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Sunday, 21 December 2014 22:00

More of the same in 2015 will present more complexity for auto suppliers

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Melissa Anderson, IRN Inc. Melissa Anderson, IRN Inc. COURTESY PHOTO

The auto industry has done well in 2014 and we expect to see more of the same in 2015. For suppliers and automakers, this is good news that carries some complexity, given the caution with which everyone is approaching decisions on when to add capacity.

Light vehicle sales in the U.S. will likely end the year around 16.2 million units. We believe there is enough gas in the tank to get that figure even higher next year, potentially even to 17.2 million, as economists anticipate a slightly higher GDP growth rate, consumer confidence is rising, and unemployment is continuing to drift downward.

IRN is expecting light vehicle production in North America to end up at approximately 16.8 million units for 2014 and rise to 17.3 million units in 2015.

There will be plenty of drama in the marketplace.

Ford has started shipping the new aluminum-intensive F-150 pickup to dealers, so 2015 will be the year that we get to see how buyers respond. In particular, we’ll see whether the Chevrolet Silverado, redesigned in 2013, will continue strong or start to fade and whether the Ram 1500, which has been reaping the benefit of Ford’s slow launch, will be able to hang on until its own major redesign in 2017.

Another area to watch is the mid-size pickup market. After yielding the field to the Nissan Frontier and Toyota Tacoma, GM rejoined the segment with the new Chevy Colorado and GMC Canyon this fall. The big unknown is whether that will increase the size of the pie or if all the contenders will duke it out for the same number of buyers. Both Nissan and Toyota have scheduled major model changes for 2015, so they are not giving up easily.

The calendar for 2015 is filled with multiple launches from every major automaker, so there will be many hot contests to watch.

The challenge that might keep supplier executives up at night in 2015 is how to meet the requirements of the growth market and keep an acceptable profit margin.

In IRN’s annual survey of the supply base this fall, we asked whether suppliers had sufficient capacity to support a sustained increase in demand. The percentage saying “no” was up to 42.4 percent this year from 28.3 percent in last year’s survey.

In theory, high demand is a good problem to have, but it has reached a point that it is beginning to negatively impact the bottom line for many companies.

Part of the problem is that the OEMs are similarly hesitant to face reality and make firm commitments that would enable suppliers to invest capital for their programs. Needing to support a different mix or total volume than was contracted requires stopgap measures, such as premium freight, overtime, renting offsite facilities, etc. — all of which tend to add expense. Addressing these additional costs should be part of the dialogue of suppliers with their customers so relief is granted where appropriate.

Suppliers hesitating to add capacity may be wondering how long they would be able to enjoy it before the next cyclical downturn. Looking longer term, IRN’s Autofutures North America light vehicle production projection indicates that the pace will start to slow after 2015 and the growth curve will start to flatten.

There is no downturn in our five-year forecast window, so the end is not yet in sight, meaning that there will be plenty of decisions to be made in 2015.

Read 1189 times Last modified on Sunday, 21 December 2014 22:27

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