OESA AUTOMOTIVE SUPPLIER BAROMETER
FOCUS ON FINANCIAL OUTLOOK
JULY 24, 2016
Prepared by:
Charles Chesbrough
Executive Director: Research, Strategy and Senior Economist
Kathy Reiss
Director: Research and Industry Analysis
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1
OESA Supplier Barometer: July’s Key Findings
•
Less Optimism: Supplier Barometer fell to its lowest level in 4 years as uncertainty around recent Brexit vote and slowing US economy
impacted suppliers’ outlook. Decline was led by smaller suppliers: companies with revenues <$500m have at least 30% of respondents
more pessimistic since Q2 while larger suppliers were less pessimistic or unchanged since Q2.
•
Bark Over Bite: Brexit vote is having a negative impact on suppliers’ outlook: 27% of respondents are at least moderately concerned about
the potential impact on the industry, however only 6% are at least moderately concerned about the impact on their own company. This
suggests the impact of Brexit is likely minimal as suppliers are being influenced by the hype around the issue, but there is little significant
implications expected.
•
More Nimble: The supply base is in better shape for the next downturn with 76% of respondents stating their company is at least
“somewhat more prepared” to make the adjustments necessary for the next downturn including 36% stating their company is “much more
prepared”.
•
Main Priorities: Purchasing capital and hiring direct labor are the key priorities for suppliers in meeting their 2017 volume targets over
strategies focused on JVs, expansion or acquisitions.
•
More Money - More Costs: Over 80% of suppliers are expecting higher revenues in 2017 and nearly 80% expect more spending on talent
and training. However, most also expect higher costs for utilities, transportation, and over 20% expect material costs to rise faster than
inflation.
•
Acquisition Strategy: Nearly 60% of suppliers expect to conduct some acquisitions over the next year with the main priorities to target
companies that provide access to new technologies and customers in new markets; less interest in diversifying outside of light vehicles or the
automotive industry.
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2
OESA Supplier Barometer: July Survey Composition Overview
Powertrain/Interiors/Chassis supplier comprise almost 70% of the survey respondents
Materials
2
2%
Services
3
4%
Electronics/
Electrical
9
11%
Tooling
5
6%
Interior/HVAC
19
23%
Powertrain
22
26%
Exterior
6
7%
Chassis
18
21%
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July Survey Overview:
•
Barometer survey data was collected
between June 29 – July 11 via email
invitation to executive OESA members
•
91 respondents completed the survey
•
Powertrain suppliers comprise 26% of the
respondents followed by Interior/HVAC
suppliers (23%) and Chassis (21%)
•
Focus of the survey was to cover issues
related to finance. The Brexit issue was
front page news during the data collection
period and uncertainty about its impact
likely impacted responses.
3
OESA Supplier Barometer: July Results
SBI score falls to 48 – lowest level in four years; Long-term outlook trending lower
Describe the general twelve month outlook for your business.
Over the past two months, has your opinion become…?
Current Supplier Outlook (Share of Respondents)
Supplier Barometer Index (SBI): Long-Term
80
60%
Jul-16
Apr-16
70
40%
60
50
20%
48
40
Euro
Crisis
Begins
Post
Lehman
Collapse
30
Japan
Tsunami/
Grexit Crisis
US
Fiscal
Cliff
SBI
Neutral
Apr-2016
May-2015
Jul-2014
Sep-2013
Nov-2012
Jan-2012
Mar-2011
May-2010
Jul-2009
Sep-2008
Nov-2007
Feb-2007
20
Sep-2006
Significantly more
pessimistic
Somewhat more
pessimistic
Unchanged
Somewhat more
optimistic
Significantly more
optimistic
0%
6m Avg
Source: OESA Supplier Barometer, July 2016
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4
OESA Supplier Barometer: July Results By Revenue Size
Smallest suppliers’ pessimism grew the most while largest had little change
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July
Apr
65%
$501 million –
$1 billion
Somewhat more pessimistic
Somewhat more optimistic
14%
9%
9%
11%
36%
62%
55%
22%
33%
11%
6%6%
$151-$500
million
Significantly more pessimistic
Unchanged
Significantly more optimistic
Apr
67%
39%
56%
47%
$50-$150
million
July
24%
Apr
17%
33%
20%
30%
35%
32%
<$50
million
27%
0%
7%
10%
25%
20%
7% 13%
30%
21%
40%
47%
60%
10%
70%
50%
July
July Apr
32%
80%
27%
90%
16%
7%
July Apr
100%
26%
Describe the general twelve month outlook for your business.
Over the past two months, has your opinion become…?
