retooling for growth in a dynamic...

Retooling For Growthin a Dynamic MarketAUTO VISION CONFERENCELexington, Kentucky

August 8, 2017

Mike JacksonExecutive Director, Strategy and ResearchOriginal Equipment Suppliers [email protected]+1-248-430-5954

mailto:[email protected]

2Retooling for Growth in a Dynamic Market

Championing the business interests of the automotiveOE supplier community:Founded in 1998, the Original Equipment Suppliers Association (OESA), serves as the voice of the automotive supplier and a valuable resource for member organizations. Throughout the supply chain and on legislative and regulatory issues, OESA represents the collective voice of suppliers.

Exclusively for automotive suppliers: Supplier membership is exclusive to original equipment automotive suppliers that directly provide components, tools, materials and services to the OE light vehicle industry.

Strength in numbers: Membership is comprised of approximately 375 Tier 1,2, and 3 automotive suppliers with North American OE sales that range from $10 million to $5+ billion. Affiliate members support the supplier community with thought leadership, industry analysis and other key information.

LED By supplier industry executives: OESA’s interests are guided by a board of directors consisting of CEOs from member companies of all sizes.

Staff that works for members: Members enjoy direct access to a staff of dedicated association employees in Detroit and Washington, D.C.

Retooling for Growth in a Dynamic Market

4

• Vehicle Sales Dynamics

• Production Outlook

• Supplier Implications

• Summary

AGENDA


5

• Real GDP – Consumer confidence and many sectors improving, but strong dollar hurting trade. Spending and investment drive 2017 gains from a year ago.

• Consumption – Real consumer spending keeping economy on a stable path -improving from gains in net worth and wages, helped by stable energy prices.

• Employment – Job creation slowing, but still strong; 81+ months of growth. Initial claims holding at 40+ year lows suggesting market tightening, lending to gains in consumer confidence, higher job hopping and added wage pressure.

• Foreign Trade – Strong dollar is hurting trade balances, a drag on the US economy through 2018 – or longer.

• Business investment – Weak in 2016 due to poor energy sector which is rebounding in 2017. Most forecasts expect a rebound in 2017, but lack of policy gains likely to stifle some strategic planning initiatives.

• Monetary Policy – FED expected to continue to raise interest rates, one more time in 2017 after a quarter point increase in June. Lower chance of delayed rate increases due to weak global conditions and weak US labor market wage growth. Key Question: Do rising wages support tightening?

• Fiscal Policy – Trump administration plans for large infrastructure spending, coupled with corporate and personal income tax rates -- could be significant contributors to stronger economic growth. Lack of progress has scaled back expectations – with more limited prospects. Risk of policy failure dragging down the outlook for 2018 and undermining record stock market levels.

2.22.5

-3

-2

-1

0

1

2

3

4

5

2004

2005

2006

2007

2008

2009

2010

2011

2012

2013

2014

2015

2016

2017

2018

Real GDP Growth (%)

US: Economic OutlookMeasured growth outlook intact but prospect for policy volatility remains

Source: Wells Fargo, Federal Reserve FOMC assumption


4

6

8

10

12

14

16

18

20

22

1996

1998

2000

2002

2004

2006

2008

2010

2012

2014

2016

Total Car Light Truck

6

“Keep AmericaRolling” “Employee Pricing

For All”

“Cash ForClunkers”

Monthly Sales (SAAR, millions)

Source: Wards, US Bureau of Economic Analysis

US: New Light Vehicle SalesPace has slowed since late 2015, but still on pace for a strong year


US Light Vehicle Inventory and Incentives

7

2.0

2.5

3.0

3.5

4.0

4.5

-50%

-25%

0%

25%

50%

Mill

ions

Y/Y (%) US InventorySource: Automotive News Data Center, Autodata

Vehicle Inventory (millions)

$2.0

$3.0

$4.0

-25%

-15%

-5%

5%

15%

25%

Thou

sand

s

Y/Y (%) US Incentive/Unit

Vehicle Incentive Spending (thousands)


US: Light Vehicle Sales OutlookForecasts vary among firms – impact of sales taper is key assumptionAnnual Sales (millions)

