Automotive Engineering - April 2024 - 4

SUPPLIER EYE
New Keys to Success
M
uch has been written about the extraordinary
vehicle production and
market environment of the past four
years in North America and beyond.
The plethora of negative impacts from COVID,
chip availability, scarcity of labor, inflation, shipping
disruptions and union/OEM disputes can all
be boiled down to what's best described as an
" operational hell. " Everyone is happy to put this
all behind us.
The dawn of 2024, at least for North America,
has enabled some stability from a volume perspective
as the industry slowly rebuilds inventory
and adjustments are made to the pace of
BEV volume buildout over the next couple of
years. This should offer some familiarity and a
welcome breather from the highly unpredictable
environments we've seen since late 2019. That
being noted, there's a question in the air about
the new, inexperienced challenges that might
lurk around the corner.
As one carefully peers ahead, what are the levers
of success for the supply base? Are they the
same as in the past or have recent events, the
addition of several new OEM (and supplier) players
and the secular shifts towards new propulsion
forms changed the playing field? Let's outline a
handful of core considerations that apply to virtually
every supplier as they build strategy.
The Crossover - New vs. Old
The industry has or will be launching several
new BEV-only or " multi-energy " platforms
through this decade. At issue will be the underlying
volumes OEMs need to drive improved
economies of scale (and therefore lower costs)
versus the ability to sell these profitably given
consumer acceptance.
As outlined a couple of columns back, this
ongoing balancing act of required production
volumes (necessary for OEMs to drive scale) and
forecasted production volumes (consideration
of real-world market dynamics) drives suppliers
to renew their focus on program-level profitability
and capital efficiency. If a BEV program is
delayed or reduced, you can bet that, in most
cases, an ICE-focused entry will fill the gap.
Mastering BEV delays vs. ICE extensions will be
key for suppliers this decade.
Michael Robinet
Executive Director,
Consulting,
S&P Global Mobility
SAE Foundation
Trustee
michael.robinet
@spglobal.com
If a BEV
program is
delayed or
reduced, you
can bet that in
most cases an
ICE-focused
entry will be
filling the gap.
Operational Efficiency
To achieve economies of scale as we transition to
new BEV-format platforms and eke out more volume
from existing ICE structures, suppliers must
be flexible and operationally efficient. Using a
" less is more " philosophy is key. Where in the
past an organization may have been somewhat
looser with capital and resource allocation, strong
volumes can hide inefficiencies. One should not
count on this past luxury. Hard choices may increasingly
be required in an environment of accelerated
volume instability and the relatively
high cost of capital our industry faces.
Trade, Tariffs and Labor Costs
Building for several years, though propelled by
COVID and recent inflation flareups, are rising
labor costs. Before last year's UAW and Unifor
agreements, suppliers were already feeling the
impact of higher hourly costs, poor labor availability
and the requisite cost of quality with high
turnover. Virtually no company has been immune
from rising costs and altered benefit
structures that impact overall costs. For many,
increased automation is the only answer.
New trade regulations (U.S. IRA), specific tariffs
(like the 25% parts tariff on China-sourced
products) and a host of other protective tariffs
add to the hurdles companies must overcome
going forward. Though many are well-intentioned,
obstructions add to the cost of doing
business with fewer options as several regions
turn inward.
While many of these obstacles are re-emerging
from the past, together they portend a new
ecosystem that must be navigated. Smart suppliers
will have Plans B and C ready if the situation
demands alternatives. To paraphrase my
hockey coach, suppliers should keep their heads
on swivels.
4 April 2024
AUTOMOTIVE ENGINEERING
Automotive Engineering - April 2024

Table of Contents for the Digital Edition of Automotive Engineering - April 2024