>$1
billion
More Optimistic:
• Volumes have increases as well as quote activity
• New opportunities with light-weighting
• New programs that fit our product line
• Our forecasts are aligning better with industry results
• There has been a softening on standards that have opened
the door on new opportunities
No Change:
• Brexit anxiety offset by Mexico growth
• North America remains solid
• Supply base having difficulty meeting demand
More Pessimistic:
• Seems to be peaking – short term volumes are flat
• OEs and Tier 1s reverting back to “price only, cost downs 2nd”
culture
• OEs becoming more cautious about spending/investments
• Economy appears to be slowing – automotive schedules have
leveled and some are dropping
• Car segment down – more concerned about impact of rising
interest rates on consumers
• Military orders down
Source: OESA Supplier Barometer, July 2016
5
OESA Supplier Barometer: BREXIT Impact
Respondents have concerns about the impact on the industry, less so for their own company
How concerned are you about the possible impact of the BREXIT
approval on the automotive industry, and on your company?
Industry
Company
Very Concerned
3
3%
Not
Concerned
28
31%
Moderately
Concerned
22
24%
Somewhat
Concerned
38
42%
Moderately Concerned
5
6%
Not Concerned
45
50%
Concerned
• Low Euro and Pound exchange rates
will make sales into region harder
•
Lower car sales in UK, and likely EU,
recession more likely
•
Hurts consumer confidence,
increases uncertainty
Not Concerned
• NA business not tied to UK autos
Somewhat
Concerned
39
44%
•
Impact on EU/UK – US offset by
Mexico opportunities
•
Our business is diversified in
regions/customers
Source: OESA Supplier Barometer, July 2016
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6
OESA Supplier Barometer: Downturn Preparation
Over 78% of respondents state their business is better prepared for the next downturn
Considering the last industry downturn and the steps
taken in response, how prepared is your organization to
adjust should another downturn occur in the future?
Equally prepared
18
21%
Somewhat less
prepared
1
1%
Much more
prepared
30
36%
Somewhat more
prepared
35
42%
Comments:
•
Our business is more diversified, no so
reliant on a single industry
•
Experience has taught us we can go
much deeper (cost cutting) than originally
thought
•
We were well prepared last time and
continue to keep contingency plans in
place
•
We set goals of no debt and diversify
outside of automotive business
•
Breakeven plan is 12.5mm/year – we can
survive at 10mm/year if necessary.
Source: OESA Supplier Barometer, July 2016
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7
Financial Outlook: Action Priorities
Capital and Labor are the key focus for suppliers; JVs/Acquisitions lower priority for near-term
Rate the following actions your company is budgeting for in
North America to meeting expected 2017 volume targets:
Purchase capital equipment
3.7
Hire direct hourly employees
3.9
Hire direct salaried employees
4.0
Expand current facility footprint
4.9
Hire temporary/contract employees
5.5
Partner with companies (JVs, licensing, outsource)
5.7
Open additional facilities
5.7
Acquire companies
5.8
Other
6.9
20%
40%
60%
Almost half of respondents state
Purchasing Capital Equipment
and Labor hiring as key to
meeting 2017 targets.
•
Partnerships, JVs, Acquisitions
all a lower priority for suppliers in
meeting near-term volumes.
•
Expansion not a key strategy as
over 25% of suppliers rate it
lowest priority.
•
Other defined: investment in
robotics/automation is a priority,
along with entering new market
segments and targeting
Aftermarket products.
Average
Rating
Percent of Respondents
0%
•
80%
100%
Highest Priority = 1
Rating = 2
Rating = 3
Rating = 4
Neutral = 5
Rating = 6
Rating = 7
Rating = 8
Lowest Priority = 9
Source: OESA Supplier Barometer, July 2016
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8
Financial Outlook: Revenue and Spending Growth
Majority of suppliers expect more revenue in 2017, and more spending on Talent and Training
For North American operations, what is your budgeted percentage change
in US$ for next year compared to this year for the following areas?
•
Over 80% of suppliers are expecting
revenues to be higher in 2017 than the
previous year with 6-10% increase the most
frequent response (40% of respondents).
•
Close to 20% of respondents expect earnings
to be up 10% or more next year
•
Almost half of suppliers expect no change or
a decline in budgets for IT and Advance
Research.
•
Talent and Training spending is expected to
rise – close to 80% of respondents expect
some increase; 40% of respondents expect
budget to increase at least 6%.
•
SG&A (ie: administrative costs) most likely to
see decline in spending – over 15% expect
budget to decline by at least 1%
Percent of Respondents
Talent and Training
SG&A
IT
Adv Research
Plant & Equipment
EBIT
Revenue
0%
20%
>20% Increase
1-5% Increase
6-10% Decrease
40%
60%
11-20% Increase
No Change
11-20% Decrease
80%
100%
6-10% Increase
1-5% Decrease
>20% Decrease
Source: OESA Supplier Barometer, July 2016
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Financial Outlook: Production Costs
Suppliers expecting increases from utilities and product development costs
Assuming constant production volumes, what is
the budgeted cost percentage change for 2017?
