2/1/2003 | 2 MINUTE READ

Figuring Out the Future: What to look For

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The automotive industry has always had difficulty dealing with uncertainty.


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The automotive industry has always had difficulty dealing with uncertainty. Given the long developmental cycles necessary to produce a vehicle and the continuous need to update and upgrade automotive technology, stability in the external environment has been viewed as almost a necessity. Starting in the mid 1990s, however (and some might argue much earlier than that), the external environment became much more volatile as the automotive industry was battered by a wide range of issues. From globalization, to regulatory issues, to the profit squeeze at all levels of the industry, making assumptions about key issues became increasingly difficult.

There is a concept we use in strategic planning that helps managers evaluate the difference between a problem and a dilemma. If something is a problem, managers focus much of their organizational energies to try and solve it. If it is a dilemma, the organization must learn to live with it because there is no solution. External uncertainty is clearly a dilemma, and learning to effectively cope with it will be a key success criteria for many automotive managers in the future.

Given this context, we believe the following issues should be continuously monitored for their impact on the automotive industry over the next few years:

Housing Prices

Vehicle sales over the last five years have benefited enormously from the increase in consumer cash flow from home refinancing.

With interest rates at historic lows and a housing bubble on both coasts, most refinancing has already taken place. This additional consumer cash flow is unlikely to help support automotive sales over the next few years.

Glut of Used Vehicles

One of the most reliable indicators for predicting future automo-tive sales is the comparison between new and used vehicle prices.

The wide availability of late-model (almost new) used vehicles is one of the major negative impacts of the zero-percent financing boom. It will clearly take several years to work this additional inventory through the system.

Raw Material Pricing

This has been one of the biggest issues in the automotive industry, particularly for many portions of the supply base. While the tariff-induced spike in steel prices has gotten most of the press, there has been an equally large run-up in plastic resin prices. The inability to accurately project raw material prices will be one of the most significant dilemmas for the automotive industry over the next few years.

The Continued Decline in Big Three Market Share

We continue to be extremely concerned about the ongoing decline in Big Three market share.

For years, almost all of this decline by the Big Three was concentrated in cars. Since 2000, however, there has been a significant erosion in the Big Three share of the highly profitable light-truck segment. Additional pressure from new domestic transplant capacity coming on stream over the next year (most of it focused on trucks) will continue to put pressure on Big Three profitability and will likely contribute to future program delays as the OEMs struggle to support all their investment needs.

In addition to these major issues, there are several others that automotive executives should also track:

  • Potential for a UAW strike in 2003
  • The continued growth of off shore manufacturing for both OEMs and suppliers (particularly from China)
  • The probable war with Iraq
  • Potential new regulatory issues.

The main message is that nothing is certain in this industry anymore, and successful automotive managers must learn to effectively adapt to this new, more volatile external environment.

Hand holding a crystal ball

We’d rather send you $15 than rely on our crystal ball…

It’s Capital Spending Survey season and the manufacturing industry is counting on you to participate! Odds are that you received our 5-minute Metalworking survey from Automotive Design and Production in your mail or email. Fill it out and we’ll email you $15 to exchange for your choice of gift card or charitable donation. Are you in the U.S. and not sure you received the survey? Contact us to access it.

Help us inform the industry and everybody benefits.