michigan automotive industry update€¦ · center for automotive research 2 the center for...

Michigan Automotive Industry UpdateKristin Dziczek – Vice PresidentJoint Revenue Estimating Conference

15 May 2020

2CENTER FOR AUTOMOTIVE RESEARCH

THE CENTER FOR AUTOMOTIVE RESEARCH (CAR)Automotive industry contract research and service organization (non‐profit ) with more than 30 years experience forecasting industry trends, advising on public

policy, and sponsoring multi‐stakeholder communication forums.

Consortia that bring together industry stakeholders to participate in working groups, networking opportunities, and access to CAR staff.

RESEARCH EVENTS CONNECTIndustry‐driven events and conferences that deliver content, context, and connections.

Independent research and analysis on critical issues facing the industry.

3

Coronavirus (COVID‐19) Impact on U.S. Production

Health Crisis

Consumer Demand Drop

Financial Impacts

Supply Chain

Disruptions

Simultaneous

CENTER FOR AUTOMOTIVE RESEARCH

Health Crisis

CENTER FOR AUTOMOTIVE RESEARCH 4

5

Nearly All Automakers & Suppliers Have Detailed “Restart Playbooks”• Redesigning worker flow &

jobs for social distancing• Implementing health checks• Use of PPE• Increased cleaning• Plans for how to handle illness• Planning for higher levels of

absenteeism


Demand & Production


7

U.S. Light Vehicle Monthly Sales (SAAR)1976 – April 2020


9.2 8.6

0

5

10

15

20

25

1976

1977

1978

1979

1980

1981

1982

1983

1984

1985

1986

1987

1988

1989

1990

1991

1992

1993

1994

1995

1996

1997

1998

1999

2000

2001

2002

2003

2004

2005

2006

2007

2008

2009

2010

2011

2012

2013

2014

2015

2016

2017

2018

2019

2020

Mon

thly Sales at a

Sea

sona

lly Adjusted An

nual Rate

Monthly Sales 12 per. Mov. Avg. (Monthly Sales)

Source: Wards Auto; CAR Research

8

U.S. Light Vehicle Monthly SalesJanuary 2017 – April 2020


600,000

800,000

1,000,000

1,200,000

1,400,000

1,600,000

1,800,000

Jan Feb Mar Apr May Jun Jul Aug Sep Oct Nov Dec

Ligh

t Veh

icle Sales

2017 2018 2019 2020


9

U.S. Light Vehicle SalesPercent Change (YTD) Through April: 2020 vs. 2019


‐33.3%

‐16.0%

‐21.2%

‐40% ‐35% ‐30% ‐25% ‐20% ‐15% ‐10% ‐5% 0%

Passenger Cars

Light Trucks

Total


‐1,124,599

+ ‐593,294

‐531,305

Total

Truck

Cars

3,119,546

74.5%

1,064,977

25.5%

4,184,523

100%

10

Percent Change in Sales of Light Vehicles Per OEM:YTD Through April: 2020 vs. 2019


‐32.7%

‐28.1%

‐19.1%

‐19.9%

‐20.2%

‐15.9%

‐14.5%

‐21.2%

‐40% ‐35% ‐30% ‐25% ‐20% ‐15% ‐10% ‐5% 0%

Nissan/Mitsubishi

Honda

Ford

FCA

Toyota

GM

Hyundai‐ Kia

TOTAL LV Sales


‐1,124,599

‐57,539

‐142,861

‐147,139

‐132,515

‐145,628

‐139,026

‐167,023

Honda

Nissan/Mitsubishi

GM

TOTAL LV Sales

Toyota

Hyundai‐ Kia

Ford

FCA

343,556

8.2%

18.0%

14.7%

753,152

356,536

8.5%

4,184,523

580,441

339,254

534,683

615,50612.8%

8.1%

13.9%

100%

11

Detroit 3 Monthly U.S. Market Share Rose to48.6% in AprilJanuary 2014 – April 2020


48.6

40

41

42

43

44

45

46

47

48

49

50

Detroit 3

Market S

hare (%

)

Source: Automotive News; Wards Auto (January 2018 and on); CAR Research

12

Segment Breakdown: U.S. Light Vehicles Sales Percent Change2020 YTD vs. 2019 YTD Through March

