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Sunday, 26 November 2017 15:41

Competitive forces: Despite projections for a record 2018, tool and die suppliers brace for a cyclical downturn

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Competitive forces: Despite projections for a record 2018, tool and die suppliers brace for a cyclical downturn Infographic by Rachel Harper

With 177 new vehicle launches expected by 2020, tooling suppliers like Walker Tool & Die Inc. are bracing for another busy period in what’s been a string of good years for the industry.

But even with the promise of increased business for the foreseeable future, Walker Tool & Die already has started to steady itself for the next inevitable slowdown, said CFO Barry Waters, whose company supplies OEMs and tier 1 and tier 2 suppliers. 

“We are preparing for a couple of years down the road for not as many launches or not as many tool projects,” Waters said, adding that 75 percent of the company’s book of business is in the automotive sector. “You have to be efficient and competitively priced and strengthen relationships with customers. … It’s a very competitive business.”

New industry data show Walker Tool & Die’s preparation for the next slowdown could have merit. 

While the automotive industry is projected to spend an all-time record of $11 billion on tooling in 2018 ahead of busy vehicle launch activity in the next three years, analysts at Southfield-based Harbour Results Inc. caution that a decline could be on the horizon. 

In a forecast released this month, Harbour Results projected spending on automotive tooling will fall 40 percent from 2018 to 2020, a factor of model cancellations, foreign-owned plants coming online in North America, OEM pressures, and a range of other factors. 

“It is important that tool shops continue to focus on improving operations and investing in technology during the good times to remain competitive during the dip,” said Laurie Harbour, president of Harbour Results.

Despite forecasts for flat sales of light vehicles through 2020 and minimal expectations for growth, tool and die companies “need to think of innovative and low-cost opportunities in the industry,” she added.

Given the lead times in the industry, companies like Walker Tool & Die must remain “cost competitive with the other (tool and die companies) who can do our tools,” Waters said.

“We have to continue to look at our cost structure and make sure we are going to get a return on our resources,” he said.

ADDING CAPACITY

The tooling industry remains concentrated in Michigan, where 36 percent of the companies are based, according to Harbour Results. Nearly two-thirds of the tooling suppliers are small companies with annual revenues less than $20 million. 

Die builders in the industry were operating at 88 percent of capacity in the third quarter — about even with a year ago — as automakers ramp up their launch activity to a high of 67 vehicles in 2020, according to Harbour Results. Meanwhile, capacity utilization among mold makers stood at 81 percent. 

Those strong build volumes have many tool and die makers and companies throughout the supply chain looking to add capacity to accommodate new orders. 

Grand Rapids-based Pac - CNC Inc. has added six employees and additional machines in the last 18 months because of increased tooling activity, said General Manager Steve Jongsma.

A tool and die builder, metal stamper and supplier of flat springs, spring clips, washers, brackets, fasteners, electrical contacts, and other components, PacCNC employs 38 people. The company works heavily in the automotive industry and, like Walker Tool & Die, has started preparing for when the current automotive cycle begins to turn, Jongsma said. 

That’s why the company is focused on diversifying and inventory management, he added. 

“We have been substantially (busy) in the last 18 months,” Jongsma said. “For us, we are just a single-source plant here. … We have been just keeping up with the capacity outlook that (our customers) are requiring. We definitely need to add more machine time and the employees to work with them because of the steady growth.” 

CAPITALIZING ON THE SHIFT

According to Mike Wall, director of automotive analysis in Grand Rapids for IHS Markit, the level of activity for West Michigan tool and die companies portends good news for the broader automotive industry. Because those suppliers are active and busy right now, it’s a sign that the automakers are investing in new vehicles, he said. 

“The tool and die (sector) is a leading indicator … before the (OEMs) start their launches,” Wall told MiBiz. “There will be a pretty steady flow for the next couple of years, then it will subside. … The good companies, the experienced companies have been in these cycles before.” 

That holds true for Waters at Walker Tool & Die, who acknowledges tooling orders will slow, but the industry remains strong. 

“It’s not going to go from really good years to bad years — there will still be launches,” Waters said. 

Harbour at Harbour Results attributes the looming drop in spending on tooling to a need for OEMs to stabilize their investments in equipment amid profitability pressures. That’s also shifting the mix of launches more toward facelifts and redesigns, rather than completely new platforms. 

Minor facelifts and redesigns account for 61 percent of the spending on tooling, compared to 39 percent for all-new launches, according to Harbour Results’ projections. 

“There are toolmakers dedicated to the facelift market,” Harbour said.

Wall at IHS Markit said that shift could open opportunities for smart tool and die companies to deploy some of their capacity in other areas. 

“As we go down that cycle, they are trying to keep their vehicles more relevant, change them up but not a whole redesign — a facelift,” he said. “In some cases, the tool and die shops can take advantage of that. Maybe they can look at other industries, and hopefully will still work with the auto industry.” 

DEPENDENT ON DETROIT

Harbour’s recent study also reiterated the importance for the North American tooling industry of the Detroit automakers, which source 80 percent of their tooling from the U.S. and Canada. That compares to 40-50 percent for Asian automakers and just 20-30 percent for European carmakers. 

The industry also appears to have a threshold for annual tooling expenditures in the range of $9 billion to $10 billion, Harbour said.

Another shift that’s playing in the tooling industry’s favor: Consumer preference is pushing automakers to produce more trucks, crossovers and SUVs, all of which require more parts and more tooling compared to sedans and small cars, Harbour said. 

The trend toward trucks, crossovers and SUVs has taken shape in recent years, especially for the Detroit automakers. In September, Ford ended production of the slow-selling C-Max hybrid compact at its Wayne Stamping and Assembly facility, where it plans to build Ranger midsize pickups and the new Bronco SUV.

In 2016, Fiat Chrysler Automobiles CEO Sergio Marchionne cited a “permanent shift” in the market for the decision to discontinue the Dodge Dart and Chrysler 200 to free up capacity for Ram and Jeep models. 

“The SUVS/trucks — we are not expecting that to change anytime,” Wall said. “A slow of the growth maybe. Consumers are voting with their dollars for light trucks and crossovers. We see this continuing in the future, as consumers are gravitating to taller ride heights, more flexibility.

“A lot of these vehicles tend to be larger, maybe more seating positions, so larger parts definitely play a factor.” 

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