OESA AUTOMOTIVE SUPPLIER BAROMETER · Q4 2017 OESA AUTOMOTIVE SUPPLIER BAROMETER. 6. OESA Supplier...

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OESA AUTOMOTIVE SUPPLIER BAROMETERQ4 2017FOCUS ON FINANCE

AND CAPITAL PLANNING

2Q4 2017 OESA AUTOMOTIVE SUPPLIER BAROMETER

Executive Summary

Supplier Barometer Index (SBI)SBI Score = 46;

up from Q3 level of 40Opinions have become more

optimistic across most revenue groups; yet small companies are

the exception.Inventories, production volumes and the political environment are holding sentiment down, below a

neutral reading of 50.

Capital equipment purchases are the primary focus of suppliers in meeting targets for next yearTalent continues to be a planning focal point as additional staffing for salaried and hourly personnel ranks as the next highest priority

Income and operational investments are both expected to be lower going into next year, but relatively balanced in comparison to 2017 resultsProduct development and direct material costs are also expected to increase

Poor vehicle sales moves ahead of trade policy as primary threat over the next 12 monthsSuppliers remain confident in their ability to deliver customer requirements

Suppliers expect the current strong sales mix across Detroit Three, Asian and European automakers to be largely maintainedCurrent and future sales mix reflects declines in share of sales to other tier suppliers and non-automotive firms


Executive Summary

Suppliers remain active and engaged in assessing opportunities for acquisitions and divestitures compared to last year; acquisitions from larger companies, divestitures from smallerAcquisitions are being driven by the need to gain access to technologies and expand access to new customers

Divestitures are being driven by the need to consolidate core business, selling off non-core technologies

Skilled labor shortage remains the highest rated risk in both impact to business and difficulty in mitigating…while the concern over emissions regulations is subsiding

Supplier respondents feel better prepared to manage risks arising from an industry downturn79% of respondents indicate they are somewhat more to much more prepared due to a stronger financial position and better diversification

Suppliers continue to bank customers with days sales outstanding receivablesDays payable outstanding is improving but reflects a cost that continues to be carried by the supply chain

For 2018, suppliers plan the greatest budget increases in customer specific product development and in direct material pricesTight markets for technical talent and rebounding prices for metals and resins highlight cost pressures and drive the need for operational excellence


SUPPLIER OUTLOOK


20

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40

50

60

70

80

Jan-

2008

Jan-

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Jan-

2010

Jan-

2011

Jan-

2012

Jan-

2013

Jan-

2014

Jan-

2015

Jan-

2016

Jan-

2017

Euro Crisis Begins

Japan Tsunami/

Grexit Crisis

US Fiscal Cliff

Lehman Collapse

46

0%

20%

40%

60%

Sign

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timis

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Q3 2017 Q4 2017

84 responses

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

OESA Supplier Barometer: October Results

Current Supplier Outlook (Share of Respondents) Supplier Barometer Index: (SBI and 6m Average)

SBI Score = 46; up from Q3 level of 40Inventories, production volumes and the political environment drive sentiment down


OESA Supplier Barometer: SBI Comments

No Change• Uncertainty on NAFTA and tax changes• Planning for some softening of demand but the outlook is generally ok.• The ongoing NAFTA rhetoric from the administration is a major concern and will drive a

conservative outlook until it reaches a point of certainty.• Growth plan from one year ago consistent with current projections.• The Hurricanes added new sales but will take away in future months• Political uncertainties in the US offset and NAFTA concerns offset by continued low

energy prices and a stable (but slower growing) economy• automotive market is stable• Next 12 months will be strong, but there is a good possibility for a minor market decline• We had predicted a slight slowing in the market and that is what we are still anticipating.

More Pessimistic• Political climate more unstable• NA volume and mix risk• modest softening of the NA market; somewhat offset by steady

Asian, slightly improving Brazil and Europe• Volumes seem to be unstable and incentives are up. Usually a sign

of trouble ahead.• Volume reductions impacting planning and profitability • Volume concerns • customer projected volumes are down. Scheduled downtime at

various customers.• Sales of top selling models down. Mid segment is self destructing.• Reduced industry volumes starting to impact our business more

significantly• GM strike at Ingersoll, slowing car sales, NAFTA changes• inventories up government unsettled technology shifts leading to

unclear product strategy• Volume uncertainty remains the big question• starting to feel pull backs by N.A. OEM\'s• price pressures from customer have been enormous on existing work• Sales Decreasing• Volume uncertainty• Raw material supply and the lack of cooperation to move production

to newer locations.

