Remember those stories from 2018 about how Ford planned to stop making all the passenger cars in its lineup except the Mustang? Auto industry experts loved the idea.
General Motors also makes investors and auto experts happy when it talks about ending production of Buick passenger cars. Wall Street wants U.S.-based automakers to make lots of fancy high-margin SUVs. The profit margin is fantastic.
The trend may be good for automakers' bottom line, but it's going to take a toll on the injection tooling sector.
Harbour Results Inc. said in the firm's forecast for 2020, released Nov. 5, that 50 to 75 mold and die shops in North America will close in the next three to five years. (To be clear, those will not all be plastic toolmakers. Harbour's report looks at manufacturers of tooling for both plastic and metal parts.)
The problem is there won't be enough work to go around. Spending on automotive tooling currently averages between $8 billion to $10 billion annually. Over the next three years, it's going to average between $6.5 billion and $8 billion.
The bloodletting has started already. More than 10 shops have closed so far in 2019, according to Laurie Harbour, president and CEO of Harbour Results in Southfield, Mich. More than 2,000 workers were laid off.
The auto industry is on the move, but some toolmakers won't be coming along for the ride.
Carmakers are getting ready for the big shift to electrified and autonomous vehicles. General Motors Co., Ford Motor Co. and Fiat Chrysler Automobiles NV — the companies we used to call the Big Three — are facing huge changes.
In the short term, they're saving money by introducing fewer new vehicles. They're getting rid of most of their passenger cars brands, which have seen volumes shrinking in recent years anyway. When their designs get stale, they won't replace them with new models. Instead, carmakers will pump capital into super-expensive new mobility projects.
The problem is that companies that make plastic molds and stamping dies depend on new models to sustain their business.
Harbour said that in 2020, the Detroit Three will introduce only 13 new models, representing about $3.1 billion in tooling spending. And about half of those new launches will actually only be face-lifts of existing brands. Face-lifts involve fewer new components, so less spending on new molds and dies.
Some other trends aren't helping: Automakers are cutting the number of trim packages they offer, and designers are replacing plastic knobs with flat screens. Plus, automakers will continue to buy tooling outside North America, including from China.
This depressing news reminded me of a similar story we published in March 2009, at the onset of the Great Recession. Analyst Jeff Mengel, then at Plante & Moran PLLC, warned that 15 percent of North American plastics processors — around 1,000 companies — were facing liquidation over the next 18 months.
Times did get tough. But the companies that were paying attention to his advice prepared for the downturn, and many managed to survive. By 2011, Mengel reported that profits and capacity utilization were starting to inch up. Processors had learned to do more with less, resulting in a more efficient industry.
Like then, today there will be winners and losers. Laurie Harbour is urging managers to position their firms for the future. Leaders need to "put plans in place to shore up weaknesses, maximize technology and talent and control costs," she said. It's good advice and hopefully reaching a receptive audience.
Loepp is editor of Plastics News and author of the Plastics Blog. Follow him on Twitter @donloepp.
