Stormy tooling forecast predicts more shops will close

The North American automotive tooling sector is in for a rough ride as automakers sort out the future of electric and autonomous vehicles, Harbour Results Inc. said in the firm's forecast for 2020, released Nov. 5.

Harbour Results predicts that spending on automotive tooling in North America will drop from an average of $8 billion-$10 billion to $6.5 billion-$8 billion for the next three to five years. And the consulting firm forecasts that 50 to 75 mold and die shops in the region will close during that same time frame.

More than 10 shops have closed so far in 2019, said Laurie Harbour, president and CEO of Harbour Results in Southfield, Mich. More than 2,000 workers were laid off. "We see this trend continuing," she said.

As production levels weaken, toolmakers will face a profit squeeze and intense pricing pressures. More consolidation will happen and some businesses will close, Harbour said. Automotive molders also should experience some fallout and continued consolidation, she said in a webinar focusing on the forecast report.

It all adds up to a major change in the transitioning automotive industry.

"There will be the new normal of electrified and autonomous products, and although that may be far away, the changes are happening right now," Harbour said.

Throw in economic uncertainty, global trade wars, the UAW strike against General Motors Co., government volatility and the presidential election next year, and you have even more stress, she said.

Harbour Results predicts North American automotive tool spending will drop to $6.8 billion in 2020, down from an estimated $8.7 billion in 2019. One factor pushing up the 2019 number is that the new model of Jeep Grand Cherokee was pushed from 2018 into 2019, she said.

The tooling spend for 2018 had fallen to just $6.6 billion, dramatically lower than original forecasts and a big decline from the strong 2017 spend of $10.4 billion.

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.

The big driver for the lower tool spend is cutbacks on the number of North American vehicle launches by the Detroit Three, Harbour said. New models are the main driver of investment in plastics molds and stamping dies.

She said that for 2020, the Detroit Three are expected to introduce only 13 new models, representing about $3.1 billion in tooling spending.

And the Detroit Three tooling spend is expected to whipsaw up and down about $2 billion each year from 2018 through 2022, according to the report.

During the webinar, Harbour said that level of volatility has a huge impact on North American toolmakers, "making it very difficult for them to invest in new technology or from a human resource standpoint. And it puts them under a lot of pressure to run their business."

Harbour doesn't think there will be a recession. But the fundamental structural changes will continue to hammer manufacturers of molds and stamping dies, as automakers delay vehicle model launches to conserve money to develop electric and driverless vehicles of the future, she said.

Automakers and major suppliers will continue to source some molds to China in a bid to save money, she said. The Harbour Results report said that, on average, the winning China bids come in at 35 percent below the break-even point of a North American shop.

In the webinar, Harbour pointed out that Tier 1 suppliers are large global corporations and are under stress because of struggling automotive markets in Europe and South America and a slowing level of growth in China. Automakers are also pushing some investments on electric and autonomous vehicles down to the Tier 1s, she said.

Despite the Detroit Three issues, overall model launches could remain pretty solid, Harbour Results said. But the makeup of "model launch" is changing — and that will hit toolmakers. In the webinar, Harbour said in 2020 and 2021, "face-lifts" will account for 48 percent of all model launches — but represent just 11 percent of the spending on molds and dies.

"Face-lifts tend to require fewer dollars to launch for tools," she said. So even though the number of overall launches remains high, the mix will change.

Automakers also are cutting the number of trim packages to reduce investment costs, she said. And interior components such as climate control systems and radios will move from knobs — molded in plastic — to flat screens.

"It means tool cost and tool demand will drop over the coming years," Harbour said.

It adds up to a squeeze on suppliers.

According to Harbour Results, sales revenues at tool shops declined by 6 percent in 2018 from 2019. Capital expenditures fell by 4 percent in 2017-19. Toolmakers are significantly less optimistic.

Harbour said half of mold shops report having less than four months of backlog. That could be dangerous for small shops, putting them in a precarious position if a customer puts a major job on hold, she said.

Large mold and stamping die companies, ones with $100 million in sales or more, have seen sales grow and poured money into new technology.

"They've done a lot over the years to become more efficient and profitable," she said.

They also have open production capacity and want to fill it.

"These guys are hungry," she said. "They have a lot of people working for them and they have a lot of investment." They are bringing work in-house that had been outsourced to smaller shops, and will win more business from them, she said.

In the next five to 10 years, small shops that don't have succession plans are in a tough position — and they could go out of business, Harbour said.

"This forecast is difficult for us to share," Harbour said. "We are passionate about helping the North American manufacturing industry remain competitive. However, the ongoing marketplace change and competition from low-cost countries — specifically China — has already impacted tool and die makers."

On the positive side, a big U.S. transition away from cars to SUVs and pickup trucks means "the number of tools per vehicle grew dramatically," she said. But she said the question is can that be sustained, or has it peaked and will decline in the future?

Existing automakers still have to invest in traditional vehicles with internal combustion engines, while at the same time spending on the new vehicle technologies.

Harbour did deliver some positive long-term news during the webinar. By 2026, she predicts, there will 23 automakers manufacturing in North America, up from 15 last year. She said there will be 420 nameplates for vehicles with internal combustion engines, up from 352 in 2018. But the average sales of a given nameplate will be only 40,000 units — down from 49,000 in 2018.

"So you see more and more complexity entering the market and volumes dropping considerably," Harbour said, adding that this will be is good news for mold makers in the future.

Electric vehicles will go from just 18 nameplates in 2017 to 133 in 2026, on a total of 1.28 million units. That's still a small percent of total unit sales, but even so, these vehicles also will need tools and molds, she said.

And the independent makers of plug-in electrics — like Tesla and the startup Rivian — don't have the high legacy costs such as huge factories and unions that jack up costs at traditional automakers.

Harbour said they also can buy shuttered car factories cheaply. That puts even more pressure on the traditional automakers to save every penny they can, including from toolmakers and suppliers.

As the tooling market contracts, Harbour said company officials need to position their companies for the future.

"Leadership needs to push for edginess and eliminate complacency, and it also is important that tool shops continue to put plans in place to shore up weaknesses, maximize technology and talent, and control costs," she said.