By: Benjamin Glick
At the top of 2016, forecasts anticipated a rise in U.S. auto sales to record levels of over 18 million vehicles. One year later, sales have corroborated this act of industrial clairvoyance.
According to a report by Business Insider, U.S. auto sales rose to 18.4 million cars and light trucks, and GM reported the seasonally adjusted annual rate (SAAR) of 18.2 million.
Long before exact figures were available, economists and auto industry experts had further predicted 2016 would be the last year of those record-breaking sales numbers.
Then in December 2016, MiBiz reported that the U.S. auto industry had reached its peak, and advised suppliers to prepare for a “plateau”.
This cautionary prediction has since been repeated by other sources.
According to many industry analysts, this plateau is more than a passing phase and is representative of a systemic trend that includes larger implications for economics, technology, and culture.
Automotive’s Age of Change has arrived, and to herald its arrival the 18th West Michigan Automotive Suppliers Symposium will take place on Thursday, March 9, 2017 in Grand Rapids, Michigan.
Addressing industry changes will be a line-up of seasoned industry professionals and experts from IHS Markit, Yanfeng Automotive Interiors, Plante Moran, Grand Rapids Control, Wolverine Coil Spring and more.
Automotive Industry Outlook: Mike Wall
Director of Automotive Analysis at IHS Markit, Mike Wall, will offer his in-depth analysis and current forecast of the automotive industry including the developing trends suppliers, manufacturers, and buyers should pay attention to.
Wall brings over 20 years of financial analysis, forecasting, consulting and manufacturing experience with a primary focus on assisting financial firms and suppliers in their evaluation and understanding of the auto industry.
Frequently quoted in the media on a variety of automotive topics, Wall has delivered presentations focusing on both macroeconomic and specific market outlooks to company executives and other interested groups, including the United Nations Industrial Development Organization in Vienna, Austria.
With the discussion focusing on sector developments over the next 1 – 3 years, a topic of major concern for those in the auto industry is that of the imminent slowdown.
Following Wall’s forecast presentation on March 9th, a panel discussion from local automotive industry key players will identify likely trends over the next few years including but not limited to, some of the following topics:
The Millennial Market
In addition to the fear of an economic downturn, a factor limiting the growth potential of the automotive industry is its emerging primary customer base: millennials.
For one, per capita sales ownership is declining. In 2000, there was one car for every 12 adults, and by 2015, there was one for every 14 – resulting in 17.3 million fewer cars on U.S. roads, in spite of a rapidly growing population.
This can be attributed to the growing use of public transit in large cities, but also signals a cultural shift in the way young Americans view automobiles.
When it comes to problems facing millennials, the current scenario can be traced back to one thing, or in this case one year: 2008.
Despite being on the heels of the 10th anniversary of the subprime mortgage collapse that preceded the Great Recession, the 2008 financial crisis not only hit millennials in their wallets, it also affected their psychology.
Michelle Krebs, senior analyst of AutoTrader, told the Chicago Tribune in December that millennials share neither the economic potential nor the cultural values of previous generations.
However, Krebs warned that generalizing to that degree is unhelpful.
“There’s a lot of diversity, both economically and ethnically. It’s really hard to treat them as a monolith,” Krebs said.
Taylor Smith, CEO and co-founder of Blueboard, a company that sells “experiential” travel packages told CNBC that millennials prioritize experiences over “stuff”.
“(Millennials) aren’t spending our money on cars, TVs and watches,” she said. “We’re renting scooters and touring Vietnam, rocking out at music festivals, or hiking Machu Picchu.”
That is certainly one impression, and one that continues to paint millennial consumers as an unreliable share of the automotive market, but as with most demographic evaluations, this assessment might be too broad to be useful.
In fact, reports over millennial spending habits, especially concerning automobiles, often conflict.
A clear delineation can be drawn between early and late 2016. Earlier reports seem to make premature assumptions that millennials will buy cars at the same or similar levels as previous generations, while later reports find that is not quite the case.
Although millennials are the largest generational group in the U.S., they account for only 30 percent of all new car sales.
While the recovering economy and dropping unemployment rate among millennials is helping to reverse the trend of lower car ownership figures, it is not happening as quickly as predicted.
Likely, the truth of this “messy” demographic lies in the foggy middle and discerning the impact of millennials’ automotive consumer choices will require time, insight, and preparation.
There is no doubt that any future analysis or forecast of the automotive industry will have to take into account one recently growing phenomenon: ride sharing.
Shifting consumption trends aided by new services such as ride sharing apps and car subscription companies are playing a role in this growth.
It is undeniable that not owning a car, especially in the growing metropolitan centers of the U.S., is a more feasible option than ever with services like Lyft and Uber.
Learning to market to and sell to ride-sharing companies is an avenue automotive producers may have to explore, however, it is also one that could pay dividends to the companies agile enough to adapt.
