Guidance to the Industry's Twist and Turns

Leading information provider IHS Global Insight is working hard to calculate what direction automotive industry concerns will take over the coming years. Guido Vildozo, Light Vehicle Sales Forecasts Manager for Latin America of IHS, explained that the company’s analysts focus on establishing the state of the industry for both sales and production. “The sales side has a unique set of issues such as credits, used-car imports, and growth projection. For production, which is receiving a lot of investment, the concern is always where the industry is going to go next,” says Vildozo. Up to this point, the Mexican automotive industry has been majorly dedicated to exporting to the US, but IHS sees Mexico becoming a replacement production hub for some previously key manufacturing regions throughout the world. Chrysler’s recent decision to use Mexico as a base of production for cars to export to China is a key example of this phenomenon. “From IHS’ perspective, the next step is going to be the hardest because Mexico has a limited supplier base that needs further development. Suppliers are currently acting on more of a free market basis in response to the needs of every OEM, but there is no aggregate vision of what needs to happen,” says Vildozo. “Mexico is competing with the other Latin American giants for manufacturing, but these have already set firm goals for the future.”

IHS Automotive has established partnerships with the local trade, manufacturing, and auto parts associations in several countries to ensure that its data comes directly from the source, including close partnerships with major OEMs and Tier 1s. Roughly 60% of the Tier 1 industry are clients of IHS Automotive, according to the company’s Sales Manager for Latin America, Raul Dary. In terms of key opportunities for OEMs that IHS’ extensive analysis has identified in Mexico, Vildozo is conservative. “There is only limited room for surprises showing up in the future. The one area that leaves room for exploration is the premium sector, in which we have seen Audi take the first step, but that is premature, taking into account that the drivers for this move were Argentina and Brazil. At this point, there is a little bit of uncertainty as to whether that quota is going to be extended past the first quarter of 2015,” says Vildozo. According to IHS, there is often a difference between the manufacturer’s objective and the reality about the actual volume that is produced. In the same vein, it may not make sense to look at sales projections in the earliest stages of production, but IHS believes it is imperative. “We look at potential sales in certain countries compared against new and competing models, and then predict where the models are geographically and how much they are trying to sell. All of this is very important information for a producer or potential producer,” explains Vildozo. The average new car plant does not see a return for two decades, and the average new powertrain site does not see returns for 15 years, hence making it all the more crucial for producers to understand the market.

Given the range of its services and breadth of data, it is clear how IHS can help OEMs understand the market. But helping suppliers with different concerns and different budgets requires a modified tack. Dary believes that suppliers should utilize IHS’ market expertise throughout the entire production process, as “both the start and end of production are milestones for any supplier. If a supplier can be provided with the accurate timing for when a model is going to start being produced, it is ahead of the curve in terms of responding to the request for quotation, and in understanding what the volumes are going to be.

It can therefore set up capacity at the plant accordingly.” Armed with this insight, Dary maintains that the suppliers have the battle largely won, as they can go to the OEM better prepared than their competitors. “A supplier that does not currently do business with any OEM might be reluctant to invest in expensive consulting advice, but it should definitely do so,” Dary states. “That company should have a good understanding of the programs that are about to start, as well as the attributes of the vehicle that is going to be produced, in order to be prepared and serve that demand,” says Dary. This is particularly important when establishing a plant, as many suppliers get burned from pouring too much capacity into their plant, resulting in huge financial outlays. “Excess capacity is never good. If a plant is running at 50%, it becomes very difficult to get to a break-even point, let alone the ability to go beyond it,” concludes Dary.