CENTER FOR AUTOMOTIVE RESEARCHNote: Electrified Segment consists of BEVs, HEVs and PHEVs; all other segments are sales exclusive of Hybrid models

Source: Ward’s Automotive Reports and CAR Research

‐41.4%

‐32.7%

‐30.2%

‐13.9%

‐12.6%

‐11.6%

‐9.5%

2.0%

2.3%

‐12.7%

‐45% ‐40% ‐35% ‐30% ‐25% ‐20% ‐15% ‐10% ‐5% 0% 5%

Large Car

Small Car

Luxury Car

Van

SUV

CUV

Middle Car

Pickup

Electrified

Total

13

MI Motor Vehicle & Parts Manufacturing Employment, 2009 – Q1 2020

20.5%

15%

16%

17%

18%

19%

20%

21%

22%

23%

‐

20,000

40,000

60,000

80,000

100,000

120,000

140,000

160,000

180,000

200,000

Jan‐09

May‐09

Sep‐09

Jan‐10

May‐10

Sep‐10

Jan‐11

May‐11

Sep‐11

Jan‐12

May‐12

Sep‐12

Jan‐13

May‐13

Sep‐13

Jan‐14

May‐14

Sep‐14

Jan‐15

May‐15

Sep‐15

Jan‐16

May‐16

Sep‐16

Jan‐17

May‐17

Sep‐17

Jan‐18

May‐18

Sep‐18

Jan‐19

May‐19

Sep‐19

Jan‐20

MI’s Sha

re of U

.S. A

uto Em

ploymen

t

Employmen

t

Employment MI Share of U.S. Mar. 2020 170,900

*U.S. data is one month behind state data

Source: Current Employment Statistics, Bureau of Labor Statistics; NAICS 3361 & 3363 Return to OverviewCENTER FOR AUTOMOTIVE RESEARCH

14

Michigan is the top state for U.S. light vehicle production (18.5%), but share has been trending downward since 2012


0.0%

5.0%

10.0%

15.0%

20.0%

25.0%

30.0%

0

100

200

300

400

500

600

700

800

900

1,000

J A J O J A J O J A J O J A J O J A J O J A J O J A J O J A J O J A J O J A J O J A J O J A J O J A J O J A J O J A J O J A J O J A J O J A J O J A J O J A J O J A

2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016 2017 2018 2019 2020

Michigan Sh

are of U.S. Light Veh

icle Produ

ction

Ligh

t Veh

icle Produ

ction (Tho

usan

ds of U

nits)

Rest of U.S. Michigan Michigan Share of U.S. 12 per. Mov. Avg. (Michigan Share of U.S.)

Source: Ward’s Auto Intelligence


U.S. Automotive & Parts Capacity Utilization Fell SharplyAssembly & Parts Capacity Utilization, 2010‐March 2020

0%

20%

40%

60%

80%

100%

120%

J M M J S N J M M J S N J M M J S N J M M J S N J M M J S N J M M J S N J M M J S N J M M J S N J M M J S N J M M J S N J M

2010 2011 2012 2013 2014 2015 2016 2017 2018 2019 2020

Capa

city Utilization

Capacity Utilization Assembly Capacity Utilization Motor Vehicles & Parts

Source: Federal Reserve Bank of St. Louis Economic Data (FRED)

Profita

ble Ra

nge >8

0%


Production Ramp‐Up Summary

2020 Projected / 2018‐2019 Average Production

2020 Units Lost Production vis‐à‐vis 2018‐2019 Average Production

North America—All Automakers 75% ‐4.1M

North America—D3 Automakers 73% ‐2.3M

U.S.—All Automakers 77% ‐2.5M

U.S.—D3 Automakers 76% ‐1.3M

Michigan—D3 Automakers 76% ‐485K

Source: CAR analysis of IHS|Markit & LMC Automotive forecastsCENTER FOR AUTOMOTIVE RESEARCH


North American Production Ramp‐Up2020 Forecast as a Share of 2018‐2019 Actual

0%

20%

40%

60%

80%

100%

120%

JAN FEB MAR APR MAY JUN JUL AUG SEP OCT NOV DEC

2020

SHA

RE OF 20

18‐201

9 AC

TUAL

PRO

DUCT

ION

Canada Mexico United States

Source: CAR analysis of IHS|Markit & LMC Automotive forecasts

2019 U.S. production impacted by GM strike 15 September‐25 October


North American Detroit 3 Production Ramp‐Up2020 Forecast as a Share of 2018‐2019 Actual

