OESA AUTOMOTIVE SUPPLIER BAROMETER · Q4 2017 OESA AUTOMOTIVE SUPPLIER BAROMETER. 6. OESA Supplier...
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OESA AUTOMOTIVE SUPPLIER BAROMETERQ4 2017FOCUS ON FINANCE
AND CAPITAL PLANNING
2Q4 2017 OESA AUTOMOTIVE SUPPLIER BAROMETER
Executive Summary
Supplier Barometer Index (SBI)SBI Score = 46;
up from Q3 level of 40Opinions have become more
optimistic across most revenue groups; yet small companies are
the exception.Inventories, production volumes and the political environment are holding sentiment down, below a
neutral reading of 50.
Capital equipment purchases are the primary focus of suppliers in meeting targets for next yearTalent continues to be a planning focal point as additional staffing for salaried and hourly personnel ranks as the next highest priority
Income and operational investments are both expected to be lower going into next year, but relatively balanced in comparison to 2017 resultsProduct development and direct material costs are also expected to increase
Poor vehicle sales moves ahead of trade policy as primary threat over the next 12 monthsSuppliers remain confident in their ability to deliver customer requirements
Suppliers expect the current strong sales mix across Detroit Three, Asian and European automakers to be largely maintainedCurrent and future sales mix reflects declines in share of sales to other tier suppliers and non-automotive firms
3Q4 2017 OESA AUTOMOTIVE SUPPLIER BAROMETER
Executive Summary
Suppliers remain active and engaged in assessing opportunities for acquisitions and divestitures compared to last year; acquisitions from larger companies, divestitures from smallerAcquisitions are being driven by the need to gain access to technologies and expand access to new customers
Divestitures are being driven by the need to consolidate core business, selling off non-core technologies
Skilled labor shortage remains the highest rated risk in both impact to business and difficulty in mitigating…while the concern over emissions regulations is subsiding
Supplier respondents feel better prepared to manage risks arising from an industry downturn79% of respondents indicate they are somewhat more to much more prepared due to a stronger financial position and better diversification
Suppliers continue to bank customers with days sales outstanding receivablesDays payable outstanding is improving but reflects a cost that continues to be carried by the supply chain
For 2018, suppliers plan the greatest budget increases in customer specific product development and in direct material pricesTight markets for technical talent and rebounding prices for metals and resins highlight cost pressures and drive the need for operational excellence
4Q4 2017 OESA AUTOMOTIVE SUPPLIER BAROMETER
SUPPLIER OUTLOOK
5Q4 2017 OESA AUTOMOTIVE SUPPLIER BAROMETER
20
30
40
50
60
70
80
Jan-
2008
Jan-
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Jan-
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Jan-
2011
Jan-
2012
Jan-
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Jan-
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Jan-
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Jan-
2016
Jan-
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Euro Crisis Begins
Japan Tsunami/
Grexit Crisis
US Fiscal Cliff
Lehman Collapse
46
0%
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40%
60%
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Q3 2017 Q4 2017
84 responses
Describe the general twelve month outlook for your business. Over the past three months, has your opinion become…?
OESA Supplier Barometer: October Results
Current Supplier Outlook (Share of Respondents) Supplier Barometer Index: (SBI and 6m Average)
SBI Score = 46; up from Q3 level of 40Inventories, production volumes and the political environment drive sentiment down
6Q4 2017 OESA AUTOMOTIVE SUPPLIER BAROMETER
OESA Supplier Barometer: SBI Comments
No Change• Uncertainty on NAFTA and tax changes• Planning for some softening of demand but the outlook is generally ok.• The ongoing NAFTA rhetoric from the administration is a major concern and will drive a
conservative outlook until it reaches a point of certainty.• Growth plan from one year ago consistent with current projections.• The Hurricanes added new sales but will take away in future months• Political uncertainties in the US offset and NAFTA concerns offset by continued low
energy prices and a stable (but slower growing) economy• automotive market is stable• Next 12 months will be strong, but there is a good possibility for a minor market decline• We had predicted a slight slowing in the market and that is what we are still anticipating.
More Pessimistic• Political climate more unstable• NA volume and mix risk• modest softening of the NA market; somewhat offset by steady
Asian, slightly improving Brazil and Europe• Volumes seem to be unstable and incentives are up. Usually a sign
of trouble ahead.• Volume reductions impacting planning and profitability • Volume concerns • customer projected volumes are down. Scheduled downtime at
various customers.• Sales of top selling models down. Mid segment is self destructing.• Reduced industry volumes starting to impact our business more
significantly• GM strike at Ingersoll, slowing car sales, NAFTA changes• inventories up government unsettled technology shifts leading to
unclear product strategy• Volume uncertainty remains the big question• starting to feel pull backs by N.A. OEM\'s• price pressures from customer have been enormous on existing work• Sales Decreasing• Volume uncertainty• Raw material supply and the lack of cooperation to move production
to newer locations.
