Despite a looming plateau in auto sales and automakers overwhelmingly betting on the same pieces of the market, savvy suppliers could still realize major opportunities in the coming years.
Those opportunities come as automotive sales hit nearly 17.3 million units for 2018, with trucks and SUVs up 8 percent, accounting for around 11.8 million units. Meanwhile, passenger car sales dipped 13 percent to 5.5 million units.
Mike Wall, director of automotive analysis in Grand Rapids for IHS Markit, predicts sales this year will drop to 16.9 million units and continue to decrease to around 16 million units by 2025 because of affordability constraints and increased mobility services.
“We see a little bit of a fallback this year,” Wall told MiBiz. “Nothing to sound the alarms off on, and it could still be a very profitable volume for both automakers and suppliers, but for suppliers it’s going to depend on who you’re working with, absolutely.”
A proliferation of new models will continue to bring new opportunities — and big choices — for suppliers, according to Wall. The next several years will see an increase in the number of launches of new or majorly redesigned vehicles, filling in gaps for several passenger cars that will “fade into the sunset,” he said.
“It’s going to be an active launch period for suppliers,” Wall said. “Not only do suppliers have to be keeping their eye on the ball in terms of day-to-day volume, they could very well be launching a fair number of vehicles at any given point of time.”
Last year, 25 discrete vehicles were launched in North America. This year, that number will expand to 29, and next year, 33 new models will launch, including a fleet of redesigned SUVs from General Motors.
“There are four models right there, with Tahoe, Yukon, Yukon XL and Suburban. You could see how the nameplates spin that up pretty good,” Wall said.
Concentrating on Trucks
As more Americans move away from sedans and passenger cars, one of the biggest shifts in the automotive industry has been consumers’ move toward more diverse sport utility and crossover utility vehicles, according to Michelle Krebs, a Detroit-based executive analyst for Autotrader.com Inc.
That shift has led automakers to make changes to their operations and product mix. Late last year, GM announced it would close five plants, all of which produce passenger cars. In addition, Ford Motor Co. announced in April that it was going to eliminate most of its car lines, except for the Mustang.
Unveilings at the North American International Auto Show last month in Detroit included new pickup trucks like the Ram 2500 and 3500 and new crossovers from both Ford and GM, such as the Lincoln Navigator, Ford Explorer and Cadillac XL6.
“A lot of West Michigan suppliers are going to be supplying or are supplying those vehicles,” Wall said.
Crossover utility vehicles (CUVs), which are built on a car platform but still categorized as a truck, are increasingly popular with consumers for their softer ride, storage space and fuel economy. In response, automakers have diversified the CUV market into numerous sub-categories.
In 2001, 19 crossover vehicle nameplates were sold in the U.S. As of 2011, the variety of crossovers had increased to 72 models. This year, CUVs reached 114 models and they’re on track for a projected 159 nameplates by 2026, according to Wall.
As consumers and automakers move to more SUVs and CUVs, opportunities for toolmakers and supply chain manufacturers will escalate because of the sheer sizes of the vehicles, according to Laurie Harbour of Southfield-based Harbour Results Inc.
“There’s about 25 percent more tooling in an SUV or a CUV versus a car or a sedan,” Harbour told MiBiz. “The move to trucks and SUVs is a good thing for toolmakers. It’s a good thing for stampers and molders as well, because there are more parts on (those models). It’s helpful for the manufacturing industry.”
Harbour predicts that U.S. consumers will continue to prefer light trucks over cars for “the long haul” because of advances in fuel economy.
“Before, we went back to cars when fuel prices got high. The difference here is all these SUVs and CUVs have really fuel-efficient powertrains in them, so we’re putting little I4 turbos in the Ford Edge and we’re getting away from the heavy V6, V8 engines,” Harbour said. “I’m not saying they’re going away, but they’ve become more efficient and we’re using less of them with more high-powered four-cylinder engines.”
According to Krebs at Autotrader, automakers also are traveling two roads at the same time by continuing to produce the gas-powered vehicles of today as they start to develop more electric vehicles for tomorrow. As such, opportunities abound for them to create variations of CUV models to be electrified, she said.
“So far, the electric cars we’ve seen are only cars,” Krebs said. “It’s kind of weird.”
Over the next few years, the consumer will see more electric vehicles built on crossover and sport utility platforms, and many will be “dedicated architectures for electric vehicles” as opposed to hybrids, according to Krebs.
For example, EV startup Rivian Automotive unveiled its all-electric R1T pickup and R1S SUV at the Los Angeles Auto Show in November. The Plymouth, Mich.-based company plans to offer the off-road capable platform with a range of up to 400 miles.
“The other thing that’s interesting about that is with electric vehicles and fuel-cell powered vehicles, because you don’t have an internal combustion engine, you can do different designs,” she said. “There may be designs of vehicles that are very different from what we have now.”
The new electric vehicles will be phased into the market through 2030, according to Wall.
“Between now and then, a big part of what’s going on is really socializing this technology with the consumer base,” he said. “That’s the next gate, especially on full electric: Will the mainstream buyers be ready for it? Is our infrastructure ready? Do we have other things lined up appropriately to really attack the market?”
For about $21 million, Michigan can build a statewide network of electric vehicle fast-charging stations to meet anticipated demand by 2030, as MiBiz previously reported. The charging network would span from Kalamazoo and Ann Arbor to Houghton in the Upper Peninsula. Establishing the system may be a critical step in alleviating range anxiety among drivers.
“Automakers are looking at electrification as several different tools in a toolbox,” Wall said. “You’ve got a plug-in hybrid here, maybe a full electric there. You’re going to see a bunch of different offerings in different categories that the automakers can use and hopefully market to consumers to attract all those different tastes and interests in the market.”
Some structural changes to vehicles will require new tooling and parts like battery trays and underbodies, all of which could drive additional business for suppliers, according to Harbour.
“When you go to a battery-electric vehicle, you have to change the structure of the vehicle in general. Although they’re going to be an option of a model that already exists, they’ll have to change the underbody,” she said. “That means new dies and new stamping parts to support it. It should actually yield more opportunities.”
Picking Winners and Losers
To plan for the future, automotive suppliers must pay close attention to how their customers are changing to meet the demands of downstream customers with transparency and communication, according to Harbour.
“The big thing is understanding their cost structure,” Harbour said. “You would be surprised at the quantity of small companies that don’t have an idea about their cost structure, and then they misquote or mis-price stuff, and then they get caught with their pants down. And it’s a really difficult scenario.”
Planning volumes also are going to become more important as the market plateaus, according to Wall.
“The very nature of this industry is there’s going to be some flops, if you will. There’s going to be some that don’t quite perform,” he said. “The challenge may be that the devil’s in the details in terms of what (projections) you’ve been capacitized to and what you’ve been costing your part out to. It’s going to force the supply chain to extend to really think about the manufacturing process a bit more.”
He predicts that diversification and the ability to adapt will separate the winners and losers in the industry.
“When we see some disruptive events starting to take over the industry, like electrification, you could view that as a disruption, try to retread, protect what you’ve got, and duke it out that way,” Wall said. “Or you could embrace some of that disruption, lean into it a bit, and try to get business. That’s what a lot of the suppliers are doing.”