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Retooling For Growthin a Dynamic MarketAUTO VISION CONFERENCELexington, Kentucky
August 8, 2017
Mike JacksonExecutive Director, Strategy and ResearchOriginal Equipment Suppliers [email protected]+1-248-430-5954
2Retooling for Growth in a Dynamic Market
Championing the business interests of the automotiveOE 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
4
• Vehicle Sales Dynamics
• Production Outlook
• Supplier Implications
• Summary
AGENDA
Retooling for Growth in a Dynamic Market
5
• Real GDP – Consumer confidence and many sectors improving, but strong dollar hurting trade. Spending and investment drive 2017 gains from a year ago.
• Consumption – Real consumer spending keeping economy on a stable path -improving from gains in net worth and wages, helped by stable energy prices.
• Employment – Job creation slowing, but still strong; 81+ months of growth. Initial claims holding at 40+ year lows suggesting market tightening, lending to gains in consumer confidence, higher job hopping and added wage pressure.
• Foreign Trade – Strong dollar is hurting trade balances, a drag on the US economy through 2018 – or longer.
• Business investment – Weak in 2016 due to poor energy sector which is rebounding in 2017. Most forecasts expect a rebound in 2017, but lack of policy gains likely to stifle some strategic planning initiatives.
• Monetary Policy – FED expected to continue to raise interest rates, one more time in 2017 after a quarter point increase in June. Lower chance of delayed rate increases due to weak global conditions and weak US labor market wage growth. Key Question: Do rising wages support tightening?
• Fiscal Policy – Trump administration plans for large infrastructure spending, coupled with corporate and personal income tax rates -- could be significant contributors to stronger economic growth. Lack of progress has scaled back expectations – with more limited prospects. Risk of policy failure dragging down the outlook for 2018 and undermining record stock market levels.
2.22.5
-3
-2
-1
0
1
2
3
4
5
2004
2005
2006
2007
2008
2009
2010
2011
2012
2013
2014
2015
2016
2017
2018
Real GDP Growth (%)
US: Economic OutlookMeasured growth outlook intact but prospect for policy volatility remains
Source: Wells Fargo, Federal Reserve FOMC assumption
Retooling for Growth in a Dynamic Market
4
6
8
10
12
14
16
18
20
22
1996
1998
2000
2002
2004
2006
2008
2010
2012
2014
2016
Total Car Light Truck
6
“Keep AmericaRolling” “Employee Pricing
For All”
“Cash ForClunkers”
Monthly Sales (SAAR, millions)
Source: Wards, US Bureau of Economic Analysis
US: New Light Vehicle SalesPace has slowed since late 2015, but still on pace for a strong year
Retooling for Growth in a Dynamic Market
US Light Vehicle Inventory and Incentives
7
2.0
2.5
3.0
3.5
4.0
4.5
-50%
-25%
0%
25%
50%
Mill
ions
Y/Y (%) US InventorySource: Automotive News Data Center, Autodata
Vehicle Inventory (millions)
$2.0
$3.0
$4.0
-25%
-15%
-5%
5%
15%
25%
Thou
sand
s
Y/Y (%) US Incentive/Unit
Vehicle Incentive Spending (thousands)
Retooling for Growth in a Dynamic Market
