Detroit — U.S. car and truck buyers drove up sales to an unprecedented 17.4 million units in 2015, beating the previous record set in 2000 and maintaining a pace of growth that has many wondering how long it can continue.
While industry experts expect 2016 will continue on pace, the outlook isn't so bright a little further ahead. Sales volumes are forecasted to flatten out going forward to 2022, and some predict a potential recession in 2019 when volumes could dip, according to Laurie Harbour, president and CEO of Southfield, Mich.-based Harbour Results Inc., which helps companies improve operational efficiency.
“Essentially, it's a plateau period,” Harbour told some 300 attendees at the Jan. 12 Plastics in Automotive event put on by Plastics News in Detroit during the preview for the North American International Auto Show.
And, it's likely to be a bumpy ride, she warned.
“I don't mean to paint a grim future,” Harbour said. “The industry is great right now. I'm very positive about it. The volumes are high. The products are exciting. …Unfortunately, so many companies are busy meeting volumes, they are forgetting about all the things they need to do to be efficient and profitable to sustain the downturn that may come. We all know the industry is going to adjust. It's not going to be a 2008 adjustment but will be some kind of adjustment. It has to.”
The industry's shift from a low mix of vehicles sold in high volumes to a high mix of products sold at lower volumes is putting tremendous pressure on automakers and their suppliers. The days when Chevrolet rolled out 300,000 Impalas a year and Ford made Tauruses and Sables at a clip of 500,000 a year are in the distant past.
By 2018, 80 percent of the vehicles on the road will be under 100,000 units in production, Harbour said, noting that piece price goes up for plastic parts suppliers when volumes come down.
At the same time, the number of new nameplates hitting the market is going up in the next couple years, along with some 800 new trim levels to differentiate products, Harbour said. The growing mix is becoming dramatically more complex for suppliers and requires more expensive tooling, she added.
“Those making a bumper fascia, for example, used to use seven molds. It's now 12. What had three actions, now has 14 actions,” Harbour said.
Then, there's the quickening rate of model updates to meet customer demands and government regulations. From minor facelifts to new technology to changes that reduce weight and improve fuel efficiency, the life cycles of vehicles are getting shorter — dropping precipitously, Harbour said, from about three years in 2015 to an anticipated two years in 2019.
Plastics processors are expanding their floor space to hold the tooling and secondary equipment needed to handle the model changes coming at a rapid rate.
“Shorter life cycles mean dramatically less time to amortize the mold, the automation put into a plant to assemble that product, and the capital invested in the facility,” Harbour said. “So suppliers are trying to recover that investment through higher piece prices.”
They are meeting a variety of responses from the original equipment manufacturers (OEMs), who need to curb production expenses, in part to offset the higher costs for the launches of all the new products coming out of the pipeline.
“When I say there will be increased intense price pressure, people ask if it will be worse than it is now because it's awful now, but yes, it's going to get worse,” Harbour said. “Go back 10 years and tool suppliers weren't even a thought in the OEM's mind. They never worried about tooling. They handed over a part and said go figure out how to make a mold. Now they are deep into tooling suppliers and they are causing a ruckus.”
The pressure to save money by buying molds overseas will lead to more out-sourcing, she added.
“I had two OEMs tell me last month they see 30 to 40 percent savings on tooling after logistics costs for major components like doors and fascias,” Harbour said.
In Asia, automakers will try to save money by stepping up efforts to reduce product development time and costs through standardized parts.
“There are companies in Japan working today that I will tell you are three to five years ahead of GM, Ford and Chrysler on efforts to commonize parts not only within platforms but across platforms,” Harbour said.
In addition to managing new product, suppliers can't get rid of anything because they have to run service parts on existing products for the next 5 to 7 years — and they get a lower price on service parts.
“There's huge scheduling complexity. Companies are struggling with the right mix,” Harbour said. “How do I get the best efficiency in my plant plus service parts management?”
Then, there are questions about the economy, gasoline prices, the popularity of profitable trucks, and so-called disruptors like autonomous vehicles from Google and Apple entering the market.
Because sales and manufacturing aren't linked at the hip in terms of planning, Harbour said it's time for suppliers to keep watch but not wait to develop longer-term strategies that align product and process to demand. She said the industry is at an inflection point and manufacturing efficiency needs to be a priority.
David Prater, CEO and president of SRG Inc., a Warren, Mich.-based Tier 1 supplier of grilles and trim, said the company is planning its strategies and investments for the next couple years around flat sales. Seven years ago, SRG started changing from a build-to-suit supplier to a full-service design partner with worldwide offices as well as some engineers with Honda in Ohio.
“We're trying to get closer to our customers so we create more value for them,” Prater said at the Plastics in Automotive event, adding that global product development — the ability to design in one region and manufacture in other regions — is another demand being placed on suppliers.
Down the street at the auto show, Michael Stapleton, interior designer for General Motors Co.'s GMC group, said automakers do their best to balance the desire for a variety of trim levels with the complexities that adds to production.
“We're looking for the best design bang for the buck,” he said.
GMC's new 2017 Acadia, for one example, has three different front grille designs for the different versions of the mid-sized sport utility. That's what consumers want, to set their vehicle apart, Stapleton said.
But at the same time, the vehicle development team works to see where it makes sense to make a slight difference that will not be as costly or as complex, he said. For instance, using an insert with a different grain in the mold for a door panel, rather than needing a mold with all new engineering can highlight a subtle style change at less complexity.