As just one quick glance at the headlines will confirm, the auto industry is under siege these days. With a highly volatile market and widespread uncertainty over the future, many sectors are forced to cut jobs to keep profits afloat. One new report from MarketWatch indicates the industry is shedding jobs at its fastest rate since the 2008 financial crisis. In response, a major Ford restructuring effort has enacted widespread changes throughout the company, which Morgan Stanley estimates could net the automaker as much as $1.75 billion in gross cost savings. However, it’s not just the OEMs – like Ford – that are feeling the heat; auto suppliers, which provide the OEMs with parts, are also facing similar pressures to remain profitable, and are likely to undergo restructuring efforts of their own.
With rising production costs and technology investments, the industry is digging deep to streamline, with a concerted, industry-wide effort to reduce overall vehicle complexity. That means suppliers that deal in powertrain systems, safety systems and infotainment technology could be impacted, as OEMs look for a silver bullet, one-size-fits-all solution.
Emerging vehicle segments could exacerbate this situation in the future. For example, the propulsion system in an all-electric vehicle typically comes with fewer components than an equivalent internal combustion engine. As such, auto suppliers will be forced to face greater competition and new challenges.
This turn of events also extends to the pickup truck, crossover and SUV segments, where red-hot sales numbers have prompted automakers to flood the market with new entries. With such a strong focus on one particular segment, suppliers must respond in kind.
What’s more, there’s even greater pressure on procuring raw materials thanks to rising prices for steel and aluminum, which is the result of an ongoing trade war between the United States and China, along with other trading partners.
All told, these pressures affect the whole of the automotive supply chain, and their impact could be felt far beyond the latest Ford restructuring effort. The high levels of competition, volatility and uncertainty across the auto industry have already impacted OEMs and suppliers with layoffs, and with continued trade threats and hyper-evolving market demands, it’s unclear when stability will finally return to the automotive world.
Source: Seeking Alpha