By Dawn Baetsen
A dynamic global environment paves the road for prosperity in the automotive industry. There are vast opportunities for growth but also risks for automakers and suppliers. As the global economy improves, personal wealth grows and unemployment declines, the global demand for cars is on the rise. Millions of new consumers are everywhere having a profound impact on where automobile sales are, the kind of vehicles produced, and where to produce them. Consumers want to drive cars unique to their individual tastes and needs and the impact on the realigned automotive landscape is felt worldwide.Demographics and new wealth are changing the automotive industry’s road to sustainability. According to a 2014 survey of CEOs by PwC other factors transforming manufacturing will be tremendous technological advances, shifts in global economic power, resource scarcity, climate change and urbanization. The industry is in pursuit of perfection at many levels. While the recession forced automakers to reorganize for a sustainable balance of profits at lower levels of production and sales, expanding global markets and fierce competition challenge the industry to meet unique consumer demands and a myriad of country by country regulations. Manufacturing must be efficient, flexible, interchangeable and digital while also having a highly responsive global supply chain.Last year marked the fourth year over year growth for the auto industry. Regional economic conditions and new demographics directly correlate to production gains with world economic growth hovering around 3%. Over 87 million vehicles were produced worldwide during 2013, representing a 3.6% increase in production from 2012. China, with over one billion in population and a growing middle class, led the way in automotive production at a 14.8% increased pace with sales nearly mirroring production growth. North American vehicle production exceeded the world production growth rate with sales reaching roughly 15.4 million vehicles produced, a 4.3% increase over 2012. North American production and sales was spurred by improving economies, growth in consumer spending, and average vehicle age of 11 years. As Europe struggled to speed up the economy automotive production was relatively stable with no overall increase in production. Production results were mixed in other countries. South America for example grew production by 8.6%. Brazil, finished strong with nearly 10% growth as its economy continues to grow. India, although expected to be a growth market in the long term experienced a troubling decline in demand and commensurate production decline. Japan saw a decline and Russia produced fewer vehicles as overall sales growth also slowed.We continued to hear of pending plant closures by OEMs enough to have a significant impact in countries like Australia where GM Holden, Ford, and Toyota are closing plants. This in turn is predicted to affect Australia’s supply chain and imminent contraction. Consequently, automakers must be vigilant managing risk decisions; how to expand, where to expand, and with whom to partner while also keeping ahead in the race.OutlookAs the world economy shows improvements, the global automotive industry is expected to cruise with healthy but slower growth. All roads lead to a levelling out period for the automotive industry. China again will make strong contributions with predicted growth in sales and production around 9% in 2014 according to IHS Automotive. Analysts predict the U.S. auto industry's new- vehicle sales in 2014 will keep pace and reach their highest level since 2006 to up to 16.8 million vehicles un-adjusted for weather impacted sales for the first months of 2014. Pent-up demand will not be the only growth driver in the U.S.; new buyers are also on the horizon as the millennial generation’s purchasing power charges up. Overall, the mature North American market will realize an ease in production growth as demand for new vehicles from new buyers grows in the United States. Mexico is the hot production region this year on the brink of significant production growth as automakers like Honda, Nissan, Mazda and Volkswagen begin producing from new plants. A recovering Europe finally saw growth the last quarter of 2013 although most of 2013 remained relatively flat. Europe is expected to realize between 2% and 3% positive sales growth given the stabilized economy continues throughout 2014. Spain and Germany, countries with improved unemployment gains, are expected to lead the way. Pent- up demand will help to fuel Europe’s growth in 2014. The BRIC countries continue to be watched as the emerging growth markets. New markets added to the watch list are Indonesia and Thailand as the economies improve in those heavily populated regions.Improved economies, expanding populations, new products and the right demographics will contribute to sustained growth the next few years. Recently surveyed automotive executives believe emerging markets and the new urban middle class will be the growth engine. Therefore, it is imperative for automakers to understand the new demographics and the types of vehicles new consumers want. Production locations hinge on emerging markets and the ability to produce close to those emerging