10

11

12

13

14

15

16

17

1819

68

1970

1972

1974

1976

1978

1980

1982

1984

1986

1988

1990

1992

1994

1996

1998

2000

2002

2004

2006

2008

2010

2012

2014

2016

2018

History PWC-Autofacts IHS-Markit LMC Automotive Wards Auto Intelligence

Trend: 1968-2008Rising 125K/year

8

Source: PWC-Autofacts, IHS Markit, LMC Automotive, Wards Auto Intelligence – June 2017


9

14%

16%

18%

20%

22%

24%

26%

2010 2011 2012 2013 2014 2015 2016 2017

Lease Share Fleet Share

Lease and Fleet Share of New LV Registrations

0.0

0.5

1.0

1.5

2.0

2.5

3.0

3.5

4.0

4.5

5.0

1996 2000 2004 2008 2012 2016

Lease Originations (millions)

Source: Cox Automotive, IHS Markit, Manheim Consulting

Lease and Fleet ShareRetail Slowing, Industry Reverting to Bad Habits? Current Strength Borrows from Tomorrow


10

90

95

100

105

110

115

120

125

130

1995

1997

1999

2001

2003

2005

2007

2009

2011

2013

2015

2017

Manheim Index (Jan 1995=100)

-15%

-10%

-5%

0%

5%

10%

15%

20%

25%

30%

35%

Industry Compactcars

Midsizecars

Luxurycars

Pickups SUV/CUV

Vans

1 my old2 my old3 my old4 my old

Change in Wholesale Auction Price (YTD, YOY)

Manheim Used Vehicle Value IndexIndustry Holds Positive Momentum, yet segments reflect dramatic divergence

Source: Manheim, monthly, Adjusted for mix, mileage and seasonality


11

Source: Automotive News Data Center

Fleet Sales Boom Can Leave Extended ImpactUnique OEM Strategies

Change in Fleet Sales (Year over Year)

30%

28%17%

8%

8%8%

27%

22%

20%

11%

11%

8%

Top Fleet Shares

2013

20142015

2016

2016 - 2.8M2015 - 2.6M 2014 - 2.5M2013 - 2.4M

+400K +17%

GO

VE

RN

ME

NT

CO

MM

ER

ICA

L

DA

ILY

RE

NTA

L

-15%

-5%

5%

15%

25%

35%

Ford GM FCA Nissan Hyundai-Kia

Toyota Honda

2016 vs '15

2015 vs '14


US Light Vehicle Sales Outlook By Type

12

02468

101214161820

2005 2010 2015 2020

Mill

ions

CarUtilityTruck

-5%(865K)

No Change(6K)

+16%1,180K

-30%(2,039K)

2016 - ∆ 2024

Source: Wards Auto Intelligence

17.516.6


13

State of the Automotive Industry – Healthy?High Demand Levels yet Quality of Volume is Mixed

Source: JDP PIN

FICO Sub-650 Mix

15.1%-1.9ppts

84mo + Loan Mix

5.5%+0.3ppts

Incentive % of MSRP

10.4%+1.0ppts

Lease Maturities

1,077k+16%

Transaction Price

$31,383+1.3%

Days to Turn

69+4 days

Lease Mix

30.6%-1.0ppts

FleetMix

21.1%-1.1ppts

Total Light Vehicle Volume -2.1%, Retail Sales Volume -1.1%YTD17 Vs. YTD16 – Indicators showing potential risk ahead!


14




• Summary

AGENDA


OESA Automotive Supplier Barometer- July 2017

20

30

40

50

60

70

80

Jan-

2008

Jan-

2009

Jan-

2010

Jan-

2011

Jan-

2012

Jan-

2013

Jan-

2014

Jan-

2015

Jan-

2016

Jan-

2017

15

Supplier Barometer Index: (SBI 6m Average)

Describe the general twelve month outlook for your business. Over the past three months, has your opinion become…?

OESA Supplier Barometer Index: SBI Score = 40Inventories, production volumes and the political environment drive sentiment down

Euro Crisis Begins

Japan Tsunami/

Grexit Crisis

US Fiscal Cliff

Lehman Collapse

400%

20%

40%

60%

Sig

nific

antly

mor

eop

timis

tic

Som

ewha

t mor

eop

timis

tic

Unc

hang

ed

Som

ewha

t mor

epe

ssim

istic

Sig

nific

antly

mor

epe

ssim

istic

Q2 2017 Q3 2017

Current Supplier Outlook (Share of Respondents)