US: Light Vehicle Sales OutlookForecasts vary among firms – impact of sales taper is key assumptionAnnual Sales (millions)
10
11
12
13
14
15
16
17
1819
68
1970
1972
1974
1976
1978
1980
1982
1984
1986
1988
1990
1992
1994
1996
1998
2000
2002
2004
2006
2008
2010
2012
2014
2016
2018
History PWC-Autofacts IHS-Markit LMC Automotive Wards Auto Intelligence
Trend: 1968-2008Rising 125K/year
8
Source: PWC-Autofacts, IHS Markit, LMC Automotive, Wards Auto Intelligence – June 2017
Retooling for Growth in a Dynamic Market
9
14%
16%
18%
20%
22%
24%
26%
2010 2011 2012 2013 2014 2015 2016 2017
Lease Share Fleet Share
Lease and Fleet Share of New LV Registrations
0.0
0.5
1.0
1.5
2.0
2.5
3.0
3.5
4.0
4.5
5.0
1996 2000 2004 2008 2012 2016
Lease Originations (millions)
Source: Cox Automotive, IHS Markit, Manheim Consulting
Lease and Fleet ShareRetail Slowing, Industry Reverting to Bad Habits? Current Strength Borrows from Tomorrow
Retooling for Growth in a Dynamic Market
10
90
95
100
105
110
115
120
125
130
1995
1997
1999
2001
2003
2005
2007
2009
2011
2013
2015
2017
Manheim Index (Jan 1995=100)
-15%
-10%
-5%
0%
5%
10%
15%
20%
25%
30%
35%
Industry Compactcars
Midsizecars
Luxurycars
Pickups SUV/CUV
Vans
1 my old2 my old3 my old4 my old
Change in Wholesale Auction Price (YTD, YOY)
Manheim Used Vehicle Value IndexIndustry Holds Positive Momentum, yet segments reflect dramatic divergence
Source: Manheim, monthly, Adjusted for mix, mileage and seasonality
Retooling for Growth in a Dynamic Market
11
Source: Automotive News Data Center
Fleet Sales Boom Can Leave Extended ImpactUnique OEM Strategies
Change in Fleet Sales (Year over Year)
30%
28%17%
8%
8%8%
27%
22%
20%
11%
11%
8%
Top Fleet Shares
2013
20142015
2016
2016 - 2.8M2015 - 2.6M 2014 - 2.5M2013 - 2.4M
+400K +17%
GO
VE
RN
ME
NT
CO
MM
ER
ICA
L
DA
ILY
RE
NTA
L
-15%
-5%
5%
15%
25%
35%
Ford GM FCA Nissan Hyundai-Kia
Toyota Honda
2016 vs '15
2015 vs '14
Retooling for Growth in a Dynamic Market
US Light Vehicle Sales Outlook By Type
12
02468
101214161820
2005 2010 2015 2020
Mill
ions
CarUtilityTruck
-5%(865K)
No Change(6K)
+16%1,180K
-30%(2,039K)
2016 - ∆ 2024
Source: Wards Auto Intelligence
17.516.6
Retooling for Growth in a Dynamic Market
13
State of the Automotive Industry – Healthy?High Demand Levels yet Quality of Volume is Mixed
Source: JDP PIN
FICO Sub-650 Mix
15.1%-1.9ppts
84mo + Loan Mix
5.5%+0.3ppts
Incentive % of MSRP
10.4%+1.0ppts
Lease Maturities
1,077k+16%
Transaction Price
$31,383+1.3%
Days to Turn
69+4 days
Lease Mix
30.6%-1.0ppts
FleetMix
21.1%-1.1ppts
Total Light Vehicle Volume -2.1%, Retail Sales Volume -1.1%YTD17 Vs. YTD16 – Indicators showing potential risk ahead!
Retooling for Growth in a Dynamic Market
14
• Vehicle Sales Dynamics
• Production Outlook
• Supplier Implications
• Summary
AGENDA
Retooling for Growth in a Dynamic Market
OESA Automotive Supplier Barometer- July 2017
20
30
40
50
60
70
80
Jan-
2008
Jan-
2009
Jan-
2010
Jan-
2011
Jan-
2012
Jan-
2013
Jan-
2014
Jan-
2015
Jan-
2016
Jan-
2017
15
Supplier Barometer Index: (SBI 6m Average)
Describe the general twelve month outlook for your business. Over the past three months, has your opinion become…?
