Breadcrumbs
Ahead of the Curve: Industry Insights
By: Mike Jackson, Executive Director, Strategy & Research
In the past 4.5 years since the pandemic lock downs in the U.S., suppliers have faced a myriad of challenges ranging from supply chain shocks and labor market disruptions to higher EV adoption rates and stranded capital concerns while navigating inflation and fighting for supplier profitability.
Even as the end of 2024 nears a conclusion, the supplier industry continues to face a litany of new operational challenges and competitive threats. In late September, hurricane Helene gained strength before making landfall in Florida, killing hundreds and causing devastation for millions across a 600-mile path extending to Georgia, North and South Carolina, Tennessee and Virginia. Thereafter, hurricane Milton once again pounded Florida, causing billions of dollars in damage and
A brief strike by 45,000 longshoremen at East Coast & Gulf Coast ports caused disruptions and delays that cost the U.S. economy $5 billion a day per analysts at JP Morgan. A tentative deal secured a 62% increase in wages over the next 6 years to nearly $63/hour on average. Risks remain as the labor deal only extends the current contract until January 15th as terms over automation must still be finalized.
Political uncertainty is also weighing on the industry. The entire MEMA team will continue to work with all elected leaders and officials to champion the business interests of our valued members, partners and stakeholders. The conclusion of this election cycle will be an opportunity for the industry to move forward on so many important topics. Even so, competitive threats remain as China’s global expansion ambitions are on full display. To this end, the European automotive supplier association, CLEPA, shared new analysis in October that some 86,000 supplier jobs have been lost since 2020, in contrast to forecasts of 100,000 new jobs that would be created by 2025. Key points include the need for a policy reset that promotes supplier health on a sustainability path while also sharing that supplier profitability is insufficient to support required future investments to realize these aims.
North American light vehicle production rebounded in 2023, with output jumping 1.4 million units to reach a post pandemic high of 15.7 million vehicles. Even though volume edged closer to normalcy, UAW strikes that began in September 2023 triggered acute disruptions for many suppliers while many EV programs fell short of planning volumes, weighing on capex-heavy business case fundamentals.
The Federal Reserve has done an impressive job to date battling inflation to usher in a soft economic landing. Core goods inflation has slowed sharply yet price growth for core services still remains above historic norms. The economy is also expected to grow at a slower pace, easing from 2.7% in 2024 to 1.9% in 2025 and 2026.
Incremental growth in North American light vehicle output was welcome in 2023 and maybe anticipated in 2024, yet per S&P Global Mobility, U.S. new vehicle inventories have jumped by +861,000 units from year ago levels to 2.74 million units, meaning the production outlook is constrained a current demand levels. Cox Automotive forecasts U.S. sales of 15.7 million units in 2024, up +200K units from year ago, helped by gains in rental and commercial fleets at the expense of lower retail sales. The resulting outlook for regional production is forecast to remain at or below 15.7 million units through 2026.
Pursue and Promote Productivity
A flat market underscores the importance of achieving efficiencies and cost savings, especially in the face of ongoing market volatility that may require special handling or incremental costs. The 3Q 2024 MEMA OE Vehicle Supplier Barometer asked suppliers to rank opportunities for innovation. The highest reading was given to Automation/Robotics that emphasizes process driven repeatability. Labor availability has been a persistent pain point since the pandemic while more recently planning volatility has been a strong headwind as erratic demand and weak utilization left suppliers with trained operators and lower than expected releases. The role of Automation/Robotics contributes to level loading or plant stability which is a key driver of profitability.
Taking this one step further, proactive suppliers will apply this mindset of leveraging technology to harvest efficiencies, including the use of productivity tools such as ChatGPT, Microsoft Co-Pilot, fireflies and others as well as more advanced AI efforts. This is a complex topic, yet one that holds the power to unleash robust efficiencies at a time when the supplier community needs them most. In a recent survey by PwC, a leading consultancy, they shared that all firms that invested in AI achieved increased profitability and productivity, yet this was 2.3X higher for Top Performers, or early adopters. The key point is to begin your journey to realize measurable gains to promote even greater successes.
Production Outlook & Barometer: Innovation Opportunities Charts