ACME — After a decade of bullish outlooks, automotive suppliers need to buckle up for a period of upcoming disruptions.
That’s the message from experts who spoke at the Center for Automotive Research (CAR) Management Briefing Seminars earlier this month at the Grand Traverse Resort in Acme. During the conference, automotive executives, industry analysts and economists assembled to discuss the shrinking demand for products and how companies need to navigate complex new technologies.
Overall, New York-based consulting firm AlixPartners LLP anticipates sales for all of 2019 will drop to 16.9 million vehicles and dip even further to 16.3 million in 2020 and 15.1 million in 2021.
The global risk to vehicle sales is rising, according to Jeff Schuster, president of Americas operations at the global forecasting firm LMC Automotive. For the next several years, regions within the global economy will hit headwinds at the same time, which will put “immense” pressure on emerging markets, he said.
“Western Europe is the last major region to not turn negative, but Brexit could be the tipping point,” Schuster said.
LMC Automotive forecasts global light vehicle sales will increase at a compound annual growth rate of less than 2 percent from 2018 to 2025, with all the growth concentrated in markets like Turkey, Russia, Brazil and India.
“In the old tried and true U.S. market in North America, we don’t always get the credit we deserve over time, because we’re not the high-flying market that China is or India is,” said Mike Wall, director of automotive analysis in Grand Rapids at IHS Markit. “When the markets get volatile, that’s where things can get challenging is those emerging markets and that’s what we’re seeing right now. If you are a little closely tied or relying on North America or the U.S., it’s not a bad place to be right now.”
IHS Markit projects U.S. automotive production, which includes exports, to be down 400,000 units this year to 16.6 million light vehicles.
However, industry watchers predict domestic markets could be left behind more than the rest of the world on the electric vehicle front because of ongoing negotiations, posturing and planning surrounding fuel economy and greenhouse gas emissions standards.
In May, a group of the world’s largest automakers sent a letter to President Donald Trump asking for more stringent national standards and a compromise on emission standards with the state of California.
At the same time, uncertainty remains between the electric vehicles automakers are planning to produce and what consumers are ready to buy, according to research from CAR. With relatively low fuel prices and the corresponding popularity of pickup trucks, sport utility vehicles and crossover vehicles, light trucks now make up nearly two-thirds of the U.S. market.
Only 4 percent of vehicles sold domestically last year had battery electric or hybrid engines. However, automakers are investing heavily and making significant commitments to electrification. IHS Markit projects 247 models of battery-electric vehicles will be on sale in the U.S. market by 2026, up from just 40 nameplates currently, as MiBiz previously reported.
This represents a “great divide” between automakers and consumers when it comes to electrification, according to CAR President Carla Bailo.
“You can’t make people buy what they don’t want,” she said. “The internal combustion engine, at least here in the U.S., has a life ahead of it.”
While issues like range anxiety continue to affect demand, analysts at IHS Markit expect consumer acceptance of electric vehicles will accelerate in the coming years. The company forecasts new registrations of electric vehicles to balloon from just 208,000 units in 2018 to 1.1 million units in 2026, when they’re projected to have a 7-percent share of the market.
As the electric vehicle market develops and automakers wrestle with other major trade and economic headwinds, the domestic market does have an opportunity to outperform global and national forecasts by getting a “technology boost,” according to Schuster at LMC Automotive.
That’s true both inside the vehicle and in the plants where automotive components are manufactured.
Trends and technologies will change manufacturing processes and the profitability of the industry, according to Alexander Swoboda, CEO of FACTON GmbH, a product-costing company with U.S. headquarters in Troy, Mich. To meet the demands of the future, the factory and production of tomorrow will be “digital, connected and generic,” he said.
At the same time, 90 percent of car innovations and new features are driven by electronics, according to data presented by Swoboda. Within 15 years, he forecasts 30 percent of new cars sold globally will be battery electric vehicles.
“Hand in hand with changes in manufacturing, the profitability of the industry will change,” he said.
In addition to making simple tasks more efficient, automation and artificial intelligence also will generate new insights for manufacturers, according to Swoboda. In a smart production world, products can be engineered to capture real-time cost information during manufacturing — “knowing” what they cost and how to become more profitable.
Changes in the way auto-supply engineering and manufacturing teams are being built for the future can already be seen in West Michigan.
GHSP, a Tier 1 supplier of shift systems, pumps and electronic controls, is expanding and moving its headquarters and engineering laboratory from Grand Haven to the Holland Technical Center starting later this year. The move comes as the company has experienced increased demand for its engineering and experimentation space.
A division of Grand Haven-based JSJ Corp., GHSP is expanding its technology development department and will nearly double its existing office and lab spaces by moving into 120,000 square feet of office space and 35,000 square feet of lab space at the facility in Holland.
“It’s important to us to have a little bit more space dedicated to new technology and new product innovation,” said CEO Tom Rizzi.
Rizzi, who is also COO of JSJ Corp., told MiBiz that he is closely watching “common trends” in the automotive space like electrification, connectivity and mobility.
“There is a lot of uncertainty and all of that, but one thing that is certain is that is where the future is,” he said. “One of the things that I’m working with GHSP on is how to learn to act a little bit more quickly. We talk a lot about agility across our entire company and that speed is very important to ensure that we can react to everything that’s coming in the marketplace.”
The company also will use the expansion as an opportunity to diversify, according to Rizzi.
“A big part of our strategy isn’t necessarily product-focused,” he said. “It’s technology and capability focused. What we learn from a capability perspective or a competency perspective with one technology for one market, we really want to be sure that we can leverage into others.”
At the 2019 Consumer Electronics Show in Las Vegas, the company introduced technology that uses ultraviolet C (UVC) light to disinfect products — with crossover uses in shared vehicles and kitchen appliances.
“It’s the same trends — electrification and connectivity — that are lending themselves to a number of areas and where we live,” Rizzi said. “That’s all going to be part of our future.”
The expansion to the Holland Tech Center will offer the company’s future automotive and appliance engineering teams more freedom and flexibility to innovate and collaborate, ideally helping the company weather the ups and downs ahead for the industry, according to Rizzi.
“The space that we envision designing, we believe is going to make it easier for our employees to want to come to work,” he said. “It’s the connection with one another that drives what we need to do and certainly all of the trends in the marketplace that we’re focused on — to help support our customers with connection from a human to a machine. It’s really important to maintain that connection with humans.”