Retooling For Growth in a Dynamic Market CAR MANAGEMENT BRIEFING SEMINARS August 1, 2017 Mike Jackson Executive Director, Strategy and Research Original Equipment Suppliers Association mjackson@oesa.org +1-248-430-5954
2
Championing the business interests of the automotive OE supplier community: Founded in 1998, the Original Equipment Suppliers Association (OESA), serves as the voice of the automotive supplier and a valuable resource for member organizations. Throughout the supply chain and on legislative and regulatory issues, OESA represents the collective voice of suppliers. Exclusively for automotive suppliers: Supplier membership is exclusive to original equipment automotive suppliers that directly provide components, tools, materials and services to the OE light vehicle industry. Strength in numbers: Membership is comprised of approximately 375 Tier 1,2, and 3 automotive suppliers with North American OE sales that range from $10 million to $5+ billion. Affiliate members support the supplier community with thought leadership, industry analysis and other key information. LED By supplier industry executives: OESA s interests are guided by a board of directors consisting of CEOs from member companies of all sizes. Staff that works for members: Members enjoy direct access to a staff of dedicated association employees in Detroit and Washington, D.C.
AGENDA Vehicle Sales Dynamics Production Outlook Supplier Implications Summary 4
1996 1998 2000 2002 2004 2006 2008 2010 2012 2014 2016 US: New Light Vehicle Sales Pace has slowed since late 2015, but still on pace for a strong year Monthly Sales (SAAR, millions) 22 20 18 Keep America Rolling Employee Pricing For All 16 14 Cash For Clunkers 12 10 8 6 4 Source: Wards, US Bureau of Economic Analysis Total Car Light Truck 5
Millions Thousands US Light Vehicle Incentives and Inventory Vehicle Inventory (millions) Vehicle Incentive Spending (thousands) 50% 4.5 25% $4.0 25% 4.0 15% 0% 3.5 3.0 5% -5% $3.0-25% 2.5-15% -50% 2.0-25% $2.0 Y/Y (%) US Inventory Y/Y (%) US Incentive/Unit Source: Automotive News Data Center, Autodata 6
1968 1970 1972 1974 1976 1978 1980 1982 1984 1986 1988 1990 1992 1994 1996 1998 2000 2002 2004 2006 2008 2010 2012 2014 2016 2018 US: Light Vehicle Sales Outlook Forecasts vary among firms impact of sales taper is key assumption Annual Sales (millions) 18 17 16 15 14 Trend: 1968-2008 Rising 125K/year 13 12 11 10 Source: PWC-Autofacts, IHS Markit, LMC Automotive, Wards Auto Intelligence June 2017 History PWC-Autofacts IHS-Markit LMC Wards Auto Intel 7
Lease and Fleet Share Retail Slowing, Industry Reverting to Bad Habits? Current Strength Borrows from Tomorrow Lease and Fleet Share of New LV Registrations 26% 24% 22% 20% 18% 16% 14% 2010 2011 2012 2013 2014 2015 2016 2017 Lease Originations (millions) 5.0 4.5 4.0 3.5 3.0 2.5 2.0 1.5 1.0 0.5 0.0 1996 2000 2004 2008 2012 2016 Lease Share Fleet Share Source: Cox Automotive, IHS Markit, Manheim Consulting 8
1995 1997 1999 2001 2003 2005 2007 2009 2011 2013 2015 2017 Manheim Used Vehicle Value Index Industry Holds Positive Momentum, yet segments reflect dramatic divergence Manheim Index (Jan 1995=100) 130 Change in Wholesale Auction Price (YTD, YOY) 35% 125 120 115 30% 25% 20% 15% 1 my old 2 my old 3 my old 4 my old 110 10% 105 5% 100 95 0% -5% -10% 90-15% Industry Compact cars Midsize cars Luxury cars Pickups SUV/ CUV Vans Source: Manheim, monthly, Adjusted for mix, mileage and seasonality 9