OESA Supplier Barometer Index: SBI Score = 40Inventories, production volumes and the political environment drive sentiment down
Euro Crisis Begins
Japan Tsunami/
Grexit Crisis
US Fiscal Cliff
Lehman Collapse
400%
20%
40%
60%
Sig
nific
antly
mor
eop
timis
tic
Som
ewha
t mor
eop
timis
tic
Unc
hang
ed
Som
ewha
t mor
epe
ssim
istic
Sig
nific
antly
mor
epe
ssim
istic
Q2 2017 Q3 2017
Current Supplier Outlook (Share of Respondents)
Source: OESA Supplier Barometer 3Q 2017
Retooling for Growth in a Dynamic Market
OESA Automotive Supplier Barometer- July 2017
0% 20% 40% 60% 80% 100%
Changes in government trade policy
Poor sales of vehicles in programs supplied
Weakness in the U.S. Economy
Implementation of new government regulations
Likelihood of higher interst rates
Terrorism or some type of international event
Inability to address internal labor constraints
Inability to fulfill customer volumes
1=Greatest threat 2 3 4 5 6 7 8 9 10=Smallest threat
16
Rate the possible threats being considered in your current outlook over the next 12-18 months,AverageRating
3.9
3.9
4.5
5.4
5.5
6.2
6.7
7.7
OESA Supplier Barometer: Threats to the 2017-2018 Outlook
Source: OESA Supplier Barometer 3Q 2017
Retooling for Growth in a Dynamic Market
17
(in millions)
20172018
Forecast2019
Forecast1Q Actual
2QForecast
3Q Forecast
4Q Forecast
2017Forecast
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
17.56Δ0
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
Forecast Average 4.52 4.52 4.22 4.34 17.60 17.86 18.19
Forecast Spread 0.05 0.04 0.15 0.31 0.25 0.75
2016 Average 4.47 4.61 4.39 4.34 17.81
Source: OESA Forecast Snapshot – June 2017
Retooling for Growth in a Dynamic Market
NORTH AMERICA2017-2019 Production Forecast Comparison(VOLUMES REPRESENT NA CAR, LT TRUCK CLASS 1-5)
OESA Automotive Supplier Barometer- July 2017
0
5
10
15
20
25
1995
1996
1997
1998
1999
2000
2001
2002
2003
2004
2005
2006
2007
2008
2009
2010
2011
2012
2013
2014
2015
2016
2017
2018
Sales Production Breakeven
Millions of Light Vehicles
Sources: IHS Automotive forecast (January 2017) and January 2017 OESA Automotive Supplier Barometer
Median 2017 Breakeven = 14.5 Million Units
14.3 Million Units = January 201613.5 Million Units = January 201512.7 Million Units = January 201412.0 Million Units = January 201311.0 Million Units = January 201210.5 Million Units = January 201110.0 Million Units = January 2010
9.5 Million Units = January 2009
Production Planning: Breakeven and Year-End EstimatesSuppliers “OK” if mild downturn occurs over the near-term: Breakeven well below forecasts
Considering North America light duty vehicle production, estimate the required 2017 industry volume needed to achieve breakeven in your North American operations?
Estimate 2017 Year-End NA Production Volume
Median = 17.2 Million Units
(Range: 16-25 million units)
18Retooling for Growth in a Dynamic Market
North America – Industry Production Cycles
19
0
2
4
6
8
10
12
14
16
18
20
1970 1975 1980 1985 1990 1995 2000 2005 2010 2015 2020
Mill
ions
NA ProductionRecessionLinear (NA Production)
-26%-3.8M
-42%-6.4M
-19%-2.6M
-10%-1.7M
-48%-7.8M
Source: Wards Auto Intelligence
Stress testing
-10%?
-20%?
-30%?
?-2.2%-385K
Retooling for Growth in a Dynamic Market
North American ProductionDemand Drives Divergent Growth
20
6.54.0
6.9 6.0
5.1
2.7
7.2 8.5
4.1
1.8
3.8 3.5
0
3
6
9
12
15
18
21
2004 2006 2008 2010 2012 2014 2016 2018 2020 2022 2024
Mill
ions
Car Utilities Truck
-271K-7%
+1.3M+19%
-878K-13%
Source: IHS Markit
Retooling for Growth in a Dynamic Market
3.2
2.8
0.4
0.8
-0.5
0.5
1.5
2.5
3.5