0%

20%

40%

60%

80%

100%

120%


2020

SHA

RE OF 20

18‐201

9 AC

TUAL

PRO

DUCT

ION

Canada Mexico United States




Michigan Production Ramp‐Up: Statewide2020 Forecast as a Share of 2018‐2019 Actual


‐

50,000

100,000

150,000

200,000

250,000


UNITS OF LIGHT

VEH

ICLE PRO

DUCT

ION

Michigan Statewide 2018 Michigan Statewide 2019 Michigan Statewide 2020

76% of 2018‐19 Production‐485K units




Financial Impacts

20

21

Auto Industry Current Financial Situation

• Limited sales and earnings visibility, when ”stay‐at‐home” and “essential business” government mandates enacted on state‐by‐state basis

• Earnings guidance withdrawn by nearly all publicly traded auto companies• Companies rushed to boost liquidity, i.e., cash on hand

• 1Q: 20 earnings results• Focus by investors on liquidity and cash burn• ‘Earnings’ largely not as bad as initially feared

• Some ‘bright spots’ for automakers and suppliers• Light vehicle sales held up better, pre‐”stay‐at‐home” mandates• Product mix, i.e., light trucks• Restructuring and cost‐containment efforts


22

Liquidity Situation – Automakers & Auto Suppliers


• Automakers: • Detroit 3 – drastic measures to boost liquidity, e.g., drawing down credit lines

and issuing debt• Japanese Automakers – unprecedented actions for cash preservation, e.g.,

salaried employee furloughs• Detroit 3 @ ~ 12 months liquidity buffer*; < 6 months for Japanese (except

Subaru @ 10 months)

• Auto Suppliers:• Financially better‐positioned by and large coming into COVID‐19 pandemic vis‐à‐

vis automakers• Most publicly traded suppliers @ > 6 months liquidity buffer*• The full impact of idled production not experienced in 1Q due to 40‐60 day’

payment terms

Source: Bank of America Securities estimates and CAR analysis. Liquidity buffer = theoretical liquidity (months) in ’Zero Revenue’ environment, i.e. total liquidity divided by monthly cash burn, before cost mitigation or cash preservation measures taken by companies, i.e. CAPEX reduction.

23

What’s Next?

• 2Q: 20 Outlook• A moving target• Much worse impact to be felt by auto suppliers

• Restart outlook (so far)• Japanese automakers – this week• Detroit 3 – next week


24

Outlook: Auto Suppliers Cash Flow Issues

‐12.30%

‐61.40%

‐16.80%

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

July vs. June

June vs. May

May vs. April

Payments from Automakers % Change (Assuming May 18 Restart)


• Payments from Automakers at 45‐day Payment Terms, FY2020

• Full impact of ‘Zero Revenue’ not yet experienced for supply base• Cash flow squeeze expected

during June‐July• Implications for suppliers not

yet fully understood, but include financial distress, insolvency, & consolidation

Source: CAR estimates

25

Liquidity crisis could turn into an insolvency crisis…


“The passage of time can turn liquidity problems into solvency problems... additional fiscal support could be costly, but worth it if it helps avoid long-term economic damage.“—Fed Chair Jerome H. Powell13 May 2020

https://www.nytimes.com/2020/05/13/business/economy/fed‐chair‐powell‐economy‐virus‐support.html

26

Financial Summary / Outlook

• Focus shifting from liquidity / cash burn (1Q) to production restart and supply‐chain risk (2Q)

• Financial distress likely during 2Q; Tier 2‐ and 3 particularly at risk• ‘W‐shaped’ recovery a major concern…• Restructuring & consolidation to return


Supply Chain Disruptions


28

Michigan is the Top State for Automotive TradeTop 10 Automotive Exporting States: 2015 to 2019


0

5

10

15

20

25

30

MICHIGAN TEXAS CALIFORNIA SOUTH CAROLINA

INDIANA OHIO ALABAMA TENNESSEE ILLINOIS KENTUCKY

Billion

s of D

ollars

2015 2016 2017 2018 2019

*NAICS 3361‐3

Source: International Trade Administration TradeStat Express

29

Top Ten Destinations of MI Vehicle Exports (3361) In Dollar Terms (USD), 2019

199

212

287

318

348

392

508

553

0 500 1,000

Chile

Kuwait

Australia

Mexico

United Arab Emirates

Saudi Arabia

South Korea

Germany

China

Canada

Millions

Canada56%

China10%

Germany4%

South Korea4%

Saudi Arabia3%

United Arab Emirates

3%

Mexico3%

Australia2%

Kuwait2% All others

13%

CENTER FOR AUTOMOTIVE RESEARCHSource: International Trade Administration TradeStat Express.