Readapting to Fit Global Demand
In 2014, Grand Rapids automotive parts supplier, Lacks Enterprises Inc., garnered attention for “identifying and influencing future industry trends” by developing new lightweighted wheel systems to keep up with the 2025 Corporate Average Fuel Economy (CAFE) standards.
By developing new products, Lacks was able to market itself globally, attracting the patronage of three original equipment manufacturers (OEMs) outside the U.S. and other buyers from around the world.
On average, second- and third-tier suppliers have made up 57 percent of the total attendees of past Automotive Symposiums, and additionally, are a significant proportion of industrial activity in West Michigan.
Although deals with large automobile manufacturers can yield second- and third-tier suppliers lucrative contracts, overreliance on them can cause its own set of problems. Companies, like Lacks, intrepid enough to pre-empt industry trends may break away from the pack to find a rewarding opportunity.
By shifting production models away from reliance on supplying a single manufacturer and reaching out to include foreign markets, companies can safeguard themselves and disperse risk from the volatility of a single economy.
If auto sales do decrease or at the least plateau over the next few years, finding automotive partners abroad and working to diversify products would ensure greater industry security at home.
However, any conversations about expanding operations to foreign markets have to acknowledge the uncertain and ever-changing state of global trade.
The Changing State of Global Trade
With a recently proposed 20 percent tariff for goods entering the U.S. from Mexico and other global trade adjustments in the works, finding suitable foreign partners and buyers is becoming increasingly uncertain, even for experienced multinational companies.
It is unlikely a tariff that stiff will be implemented, however even a slight increase would affect American industry abroad, especially in automotive markets.
In 2015, Michigan received $43 billion worth of merchandise from Mexico and exported $11 billion back to our southern neighbor – it should be no surprise that the automotive industry represented much of this activity.
The main driver behind the attraction of American companies to Mexico is the fractional cost of labor and its close proximity. But if the automotive industry begins to cool off, as many economists suspect it will, a renegotiated NAFTA or tariff percentage could have a compounding effect on sales in the U.S. as costs rise to make up for the tarnished advantage Mexico once supplied to manufacturers.
In addition to the potentially unfavorable effects to the automotive industry, any other sector that relies on trade with Mexico or other countries will be negatively impacted on this front.
However, companies should not be deterred from considering their global trade options.
With 95 percent of the world’s consumers residing outside the U.S., it is difficult to imagine even the most aggressive protectionist policies having a significant or lasting impact on the larger industry.
The bottom line is any additional costs resulting from the implementation of robust tariffs are not likely to be significant enough to make foreign investment insolvent.
While large companies may be able to insulate themselves from any rise in costs, how can small- and medium-sized enterprises continue to participate in global commerce without taking on significant additional risks associated with it? It may be prudent for those American companies to consider the assistance of a foreign-trade zone (FTZ) moving forward.
In 2015, vehicle parts accounted for 36 percent of FTZ activity in all of Michigan, representing about $180 million worth of exported merchandise with deferred, reduced or even eliminated customs duties.
West Michigan companies looking to get started in international trade or to improve their current practices should contact the Kent-Ottawa-Muskegon FTZ via the web at www.gvsu.edu/komftz, or by calling 616-331-6810.
Symposium Keynote Address: Yanfeng Automotive Interiors
In addition to the suppliers panel discussion, the 18th Automotive Suppliers Symposium will also welcome a keynote address from the Global Vice President of Product Management at Yanfeng Automotive Interiors, Bryan Nyeholt.
Yanfeng Automotive Interiors is a leading supplier of instrument panels, cockpit systems, door panels, floor and overhead consoles. The Shanghai-based company, with facilities in Holland, Michigan, has more than 90 manufacturing and technical centers in 17 countries and employs over 28,000 people globally.
Yanfeng Automotive Interiors is a joint venture between Yanfeng Automotive Trim Systems Co., Ltd, a subsidiary of Huayu Automotive Systems Co., Ltd. (HASCO), the component group of SAIC Motor Corporation Limited (SAIC Motor), and Johnson Controls, Milwaukee-based global multi-industrial company.
Keynote speaker, Bryan Nyeholt has previously worked at Prince Corporation with roles in Operations, Purchasing, Program Management, Finance and Sales and with Johnson Controls in Program Management and Global Innovation.
Nyeholt has a B.A. in Business from Calvin College and a Masters in Management from Aquinas College. Additionally, he received Executive Leadership Training from the Wharton School at the University of Pennsylvania.
The 18th West Michigan Automotive Suppliers Symposium: Automotive’s Age of Change: What’s Next? will be held March 9, from 7:30 a.m. – noon, in the Loosemore Auditorium on Grand Valley’s Pew Grand Rapids Campus.
For more details and to register, visit VAGTC.org.
About the Contributor
Benjamin Glick is a student assistant at the Van Andel Global Trade Center. He has written for the Grand Valley State University student newspaper, The Lanthorn, and is double-majoring in English literature and journalism.