In the next 18 months, Harbour Results Inc. expects 30 percent of all North American manufacturers to close, with 10-15 percent of those being mold and die shops.
"We told tool shops last year they needed to get better and more flexible to be able to handle and weather the storm," HRI President and CEO Laurie Harbour said, "but frankly I'm not sure they listened to that.
"There was a tremendous amount of tariff and trade challenges for production and tool suppliers," she said. "Automotive volumes were beginning to soften, and tool shops and production suppliers were not really doing very well."
Cash-strapped automotive OEMs will have to be choosy about investments in new technology and product launches, leaving some suppliers without demand for varied products, according to HRI's annual tooling industry forecast.
The forecast, presented Oct. 14, showed the COVID-19 pandemic's impact on the industry will force OEMs to cut costs and tool shops to increase efficiency and "flex their business to take on more work."
In HRI's annual Manufacturing Pulse Study, conducted in August, 35 percent of 130 tool shops surveyed indicated they were struggling or concerned. Some 10 percent stated they had tripped a bank covenant.
The pandemic "accelerated" the "small" recession HRI had predicted in 2019, she said, and is negatively impacting automakers' profitability, which means they will need to eliminate trim models and other costs.
"The automotive industry has really been at a significant turning point," Harbour said, due in part to a generational shift, giving millennial consumers greater buying power and influence on design and feature options.
"These are all very costly features for OEMs to afford, but consumers expect it," Harbour said.
Over the last decade, the auto industry saw "a lot of new models launched, a lot of complexity … which meant more automotive tooling in the marketplace."
Consumers' move away from sedans and into CUVs and trucks gave traditional OEMs "a very high-mix and low-volume portfolio."
"This has been great for our automotive tool industry because it's driven a huge amount of demand for new tools into the market," Harbour said. "But we've reached a tipping point where OEMs have to determine if they can afford all of these models.
"I have to say I don't think this is going to get any easier for a while," she added.
Though the automotive industry has recovered well this year, the reasons behind the quick recovery are temporary.
"Inventories have [been] incredibly low because we shut the industry down for eight to 10 weeks," she said. "Prices are very high because demand is far outweighing supply."
Competition from newer automakers like Rivian and Tesla, which have limited trim levels and spend less on tooling, are also lowering their prices, she said."
"Some of the OEMs went into the COVID crisis at the end of March very strong and healthy financially, while others like Ford and Nissan in particular were not doing well before the virus was an impact," she said.
"Most of the OEMs have a liquidity problem," Harbour said. "They basically don't have the cash to invest in new technology, with the exception of Toyota, which has a tremendous amount of liquidity."
Less than 10 percent of General Motors Co.'s and Ford Motor Co.'s overall vehicle fleets, which most of HRI's U.S. and North American tool base supports, are profitable, she said.
"All those other products don't make money," Harbour said. "They essentially staple dollar bills to the windshield of those products when they come off the assembly line."
Harbour does not think OEMs can afford everything they have planned. Global suppliers are worried about cancellation of programs after experiencing almost a year of financial strain before the pandemic hit.
Many "took a major hit because of the GM strike," Harbour said. "Many of them reduce whole-down lines of credit to bring working capital into the business; they've restructured their corporate debt. They still have, in some cases, people furloughed."
Tier 1 suppliers are critical to the OEMs' future investments in electric vehicles and other technology, she added.
"They owned certain portions of the car that [suppliers] were doing the design and development on," Harbour said. "This could potentially delay that shift in technology.
"We have the ability to save billions of dollars over a two- or three-year period of time by simply offering the consumer less customization in their vehicle, and that's what their competitors are doing," she said. "It makes the tool supply base very vulnerable as we look forward.