7, 244

Return to Overview

30

Top Ten Destinations of MI Vehicle Parts Exports (3363) In Dollar Terms (USD), 2019

145

174

193

217

251

365

514

565

3,106

0 1,000 2,000 3,000

Germany

Turkey

India

Thailand

Brazil

Spain

Italy

China

Mexico

Canada

Millions

4, 727

CENTER FOR AUTOMOTIVE RESEARCHSource: International Trade Administration TradeStat Express.

Canada43%

Mexico29%

China5%

Italy5%

Spain3%

Brazil2%

Thailand2%

India2%

Turkey2%

Germany1%

All Others6%


Many Michigan‐built vehicles rely heavily on Mexican parts & components content

Automaker Assembly Plant Model2020 AALA Parts Content Share

US/CAN MEX OtherGeneral Motors Flint Truck Sierra HD 41% 46% 13%General Motors Flint Truck Silverado HD 41% 46% 13%Ford Michigan Assembly Ranger 50% 31% 19%FCA Sterling Heights 1500 57% 28% 15%FCA Warren Truck 1500 59% 27% 14%FCA Jefferson North Grand Cherokee 61% 27% 12%FCA Jefferson North Durango 60% 26% 14%Ford Flat Rock Continental 60% 24% 16%General Motors Lansing Delta Township Enclave 54% 22% 24%General Motors Lansing Delta Township Traverse 54% 22% 24%General Motors Orion Sonic 49% 21% 30%Ford Flat Rock Mustang 51% 20% 29%General Motors Lansing Grand River Camaro 59% 19% 22%General Motors Lansing Grand River CT4 59% 19% 22%General Motors Lansing Grand River CT5 59% 19% 22%Ford Dearborn Truck F‐150 56% 16% 28%Ford Dearborn Truck F‐150 SuperCrew 56% 16% 28%General Motors Orion Bolt EV 18% 0% 82%

Source: NHTSA Part 583 Reports, American Automobile Labeling Act data

2020 American Automobile Labeling Act (AALA) Report Content


USMCA Enters Into Force 1 July 2020NAFTA has a single threshold: 62.5 percent originating content

NAFTA was explicitly designed to prevent roll‐ups

NAFTA incorporates a tracing list as one of the measures against roll‐up

NAFTA has no requirements for steel and aluminum sourcing

USMCA has five thresholds, each applying to a different setof parts or finished vehicles, ranging from 65 to 75 percentoriginating content

USMCA rules explicitly allow, even encourage roll‐ups

USMCA abolishes the tracing list but requires more items to be originating

USMCA introduces a requirement for North American steel and aluminum purchases

NAFTA does not have any labor value requirements

USMCA requires a minimum of 40 (45) percent of the value of manufacturing labor incorporated in a car (truck) to have been paid a wage rate above $16 per hour. Up to 10 points of the requirement can be earned via R&D or IT salaries.

NAFTA does not address trade measures other than conditions for tariff‐free access to each country’s market

Provisions within the USMCA and its side letters provide limited protection for Canada and Mexico from a potential §232 tariff placed on imported vehicles and vehicle parts

The USMCA provides limited protection for Mexico in the event that the U.S. raises its MFN tariff rates applied to vehicles and vehicle parts

33

Core Parts Rule + Labor Value Content Rule Combineto Incentivize U.S. & Canadian Production

(engine, transmission, body, chassis, axle, suspension, steering, advanced batteries)

Vehicle Rule of Origin

Core Parts Rule of Origin

Labor Value Content

@$16/hour

More U.S. & Canadian Content

75% 75% 40% C45% T

Cars=25% from materials & manufacturingTrucks=30% from materials & manufacturing

+ + =

34

Three Options to Mitigate Supply Chain Disruption

Reshoring Status QuoDiversification

35

Changes in Automotive Manufacturing

Automation “Plump” Lean Consolidation

Thank you

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