Page 24 - MetalForming September 2016

Automotive Outlook
OEM Profits are at Risk
Launch Cost
Warranty Cost
Product Development Cost & Timing
Piece Price
Tool Cost
Tool Financing
High Mix/Low Volume Variants
Increased Capital Investment
OEM Profits
managing the complexity, while others are not. Companies that do not address increased complexity face increased product-development time and costs, and increased tool costs due to the need for more tools and higher launch costs. Harbour Results recently tracked tooling spend across the automotive industry and noted that in 2014, tooling costs increased to 41 percent of profits at one domestic OEM, and can be expected to increase further. This unsustainable trend is similar at all global OEMs.
Automakers will be looking for ways to squeeze cost out of the process, specifically among lower-tier suppli- ers. It will become increasingly impor- tant for these suppliers to drive effi- ciency improvements and focus on the customers and programs that are profitable.
The Global Industry
As a whole, the global automotive industry can expect new profit and growth to come from new and emerg- ing markets. In North America, the automotive industry will see vehicle demand level off at 20 million units. However, due to a number of reasons, new vehicle launches will reach unprecedented levels. In 2017, 2018 and 2019 the region will experience new-vehicle launches of 40, 49 and 39, respectively. It is likely that this increased cadence will strain resources throughout the supply chain, including metalforming and fabricating.
Mexico is experiencing a manufac- turing boom in aerospace, electronics and automotive manufacturing. Though the country is in its manufac- turing-revolution infancy, the industry continues to grow due to NAFTA and other free-trade agreements. In 2015 alone, automakers announced $24.2 billion worth of investment in the region. Labor rates are low, with labor costs almost 20 percent lower than China, and Mexico’s proximity to the United States creates a lower cost-logis- tics scenario. A number of mold shops have established presence in the region, but still there is little movement
Fig. 1—As OEMs face profit pressures, expect them to continue squeezing costs, espe- cially those related to lower-tier suppliers.
among die shops. Additionally, Mexico still faces the challenge of building a skilled workforce and managing a tal- ent gap within the manufacturing industry.
In Canada, the manufacturing industry, along with mold builders and die manufacturers, is profiting from a favorable exchange rate. On the other hand, mold builders and die manufac- turers are hindered by the fact that most of the raw materials needed for manufacturing are purchased from the United States, and Canada exceeds the U.S. labor-cost rate.
Since recording double-digit growth in 2010, the Chinese economy has sig- nificantly slowed and the world’s sec- ond-largest economy is expected to continue deteriorating in the near term. China’s exports are slowing significant- ly, which indicates a decrease in the global economy leveraging the country as a low-cost resource. Additionally, the slowdown in vehicle sales is likely to impact the bottom line of automak- ers around the globe. That said, we are not seeing the same slow down for tool- ing. In fact, tooling exports are on the rise in 2016.
The Die and Mold Shop Landscape
A recent Harbour Results study indi- cates that capacity utilization is expect- ed to be low throughout 2016, with
The automotive industry has reached an inflection point and the entire manufacturing value chain must change the way it does business to remain profitable and prepare for a future downturn.
capacity expected to peak at 80 percent for mold shops and 90 percent for die shops. Additionally, based on the recent Precision Metalforming Association (PMA) Stamping Benchmark study, shops with less than $5 million in rev- enue and more than $50 million in rev- enue are the best performers, with EBITs (Earnings Before Interest and Taxes) of 9 percent and 8 percent, respectively.
There is tremendous opportunity for die shops across the region to improve efficiency and increase profitability.
22 MetalForming/September 2016
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