More Optimistic• The current administration is not likely to impose further regulations on automotive-
based manufacturers.• Our outlook is very great • We are getting more high quality opportunities now than we were earlier in the summer
and a number of them are considering bringing business back to the US from Asia.• General volumes are good but NAFTA negotiations raise concerns• underlying macroeconomic trends around the globe and internal operational
improvements• global macroeconomic baseline is strong along with internal operational improvements• New business opportunities.• Macro economic outlook is positive• Growth has accelerated from 7% to 10% per year• Actively quoting new programs• Regarding the sales and inventories in US, we were really worried about the high levels
of inventories that affected our customers but the last month they slipped considerably
7Q4 2017 OESA AUTOMOTIVE SUPPLIER BAROMETER
0%9% 7% 8%
42% 36%
0%
50%
9%7%
42%
10%20%
25%21%
0%
33%
45%64%
7%
17%
32%
40%
33%36%
0%
17%
45%27%
79%
33%
52%
37%
7% 6% 3%
0%10%20%30%40%50%60%70%80%90%
100%Significantly more pessimistic
Somewhat more pessimistic
Unchanged
Somewhat more optimistic
Significantly more optimistic
<$50 million
$50-$150 million
$151-$500 million
$501 million –$1 billion
>$1 billion
OESA Supplier Barometer: October Results By Revenue Size
OctoberJuly52.1 46.4 NR* 58.3 40.9 47.7 35.7 56.3 36.3 44.3
Quarterly SBI ∆
Describe the general twelve month outlook for your business. Over the past three months, has your opinion become…?
Ther
e w
ere
no s
urve
y re
spon
ses
rece
ived
from
this
sup
plie
r gro
up
Opinions have become more optimistic across most revenue groups; small companies are the exception
OctoberJulyOctoberJulyOctoberJulyOctoberJuly
8Q4 2017 OESA AUTOMOTIVE SUPPLIER BAROMETER
What are the greatest threats to the industry over the next 12 months?
0% 20% 40% 60% 80% 100%
Poor sales of vehicles in programs supplied
Changes in government trade policy
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
AverageRating
3.7
4.3
4.9
5.2
5.6
5.8
6.1
7.6
OESA Supplier Barometer: Industry Threats
Poor vehicle sales moves ahead of trade policy as primary threats over the next 12 months
9Q4 2017 OESA AUTOMOTIVE SUPPLIER BAROMETER
FINANCE AND CAPITAL PLANNING
10Q4 2017 OESA AUTOMOTIVE SUPPLIER BAROMETER
Average Rating
Rate the following actions your company is budgeting for in North America to meet expected volume targets for next year.
Percent of respondents 0% 20% 40% 60% 80% 100%
Purchase capital equipment
Hire direct salaried employees
Hire direct hourly employees
Expand current facility footprint
Hire temporary/contract employees
Open additional facilities
Acquire companies
Partner with companies
Highest Priority = 1 Rating = 2 Rating = 3 Rating = 4 Neutral = 5Rating = 6 Rating = 7 Rating = 8 Lowest Priority = 9
3.68
4.00
3.88
4.93
5.47
5.74
5.78
5.67
OESA Supplier Barometer: 2018 Planning
3.44
3.84
4.16
4.94
5.63
5.79
5.66
5.40
2016 Rating
2018 planning activities mimic 2017
11Q4 2017 OESA AUTOMOTIVE SUPPLIER BAROMETER
For your North American operations, what is your budgeted percentage change in USD for next year compared to this year in each of the following areas?
Percent of respondents
OESA Supplier Barometer: 2018 Planning
0% 20% 40% 60% 80% 100%
Revenue
EBIT
Plant and Equipment
Advanced Research
IT
SG&A
Talent and Training>30% Increase 21-30% Increase 11-20% Increase 6-10% Increase1-5% Increase No Change 1-5% Decrease 6-10% Decrease11-20% Decrease 21-30% Decrease >30% Decrease
66% of respondents are increasing budget compared to 67% in 2016
72% of respondents are increasing budget compared to 83% in 2016
45% of respondents are increasing budget compared to 51% in 2016
62% of respondents are increasing budget compared to 63% in 2016
56% of respondents are increasing budget compared to 54% in 2016
55% of respondents are increasing budget compared to 53% in 2016
70% of respondents are increasing budget compared to 79% in 2016
Comments• Increasing quality throughput with current
assets is our priority.• Company needs to increase its
competitiveness on a faster pace.• We are budgeting quite a bit of money for
expanded training programs.