•
Utility costs budgeted to increase for close
to 60% of respondents with 20% expecting
at least a 3% increase over the next year.
•
Customer product development costs
expected to have the broadest impact
across the supply base in driving inflation –
over 30% of respondents expect to rise at
least 3%.
•
Material prices for metals not expected to
rise for almost 60% of respondents, but
10% of suppliers are expecting costs to
rise by more than 5%.
•
After Utilities, Transportation/Logistics
costs expected to rise for most suppliers,
albeit minimally – almost 50% are
budgeting for at least a 1% increase.
Percent of Respondents
Utilities
Customer specific product development
Transportation/Logistics
Purchased components
Tooling
Direct material inflation-Metallics
Direct material inflation-Resins
0%
20%
40%
60%
80%
100%
>5% Increase
3-4% Increase
1-2% Increase
No Change
1-2% Decrease
3-4% Decrease
>5% Decrease
Not applicable
Source: OESA Supplier Barometer, July 2016
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10
Financial Outlook: Revenue Sources
Importance of D3 in North America growing since last year; Asian OEMs’ role expected to increase
What is your company’s share of revenue from
each region over the next fiscal year?
What is your company’s current and future
sales mix?
From 2015 Survey
July 2016 vs July 2010
100%
90%
Median
Range
North America
88%
80%
South America
1%
3%
Europe
6%
14%
0-70%
Asia
4%
8%
0-70%
Africa/Middle East
0%
0%
0-20%
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5-100%
80%
2015/2016
Avg Mix
2020/2021
Avg Mix
12%
14%
25%
21%
17%
17%
10%
14%
Compared to 2010, North
America’s importance to
revenue is increasing –
taking share from Europe
and Asia.
10%
11%
24%
21%
•
D3 customers also
gaining importance since last year’s survey
share up from 36% to
40% but longer-term role
expected to decline
modestly.
16%
18%
11%
12%
•
Expectations of
diversifying outside of
automotive declining –
10% of revenue non-auto
related is down from last
year’s 12%
70%
60%
0-16%
•
From 2016 Survey
2016/2017
2021/2022
Avg Mix
Avg Mix
50%
40%
30%
20%
36%
35%
40%
38%
10%
0%
Detroit Three OEM
Asian-Parented OEM
Non-Automotive Related
EU-Parented OEM
Automotive Supplier
Source: OESA Supplier Barometer, July 2016
11
Financial Outlook: Days Sales Outstanding
Mixed signals: Median DSO is 50, up from 48 in 2015 while fewer respondents state DSO has risen
Over last 12 months, for US customers representing the top 80% of
revenue, what is the average Days Sales Outstanding (DSO)?
2016
•
A lower DSO suggests it takes a supplier less time
to collect from accounts receivables while a higher
DSO suggests suppliers are selling more on credit
and taking longer to collect.
•
Mixed signals from the survey as the median
number of Days Sales Outstanding has risen since
last years implying collecting accounts receivables
getting more difficult – median DSO now at 50, up
from 48 in 2015.
•
However, the self-stated DSO higher or lower than
last year has actually fallen: Only 14 (23%)
respondents state DSO is higher while 44 (19%)
state it is unchanged.
•
Compared to 2015’s survey, 27% stated DSO was
increasing and only 63% stated it was unchanged.
2015
Upper
Quartile
Value
Median
Value
Lower
Quartile
Value
Upper
Quartile
Value
Median
Value
Lower
Quartile
Value
60
50
45
57
48
45
On average, over the past 12 months, has this DSO number increased,
stayed the same or decreased? (number of responses)
2016
2015
Increased
Stayed
Same
Decreased
Increased
Stayed
Same
Decreased
14
44
3
19
44
7
Source: OESA Supplier Barometer, July 2016
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12
Financial Outlook: Days Payable Outstanding
Median DPO has risen since last year – median now at 48 days, up from 45 in 2015
For your US suppliers representing the top 80% of your purchased
material, what is the average Days Payable Outstanding (DPO)?
2016
2015
Upper
Quartile
Value
Median
Value
Lower
Quartile
Value
Upper
Quartile
Value
Median
Value
Lower
Quartile
Value
60
48
43
60
45
37
On average, over the past 12 months, has this DPO number increased,
stayed the same or decreased? (number of responses)
2016
•
Days Payable Outstanding measures the amount of
time it takes respondents to pay their own suppliers
•
July’s survey suggests more mixed signals: median
DPO has risen to 48 days from last year’s survey
result of 45, and the lower quartile has risen to 43
days from 37.
•
However, only 9 (14%) of respondents states DPO is
higher than last year, and 52 (81%) state it is
unchanged
•
Compared to 2015’s survey, 18% states DPO was
higher than the year prior and 79% said it was
unchanged.