Source: OESA Supplier Barometer 3Q 2017



0% 20% 40% 60% 80% 100%

Changes in government trade policy

Poor sales of vehicles in programs supplied

Weakness in the U.S. Economy

Implementation of new government regulations

Likelihood of higher interst rates

Terrorism or some type of international event

Inability to address internal labor constraints

Inability to fulfill customer volumes

1=Greatest threat 2 3 4 5 6 7 8 9 10=Smallest threat

16

Rate the possible threats being considered in your current outlook over the next 12-18 months,AverageRating

3.9

3.9

4.5

5.4

5.5

6.2

6.7

7.7

OESA Supplier Barometer: Threats to the 2017-2018 Outlook

Source: OESA Supplier Barometer 3Q 2017


17

(in millions)

20172018

Forecast2019

Forecast1Q Actual

2QForecast

3Q Forecast

4Q Forecast

2017Forecast

4.47 4.49↓0.06

4.21↓0.06

4.30↓0.12

17.47↓0.29

17.97↓0.22

18.65↓0.27

4.53 4.53↓0.08

4.20↑0.02

4.29↑0.06

17.56Δ0

17.72↓0.19

17.90↓0.27

4.56 4.54↓0.18

4.24↓0.04

4.44↓0.01

17.78↓0.21

17.88↓0.46

18.02↓0.42

Forecast Average 4.52 4.52 4.22 4.34 17.60 17.86 18.19

Forecast Spread 0.05 0.04 0.15 0.31 0.25 0.75

2016 Average 4.47 4.61 4.39 4.34 17.81

Source: OESA Forecast Snapshot – June 2017


NORTH AMERICA2017-2019 Production Forecast Comparison(VOLUMES REPRESENT NA CAR, LT TRUCK CLASS 1-5)


0

5

10

15

20

25

1995

1996

1997

1998

1999

2000

2001

2002

2003

2004

2005

2006

2007

2008

2009

2010

2011

2012

2013

2014

2015

2016

2017

2018

Sales Production Breakeven

Millions of Light Vehicles

Sources: IHS Automotive forecast (January 2017) and January 2017 OESA Automotive Supplier Barometer

Median 2017 Breakeven = 14.5 Million Units

14.3 Million Units = January 201613.5 Million Units = January 201512.7 Million Units = January 201412.0 Million Units = January 201311.0 Million Units = January 201210.5 Million Units = January 201110.0 Million Units = January 2010

9.5 Million Units = January 2009

Production Planning: Breakeven and Year-End EstimatesSuppliers “OK” if mild downturn occurs over the near-term: Breakeven well below forecasts

Considering North America light duty vehicle production, estimate the required 2017 industry volume needed to achieve breakeven in your North American operations?

Estimate 2017 Year-End NA Production Volume

Median = 17.2 Million Units

(Range: 16-25 million units)

18Retooling for Growth in a Dynamic Market

North America – Industry Production Cycles

19

0

2

4

6

8

10

12

14

16

18

20

1970 1975 1980 1985 1990 1995 2000 2005 2010 2015 2020

Mill

ions

NA ProductionRecessionLinear (NA Production)

-26%-3.8M

-42%-6.4M

-19%-2.6M

-10%-1.7M

-48%-7.8M

Source: Wards Auto Intelligence

Stress testing

-10%?

-20%?

-30%?

