The number of North American automotive launches has softened this year, and that's hitting mold and die makers, according to a third-quarter report from Harbour Results Inc. and the Original Equipment Suppliers Association.
All automakers building vehicles in North America had planned more than 60 model launches in 2018, but 23 of them — or about a third — were canceled or delayed, consultant Laurie Harbour said.
Harbour had initially predicted 2018 would be a boom year for tooling — with tooling spend hitting a record of more than $11 billion, up from an already-strong 2017 spend of $10.3 billion. But the reduction in new models — the lifeblood of investment in new plastics molds and stamping dies — has taken a toll. On top of that is a global automotive slowdown.
The North American tooling sector generates a significant part of business from the Detroit Three: General Motors Co., Ford Motor Co. and Fiat Chrysler Automobiles NV. Those automakers will continue losing market share in 2019, she said.
“When the Detroit Three get a cold in the marketplace, the rest of the tooling industry gets the flu. And that's what we started to see in 2018,” Harbour said in an Oct. 31 webinar with news reporters to explain the third-quarter report and the forecast for 2019.
However, Harbour said there is some good news. Some of the 2018 launches will get pushed out into 2019 to help level spending on tooling for the next three years. Harbour Results now thinks the 2018 tooling spend will be about $9.2 billion, about $8 billion in 2019 and 2020, and return to $9 billion in 2021.
“We really think we're going to see a more consistent market,” Harbour said.
She said the tooling industry is seeing new quoting activity in the third quarter of this year, as companies see requests for simulation reports and up-front validation activity. For 2019, that means the first half should be active as tool steel is cut, then show a little activity in the second half, Harbour said.
But the report from Harbour Results, based in Southfield, Mich., puts some numbers on a slower-than-expected 2018 for the tooling industry that serves the important automotive market. In the third quarter, because of the launch delays and cuts, the tooling spend was $2.6 billion — $2.2 billion below the forecast number.
Global trade pressures and the global economic environment will continue to be volatile, she said. Harbour said issues like higher tariffs, automaker restructuring, and more-costly resin and gasoline — along with an economic recession — could lop as much as another $2 billion off the forecast for coming years.
“There are a lot of headwinds facing the automotive market,” she said.
Capacity utilization at toolmakers dropped six points, to 79 percent in the third quarter. In 2017, Harbour said, most tooling firms were operating at more than 100 percent of capacity, which drove large tooling companies to outsource to smaller mold and die shops. But Harbour thinks that outsourcing work will dry up as big toolmakers keep work in house during the slowdown.
And she said tooling shops are seeing payments stretching out, after quick-payments in 2017. Work-on-hold climbed 6.6 points in the third quarter, to 15 percent, which Harbour said is not the highest ever, but still a significant level.
Harbour called the slowing payments “a troubling metric” that is impacting financial and cash flow of tooling firms.
Harbour Group monitors 11 large toolmakers — both die maker and mold shops — and she said these big players have invested in technology to become more efficient. They are profitable, so they have the ability to reduce pricing and manage margins, something that some small shops can't match, she said.
That means smaller shops can get squeezed.
“As the tooling market contracts, it is important that shops, specifically small shops that benefited from the increased outsourcing in 2017, prepare for the future,” Harbour said. “It is important that tool shops continue to focus on improving operations, smart investment in people and technology and strategic planning to remain competitive in the near and long term.”
Toolmakers also need to diversify their markets, she said.