Car Utility Truck
Vehicle Production Categories – Winners & Losers
21
3.2
2.00.7
-0.5
0.5
1.5
2.5
3.5
Car Utility Truck
0.4
2.7
3.1
-0.5
0.5
1.5
2.5
3.5
Car Utility Truck
Small Midsize Fullsize
+528K +371K -719K
Source: IHS Markit
2016 ∆ 2024
Retooling for Growth in a Dynamic Market
22
• Vehicle Sales Dynamics
• Production Outlook
• Supplier Implications
• Summary
AGENDA
Retooling for Growth in a Dynamic Market
Future Launch Activity
23
19 1925
16
34
19 20 2410
1712 14
8 9
25
33
29
1316
20
0
10
20
30
40
50VehiclesCarsTrucks
Source: IHS Markit, Kelly Blue Book
Average Transaction PriceBy Segment ($) – June 2017
0 10 20 30 40
B-Segment
C-Segment
D-Segment
Thousands
UtilityCar
+46%
+39%
+51%
Retooling for Growth in a Dynamic Market
Priorities & Positioning for Profitability
24
$17,250 profit/unit.24 Million units sold - 2016
$4.1 Billion
~$10,000 profit/unit2.28 Million units sold - 2016
$22.8 Billion
Retooling for Growth in a Dynamic Market
MARGIN MARKETCOMPETENCY SCALE
Production Portfolio Comparison - 2016
25
OEM Units Car SUV TruckGeneral Motors 3,647 32% 34% 34%
Ford 3,068 25% 36% 39%FCA 2,516 13% 61% 27%
Toyota 2,125 47% 36% 17%Honda 1,957 47% 51% 2%
Renault-Nissan 1,846 56% 28% 16%Hyundai 859 66% 34% 0%
BMW 411 0% 100% 0%Daimler 354 20% 69% 11%
Volkswagen 517 98% 2% 0%
Other 524 95% 5% 0%Unit volume - 6,866 7,130 3,829 NA average 17,825 39% 40% 21%
$
Source: IHS Markit
Retooling for Growth in a Dynamic Market
Mexican Production Profile
26
15%
18%
21%
24%
27%
30%
0.0
0.5
1.0
1.5
2.0
2.5
2014 2016 2018 2020 2022 2024
Mill
ions
NA Share Car Utility Truck
0.4 0.8 0.9
1.51.7 1.9
1.3
1.81.8
0.1
0.20.2
0.00.51.01.52.02.53.03.54.04.55.0
2016 2018 2020 2022 2024
Mill
ions
Other A4 US3 G3Source: LMC Automotive
Retooling for Growth in a Dynamic Market
Passenger Cars: Under PressureSteady March To Reduce US3 Car Portfolios and Utilize Global Sourcing
27
Fiesta
Dart Focus
200
Sonic
Taurus
Verano
LaCrosse? Impala? CT6?
Volt? Cruze?
Segment
A/B
C
D
E
Retooling for Growth in a Dynamic Market
Global Propulsion Design Islands in 2025
Retooling for Growth in a Dynamic Market
Source: IHS Markit – VPaC – March 2017
Top Automotive States
29
Top 20 - Supplier Employment (000s) US Vehicle Output - 2016 (Millions)
5%6%
49%8%
32%
Regional Share %
Source: 2017 MEMA Economic Study – 2015CY ; Share of total direct employment Source: LMC Automotive, OESA Analysis 0 1 2
CaliforniaKansasGeorgia
South CarolinaMississippi
TexasIllinois
MissouriTennessee
AlabamaKentucky
IndianaOhio
Michigan
5%1%
Midwest, 56%
S-East, 38%
Regional Share %
Retooling for Growth in a Dynamic Market
CAR TRUCK
0 50 100Virginia
IowaMissouri
WisconsinNew York
GeorgiaPennsylvania
CaliforniaTexas
South CarolinaNorth Carolina
IllinoisAlabama
KentuckyTennessee
IndianaOhio
Michigan
• ENGINEERS• TECHNICIANS• HOURLY SKILLED
30
OESA Supplier Barometer Survey: HR & Talent Focus
SKILLS + CULTURE GAP
63%MODERATE TO WIDE
NEW VALUES
TIME
FLEXIBILITY
TALENT SCARCITY
CHANGE ROLESTO FIT SKILLS
Retooling for Growth in a Dynamic Market
CROSS FUNCTIONAL
TRAINING
APPRENTICESHIPS
NEW HIRING PRACTICES
ACTION PLANS:∆ SKILL SETS
• SPECIALIZED• AUTONOMOUS• COLLABORATIVE
31
• Vehicle Sales Dynamics
• Production Outlook
• Supplier Implications
• Summary
AGENDA
Retooling for Growth in a Dynamic Market
Summary
32
• 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
Thank You...AUTO VISION CONFERENCE
August 8, 2017
FOR QUESTIONS OR ASSISTANCE, PLEASE FEEL FREE CONTACT ME:
Mike JacksonExecutive Director, Strategy and ResearchOriginal Equipment Suppliers [email protected]+1-248-430-5954