United States: Automotive Supplier Industry Gathers with "Industry At A Crossroads"

The Original Equipment Suppliers Association (OESA), the leading U.S. trade group representing automotive suppliers, convened its 2016 Annual Conference on November 2nd under the theme: “The Industry at a Crossroads.” The title reflects two basic crossroads facing the industry today: the crossroads of the evolution to connected and autonomous vehicles, and the crossroads of an industry whose current production cycle is peaking in North America.

Industry Outlook

The afternoon session featured a panel discussion of “The Outlook of the Industry,” moderated by Charles Chesbrough, Senior Economist at OESA. Other speakers included Sarah House, Vice President and Economist, Wells Fargo Securities, LLC; Emily Kolinski Morris, Chief Economist, Ford Motor Company; Michael Robinet, Managing Director, IHS Markit; and Paul Traub, Senior Business Economist, Federal Reserve Bank of Chicago.

Chesbrough began by noting that the OESA Supplier Barometer Index had reached its lowest level in four years in September 2016, to a number of 48 (with above 50 representing relative optimism and below 50 representing relative pessimism). He contrasted this number to numbers in the mid 60’s in September 2013. Factors contributing to the increased pessimism include concerns about the economy, poor sales of certain vehicle platforms, and uncertainty about the outcome of the U.S. election and its potential impact on trade policy.

Traub, of the Chicago Fed, marched through a series of slides evidencing an economy that is growing only slightly (projected at about 2% for 2017 with a longer term Fed projected trend line at 1.8%), personal consumption which is slowing and anemic gains in personal income. He reported a Seasonally Adjusted Sales Rate of 17.9 million units, a number which he noted is also peaking. (Traub and House predicted lower or slightly lower U.S. vehicle sales for 2017, while Morris and Robinet predicted sales in 2017 to be “even” with 2016.) Best case consensus scenario though: we are peaking or have peaked, as we reach the later stages of the current economic cycle, which has run for nearly 7-1/2 years.

House, from Wells Fargo, reiterated some of the same viewpoints as Traub, in addition to noting that real income growth will be dampened by inflation in 2017, auto credit standards are tightening as demand for credit is slowing, vehicles will be coming “off lease” in record numbers over the next couple of years, and incentives which are near all-time highs and are expected to increase faster than sales in 2017.

Morris, of Ford, offered a more tempered and optimistic view noting that the number of vehicles per 1,000 people in the U.S. has fallen from historical highs; that scrappage (replacement) rates have been increasing as per vehicle miles increased in 2015; and that the number of households buying a vehicle at retail is at 11.5%, well below the 13.9% historical peak of 2000. All these factors may point to an auto market that has some remaining steam left in it. Morris also noted the widely varying estimates of the impact of new mobility on U.S. market sales, and the many unanswered questions that remain and which will vary among consumers (such as “will consumers share rides or share cars?” and “what is the motivation of the consumer: lower cost of ownership, reduced travel time or improving the travel experience?”).

Robinet, of IHS, encouraged everyone to “stay calm” even as we near a plateau in the North American automotive market. Robinet counseled that product mix is currently and will remain a key driver of profitability, with SUVs, trucks and especially crossovers continuing to rise in response to consumer preferences, while sedan sales are falling. He also noted that the geographic center of North American production will continue to move South at the rate of about 31 miles per year between 2015 and 2025 (from Jackson, Tennessee to Oneida, Arkansas!) as more production comes on line in Mexico. At the same time, the automotive design and engineering center of gravity in North American is expected to continue to be in Detroit, in part to the “hubbing of engineering talent” that has been assembled in Detroit. Robinet’s biggest red flag is a “looming cost cliff” that may alter the market, as the affordability of vehicles continues to be more challenging as increased electrification, light weighting and safety contenting is built into vehicles, creating a mandate for additional cost reductions by suppliers to maintain the delicate balance of affordability that is expected to exist.

Summary

Bottom line of the panel: the industry outlook remains strong by historical standards, while a peak or plateau has clearly arrived or is on the near term horizon. When asked about downside scenarios, the consensus of the panel was that, absent an unforeseen shock, the next pullback will not be as severe as the 2008-2010 recession which was precipitated by a nearly unprecedented financial crisis. So, let the good times continue to roll for a while, while automotive suppliers build increased caution into their forecasts and adjust their strategies to respond to these trends.

The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.