GOVERNMENT COMMERICAL DAILY RENTAL Fleet Sales Boom Can Leave Extended Impact Unique OEM Strategies Top Fleet Shares Change in Fleet Sales (Year over Year) 35% 25% 15% 2016 vs '15 2015 vs '14 +17% +400K 2016-2.8M 2015-2.6M 2014-2.5M 2013-2.4M 11% 11% 8% 8% 8% 8% 30% 27% 5% 17% 2013 28% -5% -15% Ford GM FCA Nissan Hyundai- Kia Source: Automotive News Data Center Toyota Honda 20% 2014 2015 2016 22% 10
Millions US Light Vehicle Sales Outlook By Type 20 18 17.5 16 14 12 10 8 6 4 Car Utility 2 Truck 0 2005 2010 2015 2020 Source: Wards Auto Intelligence 16.6 2016-2024 -5% (865K) No Change (6K) +16% 1,180K -30% (2,039K) 11
AGENDA Vehicle Sales Dynamics Production Outlook Supplier Implications Summary 12
Jan-2008 Jan-2009 Jan-2010 Jan-2011 Jan-2012 Jan-2013 Jan-2014 Jan-2015 Jan-2016 Jan-2017 Significantly more optimistic Somewhat more optimistic Unchanged Somewhat more pessimistic Significantly more pessimistic OESA Supplier Barometer Index: SBI Score = 40 Inventories, production volumes and the political environment drive sentiment down Describe the general twelve month outlook for your business. Over the past three months, has your opinion become? Supplier Barometer Index: (SBI 6m Average) 80 70 Current Supplier Outlook (Share of Respondents) 60% Q2 2017 Q3 2017 60 Lehman Collapse 40% 50 40 30 20 Euro Crisis Begins Japan Tsunami/ Grexit Crisis US Fiscal Cliff 40 20% 0% Source: OESA Supplier Barometer 3Q 2017 OESA Automotive Supplier Barometer- July 2017 13
OESA Supplier Barometer: Threats to the 2017-2018 Outlook Rate the possible threats being considered in your current outlook over the next 12-18 months, Changes in government trade policy 0% 20% 40% 60% 80% 100% Average Rating 3.9 Poor sales of vehicles in programs supplied 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 3.9 4.5 5.4 5.5 6.2 6.7 7.7 1=Greatest threat 2 3 4 5 6 7 8 9 10=Smallest threat Source: OESA Supplier Barometer 3Q 2017 OESA Automotive Supplier Barometer- July 2017 14
NORTH AMERICA 2017-2019 Production Forecast Comparison (VOLUMES REPRESENT NA CAR, LT TRUCK CLASS 1-5) (in millions) 1Q Actual 2Q Forecast 2017 3Q Forecast 4Q Forecast 2017 Forecast 2018 Forecast 2019 Forecast 4.47 4.49 0.06 4.21 0.06 4.30 0.12 17.47 0.29 17.97 0.22 18.65 0.27 4.53 4.53 0.08 4.20 0.02 4.29 0.06 17.56 Δ0 17.72 0.19 17.90 0.27 4.56 4.54 0.18 4.24 0.04 4.44 0.01 17.78 0.21 17.88 0.46 18.02 0.42 Forecast Average 4.52 4.52 4.22 4.34 17.60 17.86 18.19 Forecast Spread 0.05 0.04 0.15 0.31 0.25 0.75 2016 Average 4.47 4.61 4.39 4.34 17.81 Source: OESA Forecast Snapshot June 2017 15
Millions North America Industry Production Cycles 20 18-26% -3.8M -42% -6.4M -19% -2.6M -10% -1.7M -48% -7.8M -2.2% -385K? 16 14 12 10 8 6 4 NA Production 2 Recession Linear (NA Production) 0 1970 1975 1980 1985 1990 1995 2000 2005 2010 2015 2020 Source: Wards Auto Intelligence Stress testing -10%? -20%? -30%? 16
Millions North American Production Demand Drives Divergent Growth 21 18 15 12 9 6 3 0 3.8 3.5 4.1 5.1 7.2 8.5 1.8 2.7 6.5 6.9 4.0 6.0 2004 2006 2008 2010 2012 2014 2016 2018 2020 2022 2024 Source: IHS Markit Car Utilities Truck -271K -7% +1.3M +19% -878K -13% 17