More Optimistic• The current administration is not likely to impose further regulations on automotive-

based manufacturers.• Our outlook is very great • We are getting more high quality opportunities now than we were earlier in the summer

and a number of them are considering bringing business back to the US from Asia.• General volumes are good but NAFTA negotiations raise concerns• underlying macroeconomic trends around the globe and internal operational

improvements• global macroeconomic baseline is strong along with internal operational improvements• New business opportunities.• Macro economic outlook is positive• Growth has accelerated from 7% to 10% per year• Actively quoting new programs• Regarding the sales and inventories in US, we were really worried about the high levels

of inventories that affected our customers but the last month they slipped considerably


0%9% 7% 8%

42% 36%

0%

50%

9%7%

42%

10%20%

25%21%

0%

33%

45%64%

7%

17%

32%

40%

33%36%

0%

17%

45%27%

79%

33%

52%

37%

7% 6% 3%

0%10%20%30%40%50%60%70%80%90%

100%Significantly more pessimistic

Somewhat more pessimistic

Unchanged

Somewhat more optimistic

Significantly more optimistic

<$50 million

$50-$150 million

$151-$500 million

$501 million –$1 billion

>$1 billion

OESA Supplier Barometer: October Results By Revenue Size

OctoberJuly52.1 46.4 NR* 58.3 40.9 47.7 35.7 56.3 36.3 44.3

Quarterly SBI ∆

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

Ther

e w

ere

no s

urve

y re

spon

ses

rece

ived

from

this

sup

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r gro

up

Opinions have become more optimistic across most revenue groups; small companies are the exception

OctoberJulyOctoberJulyOctoberJulyOctoberJuly


What are the greatest threats to the industry over the next 12 months?

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

Poor sales of vehicles in programs supplied

Changes in government trade policy

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

AverageRating

3.7

4.3

4.9

5.2

5.6

5.8

6.1

7.6

OESA Supplier Barometer: Industry Threats

Poor vehicle sales moves ahead of trade policy as primary threats over the next 12 months


FINANCE AND CAPITAL PLANNING


Average Rating

Rate the following actions your company is budgeting for in North America to meet expected volume targets for next year.

Percent of respondents 0% 20% 40% 60% 80% 100%

Purchase capital equipment

Hire direct salaried employees

Hire direct hourly employees

Expand current facility footprint

Hire temporary/contract employees

Open additional facilities

Acquire companies

Partner with companies

Highest Priority = 1 Rating = 2 Rating = 3 Rating = 4 Neutral = 5Rating = 6 Rating = 7 Rating = 8 Lowest Priority = 9

3.68

4.00

3.88

4.93

5.47

5.74

5.78

5.67

OESA Supplier Barometer: 2018 Planning

3.44

3.84

4.16

4.94

5.63

5.79

5.66

5.40

2016 Rating

2018 planning activities mimic 2017


For your North American operations, what is your budgeted percentage change in USD for next year compared to this year in each of the following areas?

Percent of respondents


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

Revenue

EBIT

Plant and Equipment

Advanced Research

IT

SG&A

Talent and Training>30% Increase 21-30% Increase 11-20% Increase 6-10% Increase1-5% Increase No Change 1-5% Decrease 6-10% Decrease11-20% Decrease 21-30% Decrease >30% Decrease

66% of respondents are increasing budget compared to 67% in 2016







Comments• Increasing quality throughput with current

assets is our priority.• Company needs to increase its

competitiveness on a faster pace.• We are budgeting quite a bit of money for

expanded training programs.

• Technology scouting.• We can meet 2018 requirements without

addressing any of the above items. The majority of our product ships outside of North America.

• IT cost increase due to new ERP implementation.

Income and operational investments are expected to be lower next year, but relatively balanced compared to 2017 results


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

Utilities

Customer specific product development

Transportation/Logistics

Purchased components

Tooling

Direct material inflation-Metalics

Direct material inflation-Resins

>6% Increase 5-6% Increase 3-4% Increase1-2% Increase No Change 1-2% Decrease3-4% Decrease 5-6% Decrease >6% DecreaseNot applicable

Percent of respondents:

OESA Supplier Barometer: 2018 PlanningAssuming constant 2017 production volumes for 2018, what is your budgeted percentage change in USD from 2017 in each of the following metrics for 2018?

Comments• If builds push above the 17.5

million unit level, raw material increases will be much higher.

• Steel companies are beginning to levy surcharges for graphite tips, used in the rolling process.