To print this article, all you need is to be registered on Mondaq.com.

Click to Login as an existing user or Register so you can print this article.

Authors
 
In association with
Related Topics
 
Related Articles
 
Related Video
Up-coming Events Search
Tools
Print
Font Size:
Translation
Channels
Mondaq on Twitter
 
Register for Access and our Free Biweekly Alert for
This service is completely free. Access 250,000 archived articles from 100+ countries and get a personalised email twice a week covering developments (and yes, our lawyers like to think you’ve read our Disclaimer).
 
Email Address
Company Name
Password
Confirm Password
Position
Mondaq Topics -- Select your Interests
 Accounting
 Anti-trust
 Commercial
 Compliance
 Consumer
 Criminal
 Employment
 Energy
 Environment
 Family
 Finance
 Government
 Healthcare
 Immigration
 Insolvency
 Insurance
 International
 IP
 Law Performance
 Law Practice
 Litigation
 Media & IT
 Privacy
 Real Estate
 Strategy
 Tax
 Technology
 Transport
 Wealth Mgt
Regions
Africa
Asia
Asia Pacific
Australasia
Canada
Caribbean
Europe
European Union
Latin America
Middle East
U.K.
United States
Worldwide Updates
Registration (you must scroll down to set your data preferences)

Mondaq Ltd requires you to register and provide information that personally identifies you, including your content preferences, for three primary purposes (full details of Mondaq’s use of your personal data can be found in our Privacy and Cookies Notice):

  • To allow you to personalize the Mondaq websites you are visiting to show content ("Content") relevant to your interests.
  • To enable features such as password reminder, news alerts, email a colleague, and linking from Mondaq (and its affiliate sites) to your website.
  • To produce demographic feedback for our content providers ("Contributors") who contribute Content for free for your use.

Mondaq hopes that our registered users will support us in maintaining our free to view business model by consenting to our use of your personal data as described below.

Mondaq has a "free to view" business model. Our services are paid for by Contributors in exchange for Mondaq providing them with access to information about who accesses their content. Once personal data is transferred to our Contributors they become a data controller of this personal data. They use it to measure the response that their articles are receiving, as a form of market research. They may also use it to provide Mondaq users with information about their products and services.

Details of each Contributor to which your personal data will be transferred is clearly stated within the Content that you access. For full details of how this Contributor will use your personal data, you should review the Contributor’s own Privacy Notice.

Please indicate your preference below:

Yes, I am happy to support Mondaq in maintaining its free to view business model by agreeing to allow Mondaq to share my personal data with Contributors whose Content I access
No, I do not want Mondaq to share my personal data with Contributors

Also please let us know whether you are happy to receive communications promoting products and services offered by Mondaq:

Yes, I am happy to received promotional communications from Mondaq
No, please do not send me promotional communications from Mondaq
Terms & Conditions

Mondaq.com (the Website) is owned and managed by Mondaq Ltd (Mondaq). Mondaq grants you a non-exclusive, revocable licence to access the Website and associated services, such as the Mondaq News Alerts (Services), subject to and in consideration of your compliance with the following terms and conditions of use (Terms). Your use of the Website and/or Services constitutes your agreement to the Terms. Mondaq may terminate your use of the Website and Services if you are in breach of these Terms or if Mondaq decides to terminate the licence granted hereunder for any reason whatsoever.

Use of www.mondaq.com

To Use Mondaq.com you must be: eighteen (18) years old or over; legally capable of entering into binding contracts; and not in any way prohibited by the applicable law to enter into these Terms in the jurisdiction which you are currently located.

You may use the Website as an unregistered user, however, you are required to register as a user if you wish to read the full text of the Content or to receive the Services.

You may not modify, publish, transmit, transfer or sell, reproduce, create derivative works from, distribute, perform, link, display, or in any way exploit any of the Content, in whole or in part, except as expressly permitted in these Terms or with the prior written consent of Mondaq. You may not use electronic or other means to extract details or information from the Content. Nor shall you extract information about users or Contributors in order to offer them any services or products.