markets. Globalization is critical in order to compete for both OEMs and suppliers alike.The automobile and its various components are the most technologically advanced products available to the general public. A vehicle tracks and informs its maintenance needs, safety, energy and resource use, and can even fix issues. Passengers can communicate directly with family, friends and work and can keep up with news, find their way, and be entertained on demand. Nowhere can a consumer find multiple technological applications in one product than their vehicle and we want more. So, for the industry, the need to innovate is ever increasing while production efficiencies and regulation hang in the balance as automakers expand globally.Fierce global competition drives the automotive industry to be a leader in technological development and applications. Automakers and suppliers use technology to differentiate themselves. The Center for Automotive Research (“CAR”) reports $100 billion is spent on Research & Development (“R&D”) globally in the automotive industry. Not only is the automobile a highly complex, technological machine, production operations where they are assembled or where parts and systems are produced also require a high degree of technological complexities and systems. Therefore, automakers not only improve on automobile design, they continue to revolutionize manufacturing and production systems in pursuit of efficiencies, precision, and high quality content at the lowest cost.The current trend for a global strategy is the consolidation of vehicle platforms. Automakers have moved to consolidate vehicle platforms to attain flexible, standard systems with modular characteristics. The new mega platforms will be able to support up to ten vehicle families from a single platform. In other words, different models can be produced on the same assembly line and customized according to customer preferences. Shared vehicle platforms provide the ability to scale for efficiency purposes but also allow customization for the respective market. These modular mega platforms can be located globally allowing for geographic adaptations for the consumer, regional characteristics and regulations. Automakers are capable of establishing local assembly efficiently using mega platforms in modular tool kits and standardized processes. Once the assembly plant is established and operating, automakers can then gradually support local parts sourcing and finally bring in precision engineering and advanced skills thereafter for a fully equipped assembly plant. AlixPartners reports approximately 30% of vehicles were produced on mega platforms in 2012 and estimates 46% of global production volume will be produced on mega platforms by 2017. IHS Automotive predicts 8 of the top 10 global platforms already have or will have exposure in North America by 2021. The next step for automakers is prioritizing global investment in innovation and infrastructure strategically. The race is on to gaining a competitive advantage and market share.For suppliers, there is tremendous opportunity but not without risk. Suppliers have the opportunity to sell to new automakers locating in regions with existing customers. Automakers are sourcing more vehicles and respective components worldwide for the most advanced technology, highest quality and for the lowest cost. Research and Development and manufacturing continue to shift to the supplier under partnership with the OEM New product offerings must be able to integrate with ease in to a vehicle’s complex systems. Opportunity abounds with current industry drivers and trends for vehicle innovations including powertrain and propulsion technologies including carbon dioxide emissions reductions; vehicle design that is smaller, lightweight, connected, green and personalized; more automation and connection including, vehicle to vehicle and vehicle to infrastructure technologies; material technologies that are lightweight, green and mixed using new forming and joining technologies; and finally, manufacturing and supply chain systems that are ultra-efficient, sustainable, and flexible for the global landscape.In order to compete globally, the automotive industry is in pursuit of perfection at almost every level from vehicle design and development to manufacturing efficiencies to supply chain management. Technology leadership is critical to survive the competition. Automakers must be able to adapt to shifting world demographics, vehicle preferences and usage, as well as to location drivers outside of their home region. Research and development must have capabilities for globally- relevant vehicle design and enhanced competencies in manufacturing technologies that can be easily replicated and standardized. Government must continue to be a partner to retain and grow the industry. Addressing workforce needs first and foremost is critical and community involvement essential. Access to capital continues to be critical for suppliers needing to expand capacity and development capabilities in order to remain competitive. Lastly, supporting legislation and trade agreements are essential for the industry to remain globally competitive. It is truly a rapidly changing global automotive industry in pursuit of perfection.