Minimal to moderate increases are expected for 2018, with a focus on product development and direct material costs (ref appendix)


2008/2009Avg Mix

2013/2014Avg Mix

35% 31% 37% 34% 36% 35% 40% 38%46% 43%

10% 14%11% 12%

12% 13%17% 17% 16% 18%

21% 21%

27% 29% 22% 25%

1% 2%21% 21% 23% 21%

25% 21% 24% 21%11% 11%

17% 19% 18% 20%12% 14% 10% 11% 8% 9%

0%10%20%30%40%50%60%70%80%90%

100%

Non-Automotive Related

Automotive Supplier

Foreign-Parented OEM

Asian-Parented OEM

EU-Parented OEM

Detroit Three OEM

2010/2011Avg Mix

2015/2016Avg Mix

From 2009 From 2011 From 2015 2015/2016

Avg Mix2020/2021

Avg Mix

From 2016 2016/2017

Avg Mix2021/2022

Avg Mix

OESA Supplier Barometer: 2018 PlanningEstimate the percent of your company sales mix in 2017/2018.Estimate the percent of your company sales mix in 2022/2023.

From 2017 2017/2018

Avg Mix2022/2023

Avg Mix

Suppliers expect a stable sales mix across OEM groups; Asian OEMs keep recent gainswith tier supplier and non–automotive shares under pressure


25% 35% 40%

0% 10% 20% 30% 40% 50% 60% 70% 80% 90% 100%

AcquisitionsOverall

$150 million or less$151-$500 million

$501 million-$1 billionMore than $1 billion

High Likelihood Moderate Likelihood Unlikely


4% 22% 74%

0% 10% 20% 30% 40% 50% 60% 70% 80% 90% 100%

DivestituresOverall


$501 million-$1 billionMore than $1 billion

High Likelihood Moderate Likelihood Unlikely

OESA Supplier Barometer: 2018 PlanningOver the next 12 months, what is the likelihood that your company will make acquisitions and/or divestitures?

Up from 2017 levels, suppliers are actively assessing acquisitions and divestitures; acquisitions from larger companies, divestitures from smaller (ref appendix)


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

Accelerating access to newtechnologies

Accessing new customers throughexpansion into new geo. markets

Building market share

Following an existing customer intonew geographic markets

Vertically integrating your supply chainor product offering

Diversifying into transportation marketsoutside of light vehicles

Diversifying into markets outside of alltransportation


Percent of respondents2016

Rating

4.33

4.18

4.31

4.74

5.40

5.53

5.74

OESA Supplier Barometer: 2018 PlanningRate each of the following strategies in terms of priority for acquisitions.

2017Rating

2.90

3.51

3.88

4.73

5.20

6.41

6.03

Acquisitions are being driven by the need to gain technologies and access to new customers


Percent of respondents 0% 20% 40% 60% 80% 100%

Divest of non-core technologies orbusiness

Obtain funds for other acquisitions

Obtain funds for operations

Contract geographic markets

Separate entities


OESA Supplier Barometer: 2018 PlanningRate each of the following strategies in terms of priority for divestitures. (New survey question for 2017, no comparison to last year)

2017Rating

No actions have an above neutral rating

5.02

5.54

6.08

6.45

6.69

Divestitures are being driven by the need to consolidate core business, selling off non-core technologies


Impact to your business

Diff

icul

ty in

miti

gatin

g

3.0

3.5

4.0

4.5

5.0

5.5

6.0

6.5

7.0

3.0 3.5 4.0 4.5 5.0 5.5 6.0 6.5 7.0

Growth in car sharing

Affordability of cars/light trucks

Emergence of autonomous vehicles

Limited supply of skilled labor

Emergence of connectivity

Managing cybersecurityElectrification of powertrains

Strengthening of emission regulations

Quality management

Rating scale for both impact and mitigation is 1-9, with 9 being very high impact and very difficult to mitigate

Customer purchasing/planning complexity

When considering the next 10-15 years, rate each of the following risks in terms of impact to your business. When considering the next 10-15 years, rate each of the following risks in terms of difficulty in mitigating.


Skilled labor shortage remains the highest rated risk in both impact to business and difficulty in mitigating while the concern over emissions regulations is subsiding (appendix)


40%

36%

18%

3% 3%

36%

42%

21%

1% 20152016

Considering the last industry downturn and the steps your organization may have taken in response to the impact on your business, how prepared is your organization to adjust the enterprise should another downturn occur in the future?


41%38%

17%

4%Much moreprepared

Somewhatmore prepared

Equallyprepared

Somewhat lessprepared

Much lessprepared

2017

Comments: Much more prepared• Increased our global manufacturing footprint, so we are now less reliant on

the North American market.• better balance sheet playbook in place after 2008-2009 have started

discussions/scenarios

Somewhat more prepared• consolidation plans are available.• we have not forgotten

Suppliers feel better prepared to address challenges due to an industry downturn.


