Automotive Outlook Steady as She Goes

By: Lou Kren

Friday, April 1, 2016

The past decade has been rocky to say the least for the automotive industry, domestically and abroad. Certainly, better days have arrived and should continue, with those OEMS and suppliers able to up capacity and differentiate themselves via emerging technologies most likely to reap the benefits.

 Photo courtesy of Ford Motor Co.
To recap the ugliness of yesteryear: By December 2008, U.S. auto sales from all carmakers fell 37 percent from the year prior. General Motors and Chrysler fared the worst, with Ford’s drop similar to those by Honda and Toyota.

The sales decrease directly resulted in a GDP drop of greater than one percent. According to the Dept. of Labor, in April of 2006 automobile and related parts manufacturing had employed 1.1 million workers. By June 2009, that number had fallen to 624,000.

Most of us were neck deep in that crisis. Automotive has turned around, but many in the industry do not see it as solid. Though the recent past has reshaped the auto-manufacturing landscape, it’s left in many a void of true optimism. But what do the numbers tell us? Will the industry continue to solidify and progress upward? In a word, yes.

IHS Automotive, headquarted in Englewood, CO, recently provided analysis to the Precision Metalforming Association, MetalForming magazine and the metalforming industry via its 2016 Automotive Industry Outlook: Navigating the Water with an Eye on the Horizon. There is reason for continued optimism, reasons author Mike Wall, IHS director of automotive analysis.

Worldwide Economic Outlook: Modest Pickup Ahead

Expect automakers worldwide to produce 91.5 million vehicles in 2016, up from 88.6 million last year. China, North America and South Asia countries will account for the lion’s share of that gain. By 2023, production may total 108 million units, with China, South Asia and Europe responsible for most of the increase. Photo courtesy of Toyota Motor Sales USA.
Though the general world economy is expected to remain in low gear with only a modest pickup through 2016, automotive continues to rebound around the globe. Regionally, China’s economy will continue to slow this year due to imbalances in credit, housing and industrial markets. In Europe, expect slight growth, aided by monetary stimulus, currency depreciation and pent-up demand across various sectors, according to Wall. Russia and Brazil are two emerging markets that are slowly reversing negative GDPs, but aren’t expected to be in positive territory until 2017.

Oil prices continue to affect the world and domestic economy, and also affect consumer and automaker choices. Expect oil prices to rise after bottoming out this year, but oil prices may not return to 2014 levels until about 2025.

Zeroing in on automotive, Wall reads the world market as flat heading into 2016, with weaknesses in emerging markets such as Brazil and Russia only temporary. He expects the market to lift 2.3 percent this year, with sales totaling about 100 million by 2020. Through 2023, according to IHS, sales in mature markets will decline by 1 percent, with China sales increasing by 33 percent and sales in emerging markets rising by 49 percent. Expect automakers worldwide to produce 91.5 million vehicles in 2016, up from 88.6 million last year, with China, North America and South Asia countries accounting for the lion’s share of that gain. By 2023, production may total 108 million units, with China, South Asia and Europe responsible for most of the increase.

U.S. and North America Holding Steady

Housing and business fixed investment in the United States will gain strength, while consumer spending continues to grow steadily, IHS finds. A slight rise in oil prices will give a boost to the producer side of the U.S. economy, but not so much as to shock consumers into altering their driving habits or vehicle choices significantly.

On the producer side, as Wall notes, falling commodity prices have reduced automotive production costs. Material costs in a typical 3500-lb. U.S.-produced vehicle—including steel, aluminum, plastic resins rubber, glass and iron−have dropped by 51 percent since 2011, to below $1200.

Falling commodity prices have reduced automotive production costs, with material costs in a typical 3500-lb. U.S.-produced vehicle−including steel, aluminum, plastic resins rubber, glass and iron−dropping by 51 percent since 2011 to below $1200. Photo courtesy of Tesla Motors, Inc.
Given that general economic backdrop, Wall offers a detailed forecast for U.S. automotive production and consumption. With the economy looking up, U.S. consumers are increasingly planning to buy new vehicles. The increase is not just based on need, according to Wall, but genuine want.

He notes the strong correlation between new housing starts and full-sized-pickup sales. As mentioned, housing is strengthening, with housing starts recovering though they aren’t expected to reach the previous peak of 2005-2006, when starts approached 2.5 million. In that same timeframe, U.S. sales of full-sized pickups topped out at nearly 350,000. By 2009 and into 2010, housing starts and pickup sales dropped below 100,000. In 2016, with housing starts expected to top 1.5 million, full-sized-pickup sales should reach 150,000. Sales are boosted by improving commercial-fleet sales, redesigned vehicle offerings and low gas prices.

Active Launch Schedule

Wall sees U.S. light-vehicle sales reaching about 18.2 million units in 2016, up from 17.5 million in 2015. Higher interest rates, legislated vehicle content and urbanization of the population will combine to slow sales momentum. Compared to last year, the traditional Big Three—General Motors, Ford and Fiat/Chrysler—are expected to boost North American light-vehicle production by 2.5 percent to 9.5 million units in 2016. GM features an active launch schedule, including the Cruze, XT5, Acadia and Bolt, among others, while Ford rolls out new versions of the F-250/350 and the Continental. Chrysler introduces the all-new Pacifica to its production schedule. Toyota, Honda Renault/Nissan and Hyundai, tagged the Asian Four in IHS’s report, will increase North American production 6.1 percent to 6.8 million units. Look for new-domestic launches including the Honda CR-V and Ridgeline, and the Suburu Impreza. The German Three, Volkswagen, BMW and Daimler, will boost production 3.9 percent to 1.3 million units.

Captial needs are expected to increase with a new wave of launches on the horizon. From 25 North American program launches in 2017, expect 40 in 2018 and 49 in 2019−quite a jump.

Mexico Production to Continue Rising

By country, from 2016 to 2023, expect Mexico to boost North American light-vehicle production by 5 percent, an increase of more than 1.4 million units. Production in Canada may drop 4.6 percent, representing a decline of 669,000 units. U.S. production is expected to decline by 0.1 percent, a drop of 86,000 units. These numbers reflect the ongoing shift of production to Mexico. In 2018, Mexico is expected to produce 2.4 million Big Three vehicles and 2.1 vehicles from the new domestics, increasing to 3.0 and 2.0 million, respectively, by 2023. The Southern United States should stay steady as a major producer. In 2018, expect the U.S. South to produce 1.4 million Big Three and 4.1 million new-domestic vehicles, and 1.3 and 4.2 million vehicles, respectively, by 2023. U.S. Midwest production also should remain steady—4.7 million Big Three and 1.7 million new-domestic vehicles produced in 2018, and 4.8 million and 1.8 million, respectively, in 2023.

Overall for North America, the production outlook follows a demand recovery, and growth prospects exist for OEMs with further expansion plans.

Opportunity Targeting is Critical

Summarizing the worldwide automotive industry in 2016, IHS’s Wall sees the following:

• North America and Europe serve as critical offsets to the volatility and lackluster growth presented by emerging markets.

• The influx of new-product offerings creates margin pressure for weaker players. Competition will only intensify, yet opportunity targeting is critical.

• Technology will be a key differentiator for automakers and suppliers. Opportunities exist in the areas of advanced driver-assist systems, infotainment, powertrain and lightweighting. MF


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