• Technology scouting.• We can meet 2018 requirements without
addressing any of the above items. The majority of our product ships outside of North America.
• IT cost increase due to new ERP implementation.
Income and operational investments are expected to be lower next year, but relatively balanced compared to 2017 results
12Q4 2017 OESA AUTOMOTIVE SUPPLIER BAROMETER
0% 20% 40% 60% 80% 100%
Utilities
Customer specific product development
Transportation/Logistics
Purchased components
Tooling
Direct material inflation-Metalics
Direct material inflation-Resins
>6% Increase 5-6% Increase 3-4% Increase1-2% Increase No Change 1-2% Decrease3-4% Decrease 5-6% Decrease >6% DecreaseNot applicable
Percent of respondents:
OESA Supplier Barometer: 2018 PlanningAssuming constant 2017 production volumes for 2018, what is your budgeted percentage change in USD from 2017 in each of the following metrics for 2018?
Comments• If builds push above the 17.5
million unit level, raw material increases will be much higher.
• Steel companies are beginning to levy surcharges for graphite tips, used in the rolling process.
Minimal to moderate increases are expected for 2018, with a focus on product development and direct material costs (ref appendix)
13Q4 2017 OESA AUTOMOTIVE SUPPLIER BAROMETER
2008/2009Avg Mix
2013/2014Avg Mix
35% 31% 37% 34% 36% 35% 40% 38%46% 43%
10% 14%11% 12%
12% 13%17% 17% 16% 18%
21% 21%
27% 29% 22% 25%
1% 2%21% 21% 23% 21%
25% 21% 24% 21%11% 11%
17% 19% 18% 20%12% 14% 10% 11% 8% 9%
0%10%20%30%40%50%60%70%80%90%
100%
Non-Automotive Related
Automotive Supplier
Foreign-Parented OEM
Asian-Parented OEM
EU-Parented OEM
Detroit Three OEM
2010/2011Avg Mix
2015/2016Avg Mix
From 2009 From 2011 From 2015 2015/2016
Avg Mix2020/2021
Avg Mix
From 2016 2016/2017
Avg Mix2021/2022
Avg Mix
OESA Supplier Barometer: 2018 PlanningEstimate the percent of your company sales mix in 2017/2018.Estimate the percent of your company sales mix in 2022/2023.
From 2017 2017/2018
Avg Mix2022/2023
Avg Mix
Suppliers expect a stable sales mix across OEM groups; Asian OEMs keep recent gainswith tier supplier and non–automotive shares under pressure
14Q4 2017 OESA AUTOMOTIVE SUPPLIER BAROMETER
25% 35% 40%
0% 10% 20% 30% 40% 50% 60% 70% 80% 90% 100%
AcquisitionsOverall
$150 million or less$151-$500 million
$501 million-$1 billionMore than $1 billion
High Likelihood Moderate Likelihood Unlikely
Percent of respondents
4% 22% 74%
0% 10% 20% 30% 40% 50% 60% 70% 80% 90% 100%
DivestituresOverall
$150 million or less$151-$500 million
$501 million-$1 billionMore than $1 billion
High Likelihood Moderate Likelihood Unlikely
OESA Supplier Barometer: 2018 PlanningOver the next 12 months, what is the likelihood that your company will make acquisitions and/or divestitures?
Up from 2017 levels, suppliers are actively assessing acquisitions and divestitures; acquisitions from larger companies, divestitures from smaller (ref appendix)
15Q4 2017 OESA AUTOMOTIVE SUPPLIER BAROMETER
0% 20% 40% 60% 80% 100%
Accelerating access to newtechnologies
Accessing new customers throughexpansion into new geo. markets
Building market share
Following an existing customer intonew geographic markets
Vertically integrating your supply chainor product offering
Diversifying into transportation marketsoutside of light vehicles
Diversifying into markets outside of alltransportation
Highest Priority = 1 Rating = 2 Rating = 3 Rating = 4 Neutral = 5Rating = 6 Rating = 7 Rating = 8 Lowest Priority = 9
Percent of respondents2016
Rating
4.33
4.18
4.31
4.74
5.40
5.53
5.74
OESA Supplier Barometer: 2018 PlanningRate each of the following strategies in terms of priority for acquisitions.