2015
Increased
Stayed
Same
Decreased
Increased
Stayed
Same
Decreased
9
52
3
13
58
2
Source: OESA Supplier Barometer, July 2016
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13
Financial Outlook: Acquisitions and Divestitures
Acquisitions are “highly likely” for more large suppliers; Divesting is not likely across all suppliers
Over next 12 months, what is the likelihood your
company will make Acquisitions / Divestitures?
Acquisitions
Percent of Respondents
•
A majority of suppliers state there is at least a
moderate likelihood of making an acquisition
over the next year.
•
Large companies have the most respondents
stating “highly likely” for acquisitions – over
30%; Only 15% of smaller suppliers have a
high likelihood of acquisition.
•
Very few respondents expect their company
to divest over the next year – less than 20%
of respondents state there is “any” likelihood
and less than 10% state it is “highly likely’.
•
Largest suppliers have greater likelihood of
any divestitures, but still less than a quarter
of respondents consider it even moderately
likely.
All Suppliers
More than $500 million
$151-$500 million
$150 million or less
0%
20%
40%
High Likelihood
Divestitures
60%
80%
Moderate Likelihood
100%
Unlikely
Percent of Respondents
All Suppliers
More than $500 million
$151-$500 million
$150 million or less
0%
20%
40%
60%
80%
100%
Source: OESA Supplier Barometer, July 2016
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14
Financial Outlook: Acquisition Strategy
Accessing new technologies and new markets are top priorities
Rate the following strategies in
terms of priority for acquisitions:
Average
Rating
Percent of Respondents
•
Acquiring new technologies
and expansion into new
markets are among the
highest priority targets.
•
Diversifying outside of
transportation or light
vehicles the least popular
target of likely acquisitions.
•
Growing market share with
existing customers was the
highest priority for the
greatest number of suppliers.
4.2
Accessing new customers - expansion into new markets
4.3
Accelerating access to new technologies
4.3
Building market share
4.7
Following an existing customer into new geographic markets
5.4
Vertically integrating your supply chain or product offering
5.5
Diversifying into markets outside of light vehicles
5.7
Diversifying into markets outside of all transportation
0%
20%
Highest Priority = 1
Rating = 4
Rating = 7
40%
60%
Rating = 2
Neutral = 5
Rating = 8
80%
100%
Rating = 3
Rating = 6
Lowest Priority = 9
Source: OESA Supplier Barometer, July 2016
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15
Financial Outlook: Risk Assessment Matrix
Skilled labor supply remains key – greatest impact on the business and hardest to address
Considering the next 10-15 years, rate the Risk in terms of
its impact on your business, and the difficulty in mitigating:
Rating scale for both impact and mitigation is 1-9,
with 9 being very high impact and very difficult to mitigate
7.0
•
Respondents view labor supply as the
most critical issue – greatest impact
and most difficult to mitigate.
•
OE purchasing complexity and
tougher emission regulations also
have high impact on the suppliers’
business and is difficult to address.
•
Cybersecurity and Car Sharing are
thought to be higher risk than other
new technologies – connectivity and
autonomous vehicles are rated well
below other factors in terms of their
potential impact on the supplier
business.
6.5
Limited supply of skilled labor
Difficulty in mitigating
6.0
Strengthening of emission regulations
5.5
Customer complexity
Electrification of powertrains
Growth in car sharing
Affordability of cars/light trucks
5.0
Emergence of autonomous vehicles
Managing cybersecurity
Quality management
4.5
Emergence of connectivity
4.0
3.5
3.0
3.0
3.5
4.0
4.5
5.0
Impact to your business
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5.5
6.0
6.5
7.0
Source: OESA Supplier Barometer, July 2016
16
Thank you for your participation
The OESA Automotive Supplier Barometer is a survey of the top executives of OESA regular member
companies. The OESA Automotive Supplier Barometer takes the pulse of the suppliers' twelve month
business sentiment. In addition, it provides a snapshot of the industry commercial issues, business
environment and business strategies that influence the supplier industry.
For questions and comments:
Charles Chesbrough
Executive Director,
Strategy, Research and Senior Economist
248.430.5954
[email protected]
Original Equipment Suppliers Association
25925 Telegraph Road
Suite 350
Southfield, MI 48033
www.oesa.org
Please note: The information and opinions contained in this report are for general information purposes. Comments are edited only for spelling and
may contain grammatical errors due to their verbatim nature. Responses to this survey are confidential. Therefore, only aggregated results will be
reported and individual responses will not be released or shared.
Antitrust Statement: This survey content is exclusively about historical data, and respondents/participants should not contact each other to discuss
responses, or to discuss the issues dealt with in the survey. It is an absolute imperative to consult legal counsel about any contacts with
competitors. All pricing decisions and negotiating strategies should be handled on an individual company basis.
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17