Sentiment among automotive suppliers improved during the first part of 2017 as executives regained some degree of certainty following the results of the presidential election.
A recent survey from the Original Equipment Suppliers Association (OESA) noted improvements to the general economy, stemming from a so-called “Trump Bump,” have raised optimism among suppliers. But despite the uptick in the economy, manufacturers simply may have traded one brand of uncertainty for another.
With the Trump administration’s promises to amend trade policies like the North American Free Trade Agreement (NAFTA), automotive suppliers have expressed concerns over what impact the replacement policies will have on their global supply chain.
“The policies that Mr. Trump may implement on trade may have a very disruptive effect on the automotive industry and suppliers in particular,” said Charles Chesbrough, executive director of research and strategy and senior economist at OESA, who authored the report. “There’s certainly a lift coming from the economic side, but maybe greater concern and uncertainty that’s on the policy side regarding trade.”
Approximately 75 percent of suppliers participating in the OESA survey believe changes to NAFTA are “highly likely,” while 66 percent of respondents expect those changes will harm the automotive industry.
“There is a concern that these trade policies could be very disruptive for automotive (suppliers) because of the long lead time in the industry,” Chesbrough said. “It’s going to be difficult for suppliers to react quickly. That means whatever cost or obstacles that are put in place are going to have to be absorbed and dealt with.”
Changes in trade policies are likely to strike mid-size suppliers the hardest, according to the OESA report. The reason: Although large manufacturers may be more exposed to international markets, mid-size suppliers lack the resources to absorb shocks related to changes in trade policy.
But smaller suppliers like Grand Rapids-based Cascade Engineering Inc. remain unconcerned about trade policy changes under the Trump administration. In Cascade’s case, that stems from the company’s limited exposure, according to Scott Zylstra, general manager of the manufacturer’s automotive and commercial product lines.
“Being mostly a Grand Rapids-based organization, it has less direct impact on us as far as decision making,” Zylstra said. “Honestly, for us, it’s not a concern probably because of the vehicle platforms we tend to be on.”
Cascade Engineering primarily manufacturers acoustic management components for domestically produced vehicles, Zylstra said. About 10 percent of its components are exported to Canada. The company currently does not ship any products to Mexico.
While larger automotive suppliers could bear the brunt of changes to long-standing trade policies, those manufacturers also expressed the greatest increase in optimism about the automotive industry as a whole, according to the OESA survey. They cited increasing consumer confidence, promises of massive infrastructure spending and deregulation as a potential backstop against changes to trade policy.
Outside of concerns over trade policies and general upheaval in Washington, automotive suppliers list sourcing qualified talent as their largest challenge currently.
“For all of what Mr. Trump is proposing (in) bringing manufacturing jobs back to the U.S., we’re already seeing the limited availability of workers,” Chesbrough said. “Unless something is done in terms of worker training and getting more skilled workers, it doesn’t seem like that is going to help the industry. If anything, it might make it that much more challenging for the industry to find the workers it needs.”
Chesbrough noted the automotive industry increasingly is competing for talent with nontraditional sectors, particularly in technology, as more companies incorporate complex systems into consumer products such as dishwashers.
“We’re finding that automotive is competing (for talent) with industries we never knew we were competing with before,” he said.
RELAX IN CAFE STANDARDS?
Outside of talent, Cascade Engineering is closely watching fuel economy regulations under the Trump administration. While many businesses celebrate the prospect of deregulation, Zylstra said walking back the Corporate Average Fuel Economy (CAFE) standards could hamper Cascade’s ability to sell its lightweight acoustic products.
“If the automakers feel like they can relax the investments in lightweighting and gas mileage efforts — which we don’t think they will — but if it that happens, it changes the selling value in certain vehicles,” Zylstra said.
When it comes to strategizing about the best way forward in today’s market environment, Chesbrough advises suppliers of all sizes to embrace contingency planning.
“Plan for the worst and hope for the best is probably the best strategy right now,” he said. “You can’t just exist with one business plan. You’re going to need a couple in your back pocket so when everything is finally announced, you’re able to move quickly.”