focus on financial outlook - oesa · 2020. 1. 3. · • lower car sales in uk, and likely eu,...

Join. Engage. Advance.

OESA AUTOMOTIVE SUPPLIER BAROMETERFOCUS ON FINANCIAL OUTLOOK

JULY 24, 2016

Prepared by:

Charles Chesbrough

Executive Director: Research, Strategy and Senior Economist

Kathy Reiss

Director: Research and Industry Analysis

1

Join. Engage. Advance. 2

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.


Electronics/Electrical

911%

Powertrain22

26%

Chassis18

21%

Exterior6

7%

Interior/HVAC19

23%

Tooling5

6%

Materials2

2%

Services3

4%

OESA Supplier Barometer: July Survey Composition OverviewPowertrain/Interiors/Chassis supplier comprise almost 70% of the survey respondents

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.


0%

20%

40%

60%

Sig

nific

antly m

ore

op

tim

istic

Som

ew

ha

t m

ore

op

tim

istic

Un

ch

ang

ed

Som

ew

ha

t m

ore

pe

ssim

istic

Sig

nific

antly m

ore

pe

ssim

istic

Jul-16 Apr-16

Current Supplier Outlook (Share of Respondents) Supplier Barometer Index (SBI): Long-Term

48

20

30

40

50

60

70

80

Sep-2

006

Feb

-2007

No

v-2

007

Sep-2

008

Jul-2

009

Ma

y-2

010

Ma

r-2

011

Jan-2

012

No

v-2

012

Sep-2

013

Jul-2

014

Ma

y-2

015

Apr-

2016

SBI Neutral 6m Avg

Describe the general twelve month outlook for your business.

Over the past two months, has your opinion become…?

OESA Supplier Barometer: July ResultsSBI score falls to 48 – lowest level in four years; Long-term outlook trending lower

Source: OESA Supplier Barometer, July 2016

Euro

Crisis

Begins

Japan

Tsunami/

Grexit Crisis

US

Fiscal

Cliff

Post

Lehman

Collapse


7%

21%

10%

7%

6% 11%1

3%

32%

25%

27%

6%

33%

11%

9%

9% 14%

47%

32%

35% 47%

56%

39%

67%

36%

65% 62%

27%

16%

30% 20%

33%

17%

22%

55%

26%

24%

7%

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: July Results By Revenue SizeSmallest suppliers’ pessimism grew the most while largest had little change

Describe the general twelve month outlook for your business.

Over the past two months, has your opinion become…?

AprJuly AprJuly AprJuly AprJuly AprJuly

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



Moderately Concerned5

6%

Somewhat Concerned

3944%

Not Concerned45

50%

Very Concerned3

3%

Moderately Concerned

2224%

Somewhat Concerned

3842%

NotConcerned

2831%

Industry

6

Company

How concerned are you about the possible impact of the BREXIT

approval on the automotive industry, and on your company?

OESA Supplier Barometer: BREXIT Impact Respondents have concerns about the impact on the industry, less so for their own company

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

• Impact on EU/UK – US offset by

Mexico opportunities

• Our business is diversified in

regions/customers



Much more prepared

3036%

Somewhat more prepared

3542%

Equally prepared18

21%

Somewhat less prepared

11%

7

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?

OESA Supplier Barometer: Downturn PreparationOver 78% of respondents state their business is better prepared for the next downturn

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.



Financial Outlook: Action PrioritiesCapital and Labor are the key focus for suppliers; JVs/Acquisitions lower priority for near-term

• 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.

Rate the following actions your company is budgeting for in

North America to meeting expected 2017 volume targets:

Percent of Respondents

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

Other

Acquire companies

Open additional facilities

Partner with companies (JVs, licensing, outsource)

Hire temporary/contract employees

Expand current facility footprint

Hire direct salaried employees

Hire direct hourly employees

Purchase capital equipment

Highest Priority = 1 Rating = 2 Rating = 3

Rating = 4 Neutral = 5 Rating = 6

Rating = 7 Rating = 8 Lowest Priority = 9

Average

Rating


3.7

3.9

4.0

4.9

5.5

5.7

5.7

5.8

6.9


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

Revenue

EBIT

Plant & Equipment

Adv Research

IT

SG&A

Talent and Training

>20% Increase 11-20% Increase 6-10% Increase

1-5% Increase No Change 1-5% Decrease

6-10% Decrease 11-20% Decrease >20% Decrease


9

Financial Outlook: Revenue and Spending GrowthMajority of suppliers expect more revenue in 2017, and more spending on Talent and Training

• 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%

For North American operations, what is your budgeted percentage change

in US$ for next year compared to this year for the following areas?