Vehicle Production Categories Winners & Losers 3.5 2.5 Small Midsize Fullsize 0.7 3.2 3.5 2.5 0.8 +528K +371K -719K 3.5 2.5 1.5 2.0 1.5 1.5 0.5 0.5 3.2 2.8 0.4 0.5 0.4 2.7 3.1-0.5 Car Utility Truck -0.5 Car Utility Truck 2016 2024-0.5 Car Utility Truck Source: IHS Markit 18
AGENDA Vehicle Sales Dynamics Production Outlook Supplier Implications Summary 19
Future Launch Activity 50 40 30 20 10 19 19 25 16 Vehicles Cars Trucks 34 25 33 29 13 16 20 19 20 24 10 17 12 14 8 9 D-Segment C-Segment B-Segment Thousands Average Transaction Price By Segment ($) June 2017 Utility Car 0 10 20 30 40 +46% +39% +51% 0 Source: IHS Markit, Kelly Blue Book 20
Priorities & Positioning for Profitability $17,250 profit/unit.24 Million units sold - 2016 $4.1 Billion MARGIN COMPETENCY ~$10,000 profit/unit 2.28 Million units sold - 2016 $22.8 Billion MARKET SCALE 21
Production Portfolio Comparison - 2016 OEM Units Car SUV Truck General Motors 3,647 32% 34% 34% Ford 3,068 25% 36% 39% FCA 2,516 13% 61% 27% Toyota 2,125 47% 36% 17% Honda 1,957 47% 51% 2% Renault-Nissan 1,846 56% 28% 16% Hyundai 859 66% 34% 0% $ BMW 411 0% 100% 0% Daimler 354 20% 69% 11% Volkswagen 517 98% 2% 0% Source: IHS Markit Other 524 95% 5% 0% Unit volume - 6,866 7,130 3,829 NA average 17,825 39% 40% 21% 22
Millions Millions Mexican Production Profile 2.5 2.0 1.5 1.0 0.5 0.0 2014 2016 2018 2020 2022 2024 30% 27% 24% 21% 18% 15% 5.0 4.5 4.0 3.5 3.0 2.5 2.0 1.5 1.0 0.5 0.0 0.2 0.2 0.1 1.8 1.8 1.3 1.7 1.9 1.5 0.4 0.8 0.9 2016 2018 2020 2022 2024 NA Share Car Utility Truck Other A4 US3 G3 Source: LMC Automotive 23
Passenger Cars: Under Pressure Steady March To Reduce US3 Car Portfolios and Utilize Global Sourcing Segment A/B Fiesta Sonic C Dart Focus Volt? Verano Cruze? D E 200 Taurus LaCrosse? Impala? CT6? 24
Top Automotive States Michigan Ohio Indiana Tennessee Kentucky Alabama Illinois North Carolina South Carolina Texas California Pennsylvania Georgia New York Wisconsin Missouri Iowa Virginia Top 20 - Supplier Employment (000s) 32% 8% 5% 6% 49% 0 50 100 Source: 2017 MEMA Economic Study 2015CY ; Share of total direct employment Regional Share % Michigan Ohio Indiana Kentucky Alabama Tennessee Missouri Illinois Texas Mississippi South Carolina Georgia Kansas California US Vehicle Output - 2016 (Millions) CAR TRUCK Regional Share % S-East, 38% 5% 1% Midwest, 56% 0 1 2 Source: LMC Automotive, OESA Analysis 25
OESA Supplier Barometer Survey: HR & Talent Focus SKILLS + CULTURE GAP 63% MODERATE TO WIDE SKILL SETS SPECIALIZED AUTONOMOUS COLLABORATIVE ACTION PLANS: CROSS FUNCTIONAL TRAINING APPRENTICESHIPS TALENT SCARCITY NEW VALUES: TIME FLEXIBILITY ENGINEERS TECHNICIANS HOURLY SKILLED CHANGE ROLES TO FIT SKILLS NEW HIRING PRACTICES 26
AGENDA Vehicle Sales Dynamics Production Outlook Supplier Implications Summary 27
Summary Market: US demand slowing, divergent performance Strategy: Cycle requires dramatic reboot, engaged planning Offense: SUV growth/truck peak bring opportunities and risks Defense: Growing scope of passenger car dislocation, turbulence Flexibility: Liquidity is key; vital to balance Core vs Emerging Stretch: Build on strong foundation, adapt to grow reach higher 28
Thank You... CAR MANAGEMENT BRIEFING SEMINARS August 1, 2017 FOR QUESTIONS OR ASSISTANCE, PLEASE FEEL FREE CONTACT ME: Mike Jackson Executive Director, Strategy and Research Original Equipment Suppliers Association mjackson@oesa.org +1-248-430-5954