2017Rating
2.90
3.51
3.88
4.73
5.20
6.41
6.03
Acquisitions are being driven by the need to gain technologies and access to new customers
16Q4 2017 OESA AUTOMOTIVE SUPPLIER BAROMETER
Percent of respondents 0% 20% 40% 60% 80% 100%
Divest of non-core technologies orbusiness
Obtain funds for other acquisitions
Obtain funds for operations
Contract geographic markets
Separate entities
Highest Priority = 1 Rating = 2 Rating = 3 Rating = 4 Neutral = 5Rating = 6 Rating = 7 Rating = 8 Lowest Priority = 9
OESA Supplier Barometer: 2018 PlanningRate each of the following strategies in terms of priority for divestitures. (New survey question for 2017, no comparison to last year)
2017Rating
No actions have an above neutral rating
5.02
5.54
6.08
6.45
6.69
Divestitures are being driven by the need to consolidate core business, selling off non-core technologies
17Q4 2017 OESA AUTOMOTIVE SUPPLIER BAROMETER
Impact to your business
Diff
icul
ty in
miti
gatin
g
3.0
3.5
4.0
4.5
5.0
5.5
6.0
6.5
7.0
3.0 3.5 4.0 4.5 5.0 5.5 6.0 6.5 7.0
Growth in car sharing
Affordability of cars/light trucks
Emergence of autonomous vehicles
Limited supply of skilled labor
Emergence of connectivity
Managing cybersecurityElectrification of powertrains
Strengthening of emission regulations
Quality management
Rating scale for both impact and mitigation is 1-9, with 9 being very high impact and very difficult to mitigate
Customer purchasing/planning complexity
When considering the next 10-15 years, rate each of the following risks in terms of impact to your business. When considering the next 10-15 years, rate each of the following risks in terms of difficulty in mitigating.
OESA Supplier Barometer: 2018 Planning
Skilled labor shortage remains the highest rated risk in both impact to business and difficulty in mitigating while the concern over emissions regulations is subsiding (appendix)
18Q4 2017 OESA AUTOMOTIVE SUPPLIER BAROMETER
40%
36%
18%
3% 3%
36%
42%
21%
1% 20152016
Considering the last industry downturn and the steps your organization may have taken in response to the impact on your business, how prepared is your organization to adjust the enterprise should another downturn occur in the future?
OESA Supplier Barometer: 2018 Planning
41%38%
17%
4%Much moreprepared
Somewhatmore prepared
Equallyprepared
Somewhat lessprepared
Much lessprepared
2017
Comments: Much more prepared• Increased our global manufacturing footprint, so we are now less reliant on
the North American market.• better balance sheet playbook in place after 2008-2009 have started
discussions/scenarios
Somewhat more prepared• consolidation plans are available.• we have not forgotten
Suppliers feel better prepared to address challenges due to an industry downturn.
19Q4 2017 OESA AUTOMOTIVE SUPPLIER BAROMETER
2015 2016 2017Upper
Quartile Value
MedianValue
Lower Quartile Value
Upper Quartile Value
MedianValue
Lower Quartile Value
Upper Quartile Value
MedianValue
Lower Quartile Value
57 48 45 60 50 45 60 50 45
2015 2016 2017
Increased Stayed Same Decreased Increased Stayed
Same Decreased Increased Stayed Same Decreased
27% 63% 10% 23% 72% 5% 18% 78% 4%
OESA Supplier Barometer: FinancialsConsidering the last 12 months, for your U.S. customers representing the top 80% of your business (by dollar volume), what is the average number of your Days Sales Outstanding (DSO)?
On average, over the past 12 months, has this DSO number increased, stayed the same or decreased?(Percent of respondents)
Note: not all respondents provided a DSO value, but did select a change value.
Suppliers continue to bank customers with days sales outstanding receivables
20Q4 2017 OESA AUTOMOTIVE SUPPLIER BAROMETER
2015 2016 2017Upper
Quartile Value
MedianValue
Lower Quartile Value
Upper Quartile Value
MedianValue
Lower Quartile Value
Upper Quartile Value
MedianValue
Lower Quartile Value
60 45 37 60 48 43 57 45 36
2015 2016 2017
Increased Stayed Same Decreased Increased Stayed
Same Decreased Increased Stayed Same Decreased
18% 79% 3% 9 52 3 18% 80% 2%
OESA Supplier Barometer: FinancialsConsidering the last 12 months, for your U.S. customers representing the top 80% of your business (by dollar volume), what is the average number of your Days Payable Outstanding (DPO)?
