Opportunity And Challenges
GRAND RAPIDS — After nearly four hours of doom and gloom, the assembled speakers at yesterday’s 9th Annual Automotive Suppliers Symposium at the Van Andel Global Trade Center came to a surprising, unanimous conclusion during a frank panel discussion: The industry isn’t entirely hopeless.
“Down here in Michigan, it looks pretty bad, but overall, the industry is doing pretty good,” said Neil De Koker, president of the Original Equipment Suppliers Association.
Global vehicle demand should grow at a healthy 3 percent annually until 2012, according to data from another panelist, CSM Worldwide director of global supply chain & technology forecasts Bob Perkins. By 2019, North American volume alone could hit 20 million units, and global volume could reach 80 million in half that time.
“I hope no one walks away from this thinking that it’s all doom and gloom,” Perkins said. “From a supply base standpoint, there really is a lot of opportunity.”
He quoted Toyota’s Jim Press’ keynote address at the North American International Auto Show: “Where some people see challenges, other people see opportunities.”
And there’s the rub: Turning challenges into opportunities is easier said than done.
According to De Koker’s supplier association statistics, rising raw material costs and global competition have suppliers pinched beyond belief. Incredibly few suppliers — whether they supply to domestic or foreign manufacturers — are seeing double digit margins, and bankruptcy filings are commonplace. Domestic production schedules and pricing are going south as materials and energy costs go north.
Much of this is because parts utilization rates are too low, he said, hovering around 80 percent. As several Tier 1 suppliers emerge from bankruptcies with new labor costs standards, and OEM customers continue to roll back production, the competition will only get fiercer.
“We are facing some dramatic challenges, and it’s going to be painful unless you prepare for it,’ said De Koker. “There are going to be a lot less suppliers in the future. The ones that survive and thrive will be the ones that are able to meet their customers demand anywhere in the world.”
Chrysler Group Vice President of Supplier Quality Scott Garbering emphasized that point, explaining that OEMs need value-added suppliers.
Perkins expects Toyota to overtake General Motors and Hyundai to overtake DaimlerChrysler in global sales in the coming years, but the market should stabilize soon after. It’s little surprise that much of the growth will be in developing regions and Asia — as much as 75 percent of sales.
Cascade Engineering Vice President Bob Rosenbach said a key to tapping into that global market is establishing partnerships, as few suppliers have the means to follow their customers across the globe.
“A lot of people seem to think the sky is falling,” said Richard Perreault, president and COO of Gill Industries in Grand Rapids. “It’s all about migration and understanding where the industry is headed.”
Terry Nicholas, president of Nicholas Plastics in Grand Rapids, disagreed. He said that that the automotive industry, and potentially the entire manufacturing sector, is in a state of crisis, and may need a federal bailout.
“This country needs to do something to help manufacturing change,” he said. “We can’t survive on knowledge and services alone. We can’t just be the world’s think tank. We need manufacturing.”
As the automotive industry sorts out its challenges over the next year, it is all but certain that many of the changes will happen in a court room, as has already been seen with the high-profile bankruptcies.
Already, a federal court room is becoming a popular place to negotiate supplier contracts, according to Dan Sharkey, the outspoken Butzel Long attorney who presented on supplier contract lawsuits.
“Here’s some good news for you,” he said. “My BlackBerry has been lighting up all morning with a tool that just arrived from China completely worthless. They had to come back to their supplier here on their hands and knees to get it done. All these companies are coming back and realizing that 11 percent they shaved off the purchase price by going to Asia was a bad investment.”