?-2.2%-385K


North American ProductionDemand Drives Divergent Growth

20

6.54.0

6.9 6.0

5.1

2.7

7.2 8.5

4.1

1.8

3.8 3.5

0

3

6

9

12

15

18

21

2004 2006 2008 2010 2012 2014 2016 2018 2020 2022 2024

Mill

ions

Car Utilities Truck

-271K-7%

+1.3M+19%

-878K-13%

Source: IHS Markit


3.2

2.8

0.4

0.8

-0.5

0.5

1.5

2.5

3.5

Car Utility Truck

Vehicle Production Categories – Winners & Losers

21

3.2

2.00.7

-0.5

0.5

1.5

2.5

3.5

Car Utility Truck

0.4

2.7

3.1

-0.5

0.5

1.5

2.5

3.5

Car Utility Truck

Small Midsize Fullsize

+528K +371K -719K

Source: IHS Markit

2016 ∆ 2024


22




• Summary

AGENDA


Future Launch Activity

23

19 1925

16

34

19 20 2410

1712 14

8 9

25

33

29

1316

20

0

10

20

30

40

50VehiclesCarsTrucks

Source: IHS Markit, Kelly Blue Book

Average Transaction PriceBy Segment ($) – June 2017

0 10 20 30 40

B-Segment

C-Segment

D-Segment

Thousands

UtilityCar

+46%

+39%

+51%


Priorities & Positioning for Profitability

24

$17,250 profit/unit.24 Million units sold - 2016

$4.1 Billion

~$10,000 profit/unit2.28 Million units sold - 2016

$22.8 Billion


MARGIN MARKETCOMPETENCY SCALE

Production Portfolio Comparison - 2016

25

OEM Units Car SUV TruckGeneral Motors 3,647 32% 34% 34%

Ford 3,068 25% 36% 39%FCA 2,516 13% 61% 27%

Toyota 2,125 47% 36% 17%Honda 1,957 47% 51% 2%

Renault-Nissan 1,846 56% 28% 16%Hyundai 859 66% 34% 0%

BMW 411 0% 100% 0%Daimler 354 20% 69% 11%

Volkswagen 517 98% 2% 0%

Other 524 95% 5% 0%Unit volume - 6,866 7,130 3,829 NA average 17,825 39% 40% 21%

$

Source: IHS Markit


Mexican Production Profile

26

15%

18%

21%

24%

27%

30%

0.0

0.5

1.0

1.5

2.0

2.5

2014 2016 2018 2020 2022 2024

Mill

ions

NA Share Car Utility Truck

0.4 0.8 0.9

1.51.7 1.9

1.3

1.81.8

0.1

0.20.2

0.00.51.01.52.02.53.03.54.04.55.0

2016 2018 2020 2022 2024

Mill

ions

Other A4 US3 G3Source: LMC Automotive


Passenger Cars: Under PressureSteady March To Reduce US3 Car Portfolios and Utilize Global Sourcing

27

Fiesta

Dart Focus

200

Sonic

Taurus

Verano

LaCrosse? Impala? CT6?

Volt? Cruze?

Segment

A/B

C

D

E


Global Propulsion Design Islands in 2025


Source: IHS Markit – VPaC – March 2017

Top Automotive States

29

Top 20 - Supplier Employment (000s) US Vehicle Output - 2016 (Millions)

5%6%

49%8%

32%

Regional Share %

Source: 2017 MEMA Economic Study – 2015CY ; Share of total direct employment Source: LMC Automotive, OESA Analysis 0 1 2

CaliforniaKansasGeorgia

South CarolinaMississippi

TexasIllinois

MissouriTennessee

AlabamaKentucky

IndianaOhio

Michigan

5%1%

Midwest, 56%

S-East, 38%

Regional Share %


CAR TRUCK

0 50 100Virginia

IowaMissouri

WisconsinNew York

GeorgiaPennsylvania

CaliforniaTexas

South CarolinaNorth Carolina

IllinoisAlabama

KentuckyTennessee

IndianaOhio

Michigan

• ENGINEERS• TECHNICIANS• HOURLY SKILLED

30

OESA Supplier Barometer Survey: HR & Talent Focus

SKILLS + CULTURE GAP

63%MODERATE TO WIDE

NEW VALUES

TIME

FLEXIBILITY

TALENT SCARCITY

CHANGE ROLESTO FIT SKILLS


CROSS FUNCTIONAL

TRAINING

APPRENTICESHIPS

NEW HIRING PRACTICES

ACTION PLANS:∆ SKILL SETS

• SPECIALIZED• AUTONOMOUS• COLLABORATIVE

31




• Summary

AGENDA


Summary

32

• Market: US demand slowing, divergent performance

• Strategy: Cycle requires dramatic reboot, ‘engaged’ planning

• Offense: SUV growth/Truck peak—bring opportunities and risks

• Defense: Growing scope of passenger car dislocation, turbulence

• Flexibility: Liquidity is key; vital to balance ‘Core’ vs Emerging

• Stretch: Build on strong foundation, adapt to grow – reach higher


Thank You...AUTO VISION CONFERENCE

August 8, 2017

FOR QUESTIONS OR ASSISTANCE, PLEASE FEEL FREE CONTACT ME:

Mike JacksonExecutive Director, Strategy and ResearchOriginal Equipment Suppliers [email protected]+1-248-430-5954

mailto:[email protected]

retooling for growth in a dynamic...

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