On average, over the past 12 months, has this DPO number increased, stayed the same or decreased?(Percent of respondents)
Note: not all respondents provided a DPO value, but did select a change value.
Days payable outstanding is better but still pushed through the supply chain
21Q4 2017 OESA AUTOMOTIVE SUPPLIER BAROMETER
The information and opinions contained in this report are for general information purposes. Comments are edited only for spelling and may contain grammatical errors due to their verbatim nature. Responses to this survey are confidential. Therefore, only aggregated results will be reported and individual responses will not be released or shared.
Antitrust Statement:Respondents/participants should not contact competitors to discuss responses, or to discuss the issues dealt with in the survey. It is an absolute imperative to consult legal counsel about any contacts with competitors. All pricing and other terms of sale decisions and negotiating strategies should be handled on an individual company basis.
OESA Automotive Supplier Barometer is a survey of the top executives of OESA regular member companies. The OESA Automotive Supplier Barometer takes the pulse of the suppliers' twelve month business sentiment. In addition, it provides a snapshot of the industry commercial issues, business environment and business strategies that influence the supplier industry. www.oesa.org.
Survey Methodology• Data collected the week of October 9 via invitation to online
survey.• Executives of OESA supplier companies.• 84 survey responses were received.
Contact
Mike JacksonExecutive DirectorStrategy and [email protected]
Kathy ReissDirectorResearch and Industry [email protected]
Original Equipment Suppliers Association25925 Telegraph RoadSuite 350Southfield, Michigan 48033
22Q4 2017 OESA AUTOMOTIVE SUPPLIER BAROMETER
Appendix 2: 2016 Barometer t ime-series comparative data for charts without mult iple years shown
23Q4 2017 OESA AUTOMOTIVE SUPPLIER BAROMETER
Assuming constant 2016 production volumes for 2017, what is your budgeted percentage change in USD from 2016 in each of the following metrics for 2017?
0% 20% 40% 60% 80% 100%
Utilities
Customer specific product development
Transportation/Logistics
Purchased components
Tooling
Direct material inflation-Metalics
Direct material inflation-Resins
>6% Increase 5-6% Increase 3-4% Increase 1-2% Increase No Change1-2% Decrease 3-4% Decrease 5-6% Decrease >6% Decrease Not applicable
Percent of respondents
OESA Supplier Barometer: 2017 Planning (survey asked in 4Q 2016)
24Q4 2017 OESA AUTOMOTIVE SUPPLIER BAROMETER
Over the next 12 months, what is the likelihood that your company will make acquisitions and/or divestitures?
22%
15%22%
31%
36%
41%39%
28%
41%
44%39%
41%
0% 10% 20% 30% 40% 50% 60% 70% 80% 90% 100%
Acquisitions2016
$150 million or less$151-$500 million
More than $500 millionHigh Likelihood Moderate Likelihood Unlikely
Percent of respondents
6%
6%6%7%
11%
6%11%
17%
83%
88%83%
77%
0% 10% 20% 30% 40% 50% 60% 70% 80% 90% 100%
Divestitures2016
$150 million or less$151-$500 million
More than $500 millionHigh Likelihood Moderate Likelihood Unlikely
OESA Supplier Barometer: 2017 Planning (survey asked in 4Q 2016)
25Q4 2017 OESA AUTOMOTIVE SUPPLIER BAROMETER
When considering the next 10-15 years, rate each of the following risks in terms of impact to your business.When considering the next 10-15 years, rate each of the following risks in terms of difficulty in mitigating.
Impact to your business
Diff
icul
ty in
miti
gatin
g
3.0
3.5
4.0
4.5
5.0
5.5
6.0
6.5
7.0
3.0 3.5 4.0 4.5 5.0 5.5 6.0 6.5 7.0
Growth in car sharing Affordability of cars/light trucks
Emergence of autonomous vehicles
Limited supply of skilled labor
Emergence of connectivity
Managing cybersecurity
Electrification of powertrains
Strengthening of emission regulations
Quality management
Rating scale for both impact and mitigation is 1-9, with 9 being very high impact and very difficult to mitigate
No. of Responses = 81-85
Customer purchasing/planning complexity
Comments: Domestic
manufacturers remaining competitive; building a global footprint is paramount.
Move away traditional powertrains will effect our business greatly.
OESA Supplier Barometer: 2017 Planning (survey asked in 4Q 2016)