In your use of the Website and/or Services you shall: comply with all applicable laws, regulations, directives and legislations which apply to your Use of the Website and/or Services in whatever country you are physically located including without limitation any and all consumer law, export control laws and regulations; provide to us true, correct and accurate information and promptly inform us in the event that any information that you have provided to us changes or becomes inaccurate; notify Mondaq immediately of any circumstances where you have reason to believe that any Intellectual Property Rights or any other rights of any third party may have been infringed; co-operate with reasonable security or other checks or requests for information made by Mondaq from time to time; and at all times be fully liable for the breach of any of these Terms by a third party using your login details to access the Website and/or Services

however, you shall not: do anything likely to impair, interfere with or damage or cause harm or distress to any persons, or the network; do anything that will infringe any Intellectual Property Rights or other rights of Mondaq or any third party; or use the Website, Services and/or Content otherwise than in accordance with these Terms; use any trade marks or service marks of Mondaq or the Contributors, or do anything which may be seen to take unfair advantage of the reputation and goodwill of Mondaq or the Contributors, or the Website, Services and/or Content.

Mondaq reserves the right, in its sole discretion, to take any action that it deems necessary and appropriate in the event it considers that there is a breach or threatened breach of the Terms.

Mondaq’s Rights and Obligations

Unless otherwise expressly set out to the contrary, nothing in these Terms shall serve to transfer from Mondaq to you, any Intellectual Property Rights owned by and/or licensed to Mondaq and all rights, title and interest in and to such Intellectual Property Rights will remain exclusively with Mondaq and/or its licensors.

Mondaq shall use its reasonable endeavours to make the Website and Services available to you at all times, but we cannot guarantee an uninterrupted and fault free service.

Mondaq reserves the right to make changes to the services and/or the Website or part thereof, from time to time, and we may add, remove, modify and/or vary any elements of features and functionalities of the Website or the services.

Mondaq also reserves the right from time to time to monitor your Use of the Website and/or services.

Disclaimer

The Content is general information only. It is not intended to constitute legal advice or seek to be the complete and comprehensive statement of the law, nor is it intended to address your specific requirements or provide advice on which reliance should be placed. Mondaq and/or its Contributors and other suppliers make no representations about the suitability of the information contained in the Content for any purpose. All Content provided "as is" without warranty of any kind. Mondaq and/or its Contributors and other suppliers hereby exclude and disclaim all representations, warranties or guarantees with regard to the Content, including all implied warranties and conditions of merchantability, fitness for a particular purpose, title and non-infringement. To the maximum extent permitted by law, Mondaq expressly excludes all representations, warranties, obligations, and liabilities arising out of or in connection with all Content. In no event shall Mondaq and/or its respective suppliers be liable for any special, indirect or consequential damages or any damages whatsoever resulting from loss of use, data or profits, whether in an action of contract, negligence or other tortious action, arising out of or in connection with the use of the Content or performance of Mondaq’s Services.

General

Mondaq may alter or amend these Terms by amending them on the Website. By continuing to Use the Services and/or the Website after such amendment, you will be deemed to have accepted any amendment to these Terms.

These Terms shall be governed by and construed in accordance with the laws of England and Wales and you irrevocably submit to the exclusive jurisdiction of the courts of England and Wales to settle any dispute which may arise out of or in connection with these Terms. If you live outside the United Kingdom, English law shall apply only to the extent that English law shall not deprive you of any legal protection accorded in accordance with the law of the place where you are habitually resident ("Local Law"). In the event English law deprives you of any legal protection which is accorded to you under Local Law, then these terms shall be governed by Local Law and any dispute or claim arising out of or in connection with these Terms shall be subject to the non-exclusive jurisdiction of the courts where you are habitually resident.

You may print and keep a copy of these Terms, which form the entire agreement between you and Mondaq and supersede any other communications or advertising in respect of the Service and/or the Website.

No delay in exercising or non-exercise by you and/or Mondaq of any of its rights under or in connection with these Terms shall operate as a waiver or release of each of your or Mondaq’s right. Rather, any such waiver or release must be specifically granted in writing signed by the party granting it.

If any part of these Terms is held unenforceable, that part shall be enforced to the maximum extent permissible so as to give effect to the intent of the parties, and the Terms shall continue in full force and effect.

Mondaq shall not incur any liability to you on account of any loss or damage resulting from any delay or failure to perform all or any part of these Terms if such delay or failure is caused, in whole or in part, by events, occurrences, or causes beyond the control of Mondaq. Such events, occurrences or causes will include, without limitation, acts of God, strikes, lockouts, server and network failure, riots, acts of war, earthquakes, fire and explosions.

By clicking Register you state you have read and agree to our Terms and Conditions