Reaching the Plateau

As electrification takes hold more broadly across the fleet, understanding the dynamics is critical.

Nobody said the good times were going to roll forever in North America. Those with any memory of the past understand that one has to be protected on the downside. Suppliers who withstood the volume implosion of 2009, and the subsequent restructuring of both fellow suppliers and OEM customers, have experienced an unprecedented period of growth. Since the well-publicized bankruptcies of Chrysler and GM seven years ago, North American production has more than doubled, more than a quarter of volume emanates from Mexico, and a couple of new OEM players have or will start production on this continent. Essentially, the volume increase has masked a number of shifts and emerging trends which in a no/slow growth environment expected into the next decade will challenge even the most prepared supplier.

While it is not time to ring the warning bells, enough has been written to underscore the challenges and risks facing the industry over the next 10 years. The path and impact of global emissions regulations, emerging trade and market access issues given the political dynamic, logistics shifts driven by a footprint changes, and the rise of autonomous vehicles are all top of mind. In a high growth market, one can more easily deal with these issues as the negative impact of a poor decision is blunted by the sheer market volume. As has been stated before, volume masks a number of sins. We will soon understand which industry participants are truly prepared for the future versus those who have coasted.

How have the volume and customer engagement dynamics changed? The much publicized decline in the popularity of sedans, high capacity utilization of pickup capacity and the shift toward CUVs is stressing the flexibility of the current production systems. IHS Markit continues to forecast a decline in the sedan volume–especially at the Detroit 3 as the OEMs shift greater resources to other body styles in a sub-$3 fuel environment. 

Customer mix is critical. In total, North American production at the Detroit Three (GM, Ford and FCA) are forecast to have peak volume this year with modest declines into the next decade. Capturing growth with rising tides of the Japanese, Korean and German OEMs will be key from a volume perspective. This year, the Asian 4 OEMs pass the Detroit 3 in terms of total volume and by early next decade, this Midwest-hubbed group will only account for 46 percent of total volume.

Mastering and adapting other trends is critical to success, as well. As electrification takes hold more broadly across the fleet, understanding the dynamics is critical. Start/Stop systems have proliferated across a majority of the fleet though adoption of mild and full hybrid systems will essentially wait until next decade. Despite this, the number of OEMs seeking partnerships in the construction of battery plants underscores the importance in having access to battery supply at competitive costs levels. This will be a differentiator for the future. Also, suppliers need to realize that the profit pools and relative importance of current systems will alter in an environment where more resources are devoted to electrified systems. 

Growth and profitability in a market of plateauing volumes and shifting system importance is a different recipe versus a market of rising volumes since 2009. Those that understand the lessons of the past will seize the future.  


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Michael Robinet has been a managing director of IHS Automotive since 2011. Prior to that, he was the director of Global Production Forecasts for IHS Automotive. His areas of expertise include global vehicle production and capacity forecasting. future product program intelligence, platform consolidation and globalization trends, trade flow/sourcing strategies, and OEM footprint/logistics trends. IHS merged with Markit in July 2016.