Crystal Ball Manufacturing BDO’s Rozanski: Auto industry 2011 outlook: innovation & education key
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By Cathy Rozanski
Senior Manager
BDO, Detroit office
Following one of roughest times in recent history, the automotive suppliers in Michigan are generally seeing meaningful improvements in both sales and operating profit for 2010. Looking forward, we expect to see continued improvements in both of these key metrics in 2011 as volumes stabilize. The market anticipates seeing increased demand for new vehicles as household incomes continue to stabilize; this means a possible improvement in pricing strength for manufacturers.
While we cannot definitively predict what will occur in the year ahead, there are several potential opportunities within the auto industry for professionals and the general public alike.
Global Growth: Recent economic updates show strong growth potential beyond U.S. borders. If this growth comes to fruition, it should strengthen markets at home, yielding manufacturing opportunities in Michigan and other states.
We anticipate that the new crop of leaders in Lansing will continue and expand the initiatives to attract international manufacturing to the state. This is a potential boon to both sides: companies who have access to some of the top engineering talent in the world and to potential employees who have increased employment opportunities. We hope that our leaders will continue to focus on making Michigan a hub for business investments and innovation.
Green growth: Continuous debates around oil and gas reserves and the Gulf oil spill have broadened discussions about electric and hybrid electric vehicles. Enthusiasm continues among suppliers as the demand for these types of vehicles heightens. Suppliers with technology and related products such as lithium batteries stand to gain momentum. However, battery producers and fuel supplier organizations need to improve performance and fuel efficiency before electric cars become mainstream.
Supply chain focus: Now is the time to revisit collaboration. Tremendous opportunities lie with a streamlined approach. Companies may try to eliminate target pricing and voluminous quoting processes to look at ways those manufacturers and suppliers can work together. This is an opportunity not only for purchased parts, but for all of the purchasing spend at manufacturing companies.
While these opportunities present a bright picture for the auto industry and suppliers, we anticipate multiple challenges in the year ahead as well.
Since innovation will be key in the year ahead, automotive professionals may need to consider continuing to leverage the efficiencies gained in the past and not returning to the old ways. Companies are now able to benefit from the massive restructuring and efficiencies implemented in 2009 and 2010 — the break-even point for them coming easier as a result.
While the particulars of the General Motors bailout can be debated, the recent IPO marks a turning point for the company. The events of the past two years have highlighted the importance of the automotive sector to the state of Michigan and the greater U.S. economy. However, this and other related developments have only emphasized the need for more innovative technology in the automotive space.
Another challenge comes as a result of forecasting employment gains in the automotive industry, which is being fueled partially by continued stabilization of the market. We acknowledge, however that these gains are not at the historical compensation levels of the past. It ultimately is a new reality for the assembly and supplier work force.
When we shake the magic eight ball and ask what’s in store for the auto industry in the year ahead, a few possible predictions/ideas present themselves as worthy of consideration:
New leaders appear focused on continuing to improve the business environment in the state. These stable leaders appear to be working with proven business leaders in the state and this alliance of industry and government leaders may yield opportunities in the auto industry as well as the greater business landscape.
Nobody has a crystal ball, but strategist and innovation expert Jeb Brugman offered some thoughts at a recent business forum: “Automotive companies and suppliers need to be careful not to return to the old way of doing things. To get ahead in 2011, they need to leverage recently gained efficiencies. This will enhance their opportunity for stable balance sheets and possible growth.” This is a great place to start.