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

Direct material inflation-Resins

Direct material inflation-Metallics

Tooling

Purchased components

Transportation/Logistics

Customer specific product development

Utilities

>5% Increase 3-4% Increase 1-2% Increase No Change

1-2% Decrease 3-4% Decrease >5% Decrease Not applicable


10

Financial Outlook: Production CostsSuppliers expecting increases from utilities and product development costs

• 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.

Assuming constant production volumes, what is

the budgeted cost percentage change for 2017?



Financial Outlook: Revenue SourcesImportance 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?

July 2016 vs July 2010

Median Range

North America88%

80%5-100%

South America1%

3%0-16%

Europe6%

14%0-70%

Asia4%

8%0-70%

Africa/Middle East0%

0%0-20%

36% 35%40% 38%

10% 14%11% 12%

17% 17% 16% 18%

25% 21%24% 21%

12% 14%10% 11%

0%

10%

20%

30%

40%

50%

60%

70%

80%

90%

100%

Detroit Three OEM EU-Parented OEMAsian-Parented OEM Automotive SupplierNon-Automotive Related

From 2015 Survey

2015/2016

Avg Mix2020/2021

Avg Mix

From 2016 Survey

2016/2017

Avg Mix

2021/2022

Avg Mix

What is your company’s current and future

sales mix? • Compared to 2010, North

America’s importance to

revenue is increasing –

taking share from Europe

and Asia.

• D3 customers also

gaining importance -

since last year’s survey

share up from 36% to

40% but longer-term role

expected to decline

modestly.

• Expectations of

diversifying outside of

automotive declining –

10% of revenue non-auto

related is down from last

year’s 12%



Financial Outlook: Days Sales OutstandingMixed 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)?

On average, over the past 12 months, has this DSO number increased,

stayed the same or decreased? (number of responses)

• 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.

2016 2015

Upper

Quartile

Value

Median

Value

Lower

Quartile

Value

Upper

Quartile

Value

Median

Value

Lower

Quartile

Value

60 50 45 57 48 45

2016 2015

IncreasedStayed

SameDecreased Increased

Stayed

SameDecreased

14 44 3 19 44 7



Financial Outlook: Days Payable OutstandingMedian 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)?

On average, over the past 12 months, has this DPO number increased,

stayed the same or decreased? (number of responses)

• 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.

2016 2015

Upper

Quartile

Value

Median

Value

Lower

Quartile

Value

Upper

Quartile

Value

Median

Value

Lower

Quartile

Value

60 48 43 60 45 37

2016 2015

IncreasedStayed

SameDecreased Increased

Stayed

SameDecreased

9 52 3 13 58 2



Financial Outlook: Acquisitions and DivestituresAcquisitions are “highly likely” for more large suppliers; Divesting is not likely across all suppliers

Acquisitions • 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.

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

$150 million or less

$151-$500 million

More than $500 million

All Suppliers

High Likelihood Moderate Likelihood Unlikely

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

$150 million or less

$151-$500 million

More than $500 million

All Suppliers

Divestitures

Over next 12 months, what is the likelihood your

company will make Acquisitions / Divestitures?





Financial Outlook: Acquisition StrategyAccessing new technologies and new markets are top priorities

• 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.

Rate the following strategies in

terms of priority for acquisitions:Percent of Respondents

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

Diversifying into markets outside of all transportation

Diversifying into markets outside of light vehicles

Vertically integrating your supply chain or product offering

Following an existing customer into new geographic markets

Building market share

Accelerating access to new technologies

Accessing new customers - expansion into new markets

Highest Priority = 1 Rating = 2 Rating = 3

Rating = 4 Neutral = 5 Rating = 6

Rating = 7 Rating = 8 Lowest Priority = 9

4.2

4.3

4.3

4.7

5.4

5.5

5.7

Average

Rating



Financial Outlook: Risk Assessment MatrixSkilled labor supply remains key – greatest impact on the business and hardest to address

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

Impact to your business

Dif

fic

ult

y i

n m

itig

ati

ng

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

Customer complexity

• 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.



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.

Thank you for your participation

mailto:[email protected]

http://www.oesa.org/

focus on financial outlook - oesa · 2020. 1. 3. · • lower car sales in uk, and likely eu,...

Documents