2015 2016 2017Upper

Quartile Value

MedianValue

Lower Quartile Value

Upper Quartile Value

MedianValue



MedianValue


57 48 45 60 50 45 60 50 45

2015 2016 2017

Increased Stayed Same Decreased Increased Stayed

Same Decreased Increased Stayed Same Decreased

27% 63% 10% 23% 72% 5% 18% 78% 4%

OESA Supplier Barometer: FinancialsConsidering the last 12 months, for your U.S. customers representing the top 80% of your business (by dollar volume), what is the average number of your Days Sales Outstanding (DSO)?

On average, over the past 12 months, has this DSO number increased, stayed the same or decreased?(Percent of respondents)

Note: not all respondents provided a DSO value, but did select a change value.

Suppliers continue to bank customers with days sales outstanding receivables


2015 2016 2017Upper

Quartile Value

MedianValue



MedianValue



MedianValue


60 45 37 60 48 43 57 45 36

2015 2016 2017

Increased Stayed Same Decreased Increased Stayed

Same Decreased Increased Stayed Same Decreased

18% 79% 3% 9 52 3 18% 80% 2%

OESA Supplier Barometer: FinancialsConsidering the last 12 months, for your U.S. customers representing the top 80% of your business (by dollar volume), what is the average number of your Days Payable Outstanding (DPO)?

On average, over the past 12 months, has this DPO number increased, stayed the same or decreased?(Percent of respondents)

Note: not all respondents provided a DPO value, but did select a change value.

Days payable outstanding is better but still pushed through the supply chain


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:Respondents/participants should not contact competitors 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 and other terms of sale decisions and negotiating strategies should be handled on an individual company basis.

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. www.oesa.org.

Survey Methodology• Data collected the week of October 9 via invitation to online

survey.• Executives of OESA supplier companies.• 84 survey responses were received.

Contact

Mike JacksonExecutive DirectorStrategy and [email protected]

Kathy ReissDirectorResearch and Industry [email protected]

Original Equipment Suppliers Association25925 Telegraph RoadSuite 350Southfield, Michigan 48033

http://www.oesa.org/


Appendix 2: 2016 Barometer t ime-series comparative data for charts without mult iple years shown


Assuming constant 2016 production volumes for 2017, what is your budgeted percentage change in USD from 2016 in each of the following metrics for 2017?

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

Utilities

Customer specific product development

Transportation/Logistics

Purchased components

Tooling

Direct material inflation-Metalics

Direct material inflation-Resins

>6% Increase 5-6% Increase 3-4% Increase 1-2% Increase No Change1-2% Decrease 3-4% Decrease 5-6% Decrease >6% Decrease Not applicable


OESA Supplier Barometer: 2017 Planning (survey asked in 4Q 2016)


Over the next 12 months, what is the likelihood that your company will make acquisitions and/or divestitures?

22%

15%22%

31%

36%

41%39%

28%

41%

44%39%

41%

0% 10% 20% 30% 40% 50% 60% 70% 80% 90% 100%

Acquisitions2016


More than $500 millionHigh Likelihood Moderate Likelihood Unlikely


6%

6%6%7%

11%

6%11%

17%

83%

88%83%

77%

0% 10% 20% 30% 40% 50% 60% 70% 80% 90% 100%

Divestitures2016


More than $500 millionHigh Likelihood Moderate Likelihood Unlikely



When considering the next 10-15 years, rate each of the following risks in terms of impact to your business.When considering the next 10-15 years, rate each of the following risks in terms of difficulty in mitigating.

Impact to your business

Diff

icul

ty in

miti

gatin

g

3.0

3.5

4.0

4.5

5.0

5.5

6.0

6.5

7.0

3.0 3.5 4.0 4.5 5.0 5.5 6.0 6.5 7.0

Growth in car sharing Affordability of cars/light trucks

Emergence of autonomous vehicles

Limited supply of skilled labor

Emergence of connectivity

Managing cybersecurity

Electrification of powertrains

Strengthening of emission regulations

Quality management

Rating scale for both impact and mitigation is 1-9, with 9 being very high impact and very difficult to mitigate

No. of Responses = 81-85

Customer purchasing/planning complexity

Comments: Domestic

manufacturers remaining competitive; building a global footprint is paramount.

Move away traditional powertrains will effect our business greatly.


OESA AUTOMOTIVE SUPPLIER BAROMETER · Q4 2017 OESA AUTOMOTIVE SUPPLIER BAROMETER. 6. OESA Supplier...

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