A wave of opportunity coming

March 12, 2012
| By Pete Daly |
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Representatives of many West Michigan auto industry suppliers heard last week that this is an “unprecedented time” in the automobile industry, with a “wave of opportunity coming” for the suppliers to grow and prosper as the auto companies struggle to meet pent-up demand in North America.

“The challenge is, how do you meet those demands from a capacity-strained supply base?” said Jeff Moyer.

Those suppliers are going to be considering investments to increase their capacity, and that’s where the risk comes in, said Moyer, vice president of Meridian Lightweight Technologies in Eaton Rapids, a Tier One/Tier Two supplier (depending on the product and customer) with 1,600 employees in Michigan and Canada.

Moyer was the keynote speaker at “Calibrating for Success,” the 13th annual automotive suppliers conference hosted by the Van Andel Global Trade Center at GVSU in downtown Grand Rapids.

U.S. auto suppliers have lower production capacity now due to two things: The purchasing strategy of the OEMs in the last 10 to 15 years involved looking for capacity elsewhere, and some U.S. suppliers went under as the auto industry recession in Michigan dragged on for years.

Now North America is a new battleground in the global auto industry, the struggle being between the resurgent Detroit 3, a weaker Japan 3 and an expanding European/Korean OEM base.

“We’ve had this very fast recovery” in the U.S. economy, said Moyer, “and now we’re getting a glimpse” of forecasts of annual North American auto production in the area of 16 million-plus units.

The industry, from the standpoint of its physical assets and employee assets, “is not able to handle that.”

It’s a great opportunity for investment by the suppliers, he added, “but there also needs to be caution as to how much of that opportunity you go after, and what can you afford to do?”

Along with pent-up demand by consumers who are ready to buy new cars again — the average car on the road in the U.S. is 11 years old — is a more basic change in automotive technology, both of which have increased production demands beyond capacity.

The government’s CAFE standards for better fuel economy are pushing what the industry now calls “vehicle light-weighting” — which happens to be a particular strength of the magnesium parts made by Meridian Lightweight Technologies.

Improved fuel economy and vehicle light-weighting have become mainstream objectives at all OEMs, with near-term focus on model years 2015 and 2016, according to Moyer.

He said it is “an unprecedented time in the industry” for weight reduction via various material and process solutions, which is where a high-tech supplier would have an edge.

But the hindrance to expanding capacity isn’t just the capital needed for new factories and machinery.

“Right now the biggest issue in our industry is a talent shortage” among the employee ranks, said Moyer. Many highly skilled auto industry professionals were laid off so many times in the last several years that some left the industry altogether for other types of work.

“Your best people are getting calls from headhunters right now,” Moyer told the suppliers.

The Japan 3 lost double-digit market share last year due to natural disasters in Japan that held down OEM assembly, and then there were major floods in Thailand, where many of the Japan 3 suppliers are.

Moyer said the Japan 3 are on their feet again and determined to regain their market share from the reinvigorated Detroit 3, who are also struggling to meet the pent-up demand here at home.

Production of new models in the U.S. is definitely in the near future, too. The average age of GM’s models, for example, are much older than those of Honda, Nissan, Hyundai and Ford.

Risks are there for the suppliers who invest in new facilities and machinery at the request of their customers. If gasoline hits $5 a gallon, said Moyer, he fears the U.S. consumers will stop buying light trucks again, as they did the last time gas prices went crazy.

So the U.S. and Canada are where it’s at now, as far as the global auto industry is concerned.

“Everyone is competing now in this space very aggressively. All the OEMs are investing significantly in either expanding capacity or adding new facilities, so it’s kind of ‘game on’ for everyone, as they are competing to maintain their market shares,” said Moyer.

He warned that the suppliers must “pragmatically” evaluate their new investments that will be made as they try to capture some of the growth in the industry in the U.S. Two ways suppliers can safeguard their investment is by diversifying their product portfolio and carefully considering their customer list — essentially, avoid putting all the eggs in one basket.

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