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Sunday, 01 February 2015 22:00

Race Ready: Automakers’ focus on performance, luxury vehicles yields growth for suppliers

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Race Ready: Automakers’ focus on performance, luxury vehicles yields growth for suppliers MIBIZ PHOTO: JOE BOOMGAARD

Few trends could demonstrate the automotive industry’s current fortunes better than the influx of performance-based halo cars into automakers’ lineups.

Although the high-horsepower sports cars admittedly sell in limited volumes, the automakers are finding ways to transfer some of the technologies and performance characteristics to models across their vehicle portfolios. Simultaneously, there’s a convergence in the luxury segment as OEMs such as Mercedes-Benz and BMW move down market at the same time mainstream brands are optioning their models with features historically found only on higher-priced vehicles.

For auto suppliers, the proliferation of performance and luxury options translates into new opportunities to go deeper with their customers’ product lines and ultimately pick up more business, said Mike Wall, an automotive analyst at IHS Automotive Group in Grand Rapids. That’s especially true for suppliers of optional components, such as high-end wheels and interior finishes.

“As (automakers) are looking at different trim packages, lightweight offerings and performance packages, companies can slot in and create a really nice niche for themselves,” Wall said.

For suppliers such as Grand Rapids-based Spectrum Industries Inc., the industry changes are creating opportunities for more business. The manufacturer of decorative finishes that simulate wood grain, carbon fiber and high-gloss applications often found in option packages has capitalized on the influx of sporty and luxury models in the market, said President Kevin Bassett.

“We’re seeing a trend where automakers are offering a high-end package on more of the volume (vehicles),” Bassett said. “Historically, they may have offered a high-end package on 10 percent of their volume, and now it’s on 50 percent.”

The company is currently in the process of developing a high-end “piano black” finish for interior trim pieces that offers scratch- and fingerprint-resistance, Bassett said. Currently, the finish is found mostly in luxury and sports cars.

REDEFINING CATEGORIES

The 2015 North American International Auto Show (NAIAS) represented a shift in the automotive industry away from high-volume, practical platforms such as Ford Motor Co.’s launch last year of the F-Series pickup truck in favor of more performance-minded models, Wall said. For example, Ford announced that it would create a separate Ford Performance division and add 12 additional sport-tuned models to its lineup by 2020.

The Detroit auto show featured the debut of the mid-engined, carbon fiber-intensive Ford GT and the track-bred Shelby GT350R, which bowed alongside the Acura NSX hybrid supercar and the 640-horsepower Cadillac CTS-V sedan.

Automakers’ willingness to show off their capabilities with halo-type vehicles demonstrates that the fortunes of the automotive industry have returned, sources said.

The increasing spread of performance-based option packages has driven more innovation into the supply chain, leading to more collaboration between the OEMs and suppliers than in years past, Wall said.

“(Because) automakers want the latest in lightweighting technology or advances in components and assembly work … there’s more collaboration because automakers can’t afford to lose out on the innovation,” Wall said.

As performance features spread throughout the model lineup, the industry’s definition of what represents luxury vehicles continues to evolve. High-end packages and options on mainstream vehicles such as the $55,000 Ford F-150 Platinum edition are bumping up in price against models from traditional luxury OEMs. At the same time, the luxury automakers like BMW are pushing down market with entry-level vehicles like the $32,000 2 Series coupe.

As the mainstream vehicles play up in the luxury field, automakers are also able to drive better margins, Wall said.

“It sounds weird, but suddenly your Buick LaCrosses and upper-trim Ford Tauruses of the world are competing with some of those entry-level luxury makes,” Wall said.

That competition for market is being driven by the down market movement of technology into mainstream models that can be optioned up with the advanced features such as driver assistance and connectivity technology that were once solely found on luxury brands, he said.

“You used to have to go to BMW to get that latest and greatest in technology, but it’s not that way anymore,” Wall said, noting that the spread of technology gives suppliers of those components access to a wider range of customers.

The proliferation of new driverless technology has forced traditional suppliers such as Grand Rapids-based Cascade Engineering Inc. to keep a close eye on what the new technology means for the product lines they serve. That’s particularly true when it comes to the interior design of the vehicle as customers begin to interact with their cars in different ways, said Scott Zylstra, general manager of Cascade’s automotive and commercial product lines.

“This whole focus on autonomous vehicles is just going to continue to grow and grow,” Zylstra said. “Right now, drivers are spending 95 percent of their time focusing on the road. If they start spending 80 percent of the time getting work done, it’s a whole different setup.”

SUPPLIERS CONFIDENT

Despite future uncertainty regarding autonomous vehicles and other technology disruptors, many suppliers have regained considerable confidence compared to 18 months ago, said Wall of IHS Automotive.

A January Automotive Supplier Barometer survey conducted by the Original Equipment Suppliers Association (OESA) noted the Supplier Sentiment Index increased to a score of 61 compared to November’s level of 56, a move that represented more optimism about the industry’s overall performance.

Cascade Engineering shares the industry’s optimism going forward into 2015. While the company is currently in the process of developing several new exterior and interior products, it sees the majority of its growth coming from its line of sound dampening composite dash material.

“It’s a good space to be in,” Zylstra said. “With the continued volume growth, the platforms where we have product have a good, solid base of volume and growth ahead of them. We expect to have very high utilization of capacity in the automotive area and a lot of new business being sourced down the road.”

IHS expects North American automobile production to reach 17.4 million units this year — up about 2 percent from 17 million units in 2014. With a modest increase in production volume, Wall doesn’t expect to see any looming threat of capacity constraints outside of a potential bottleneck around some high-tech components as the auto industry competes against other sectors such as consumer electronics for microprocessors and control units.

Many suppliers continue to make capital expenditures for new equipment to keep up with capacity requirements. For example, Spectrum Industries has invested in developing production efficiencies and incorporating automation into the production process to meet the impending needs of its customers, Bassett said.

The investment activity has taken place across the supply chain, a change from 18 months ago when suppliers were wary of making investments, Wall said.

“The irony is that the equipment is already booked, meaning they already have business they can assign to it,” Wall said. “It’s been heartening to see suppliers in many ways getting back into investment mode.”

Sidebar: Launch activity

In the January Original Equipment Suppliers Association Supplier Sentiment Index, some respondents expressed concern about being able to meet demand related to the rapid pace of new product launches over the next 12 months.

Suppliers who said they were “very confident” in their abilities to meet their customers’ scheduled releases fell to 56 percent from 70 percent a year ago.

According to IHS Automotive, automakers expect to launch 21 new models this year and 27 new models in 2016, down from 34 launches last year. However, many suppliers are already working to support a considerable ramp up in new product activity in 2017 (36 launches) and 2018 (47 launches).

That’s a volume that could put stress on a supply chain already faced with long lead times for equipment that extend to more than a year in some cases, said Mike Wall, an analyst with IHS Automotive.

—Reported by John Wiegand 

Read 4259 times Last modified on Sunday, 01 February 2015 22:52
John Wiegand

Staff writer

jwiegand@mibiz.com

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