamar was attributable in part to acquisitions. Six companies were below 20% in their YOY sales growth. Few of the companies noted the effects of the Japanese earthquake in their financial results (Amerigon, Gentex, JCI), but two external forces did get a number of honorable or dishonorable mentions: foreign exchange effects and commodity costs. Forty percent of the companies in this group commented on the increased costs and investments associated with supporting new programs and growth – this is an area we have been concerned about after the stellar job that companies did of transforming their cost structures during the industry downturn. Determining the need and timing of expansion is a critical issue for successful companies right now. Overall, the growth rate is solid without being too crazed to manage. Come back next week when we’ll look at how the bottom line is faring for these businesses.
|
|
HOT TOPICS: AUTOFUTURES FORECAST
Posted by TRACY SCHNEITER
on
8/19/2011 3:35:42 PM
IRN's most recent NA light-duty vehicle production forecast calls for 20% growth in the number of light-duty vehicles produced between 2010 and 2016 by GM, Ford and Chrysler combined. GM is expected to garner the most growth (up nearly 26% by 2016) given their strong product offerings and fuel-efficient powertrain solutions. Despite all the negative press surrounding Chrysler in the recent past, IRN is anticipating continued demand by consumers for Chrysler/Fiat products with production nearing 2 million vehicles in 2016. Meanwhile, Ford Motor has already experienced strong growth and should see a relatively modest growth in the number of vehicles produced by 12%. See below for free data.
If you are interested in learning more in-depth knowledge of who the winners and losers will be over the next couple of years, please contact JulieR@think-irn.com.
AUTOMOTIVE INTELLIGENCE: SNAPSHOTS
AUTOFUTURES® SUBSCRIBER ALERTS:
Posted by THE AIP TEAM
on
2/2/2012
Autofutures® Monthly Commentary (latest release Jan 28)
This report is our regular commentary on the status of North American sales, the US economy, and our current expectations for vehicle production. You will also find a summary information page on each automaker, displaying the production outlook and other key points.
IRN's Model Tracking Analysis (latest release Jan 28)
Our user-friendly display of new and major model changes as well as minor model refreshes has been a popular element of our Automotive Intelligence Products.
Autofutures® North American Industry Results (latest release Jan 27)
How is the industry doing? This data-oriented report covers the prior month's results in sales, inventories, and production overall and on an OEM-by-OEM basis.
IRN's OEM Assembly Operations Tracking Report (latest release Jan 5)
IRN publishes a tracking report that lists all North American OEM assembly plants and any scheduled or anticipated plans for downtime or closing. We are always looking for feedback or any plant shutdown updates that you can forward on to us. Please feel free to send either to auto-intelligence@think-irn.com.
Autofutures® NA Production Forecast (latest release Dec 22)
As we update the forecast each month, you will find the latest data on the web-based Autofutures Live. If you are using Autofutures Desktop, you will be prompted to run the update to get the most current forecast data installed into your program.
As always, if you have any questions or concerns, feel free to give us a call at (616) 785-5175.
Sincerely,
IRN's Automotive Intelligence Products Team
|
