HDMA Supplier Barometer Quarter 2, 2018

Transcription

1 HDMA Supplier Barometer Quarter 2, 2018 This report is the property of the Heavy Duty Manufacturers Association (HDMA) and subject to the protection of copyright, trademark and other intellectual property laws. No portion of this presentation may be reproduced or distributed (including by ) without the prior written consent of HDMA.

2 Contents Section Pages Introduction and Summary 3-5 Situation Analysis 6-8 Planning Activity Current Issues Original Equipment Truck and Trailer Build Off-Highway Outlook Heavy Duty Aftermarket Outlook Industry Trends & Issues Click the home icon to return to this page

3 Introduction The Q HDMA Supplier Barometer shows a slight softening of 12 month outlook from 77% in Q1 to 75%. The business activity indexes inventory, hiring and capacity also all trended downward in Q2. Concurrent with the announcement by the Census Department of a major downward revision of the Q1 GDP figure, this downturn in outlook could be an indication that the extreme bullishness of the past year may have over reached. While the overall business indicators are slowing and outlook has tempered slightly in Q2, the subsector specific outlooks, forecasts and reports of operations against plan all remain solidly positive. Concerns over the potential impact of tariffs remains high. Suppliers are battling shortages of raw materials, and, adding further complication to manufacturing operations, are experiencing difficulty in recruiting production personnel. This quarter we asked for the thoughts on the shape of the commercial vehicle aftermarket of the future. The results can be found at the end of this report. There were 73 completed returns in the first quarter report.

4 Summary Situation Analysis Average (50% = neutral) Q3 17 Q4 17 Q1 18 Q2 18 Twelve month outlook for your business 71% 72% 77% 75% Company changed prices last quarter 59% 60% 64% * Company sales 74% 76% 80% 81% Planning Activity Average (50% = neutral) Is your company hiring? 72% 69% 75% 72% Adding production capacity? 71% 71% 77% 71% Adding to inventories? 67% 63% 71% 64% * Please note, for antitrust compliance, the results of this question are delayed by one quarter.

5 Year-Over-Year Analysis Situation Analysis Average (50% = neutral) Last Year Current Change Twelve month outlook for your business 70% 75% +5% Company changed prices last quarter 61% * * Company sales 69% 81% +12% Planning Activity Average (50% = neutral) Is your company hiring? 68% 72% +4% Adding production capacity? 69% 71% +2% Adding to inventories? 63% 64% +1% * Please note, for antitrust compliance, the results of this question are delayed by one quarter.

6 Situation Analysis Question 1. Describe the general twelve month outlook for your business. Over the past month, has your opinion become:

7 Situation Analysis Question 2. Has your company changed its prices during the past three months? Please note, for antitrust compliance, the results of this question are delayed by one quarter.

8 Situation Analysis Question 3. How strong are your company sales?

9 Situation Analysis Situation Analysis Percent positive long term trend Please note, for Q3 16 questions were changed from a 5 point scale to a 9 point scale. While all efforts have been made to ensure continuity, data may not be directly comparable. 50% = neutral

10 Planning Activity Question 4. Is your company hiring?

11 Planning Activity Question 5. Is your company adding production capacity?

12 Planning Activity Question 6. Is your company adding to inventories?

13 Planning Activity Planning Activity Percent positive long term trend Please note, for Q3 16 questions were changed from a 5 point scale to a 9 point scale. While all efforts have been made to ensure continuity, data may not be directly comparable. 50% = neutral

14 Current Issues Question 7. How significant are these issues facing your company?

15 Current Issues Issue significance change over time * - individual concern vs mean concern for quarter vs same calculation for last quarter or year

16 Current Issues Question 8. Is there any other significant issue that is facing your company? Blue collar labor is very tight California Prop 65 Can't find machine operators China tariffs (2) Consolidation of independent distributors into large multi location groups Downsizing of engines Expedited freight costs both inbound and outbound to obtain material and hit the customer production floors in time due to high demand, labor and material shortages Finding good talent Global negotiations Impact of Tariff on NAFTA and China Trade Labor issues (plant workers) Lack of good skilled labor in the labor pool as well as technical/professional labor (Engineers, etc) Margin erosion due to inflationary costs NAFTA Proposed Tariffs will significantly impact profitability until we can pass them on to customers. Raw material costs index and non index based costs. If we don't have an agreement in place on non index costs, we won't get recovery Right now capacity is biggest challenge. Steel tariff (3) Suppliers keeping pace with demand ramp. Bringing secondary suppliers on line Tariffs (4) Tariffs and how it will change the aftermarket Unclear regulatory/tariff/nafta approach makes it very difficult to plan the business Volatility in metal prices due to trade and tariff uncertainty

17 Current Issues In comparison to your business plan, how would you rate your company's past quarter performance by sector? Sector details in respective report sections. Sectors asked individually.

18 Current Issues What is your short term outlook by sector? Please rate the sector performance, not the performance of your company in the sector. Sector details in respective report sections. Sectors asked individually.

19 Current Issues Please characterize the "balance of power" in the relationships with your customers: Sector details in respective report sections

20 Current Issues What is the greatest challenge faced by your on highway business? Ability to meet customer demand Being competitive Capacity (2) Capacity limitations Commodity and tariffs costs driving up pricing Demand increases in OE and OES versus independent aftermarket increases create demand peaks Direct labor, material availability and variation in customer demand & forecast Driver shortages are holding back potential sales European partners of NA players increasing significance and focusing on cost, at the expense of features and benefits that are appreciated/demanded by the end customers Forecast accuracy Globalization of the OEM's can swing the balance of power towards the OEM International competition and raw material price escalation Keeping up with demand; orders coming in faster than raw materials can supply Low cost pricing Maintaining supply to meet current demands Margins Need pricing to recover increase labor and material costs Overall capacity in the supply chain Qualified young people interested in our industry raw material cost increases Raw material prices Raw material surcharges passed on to our customers Recovery of material costs within framework of existing LTAs Steel pricing, delivery, and availability Supply chain and availability cross border Supply chain keeping up with demand and maintaining price Tariffs and getting them through the OEM

21 Current Issues What is the greatest challenge faced by your off highway business? Adaptation of new technologies in automation and electrification will change the future landscape of machines Capacity, ever changing customer releases, raw material price escalation Commodity and Tariff based cost increases Customer forecast accuracy Demand forecasting has been extremely under all year from OEMs Demand is greater than supply Demand volatility and parts shortages from supply base Direct and indirect labor availability and some part specific material availability Direct labor, forecast accuracy and raw material availability Impact of Stage V on the cooling system options; it's unclear which approach OEMs will take Keeping up with demand and tariffs Maintaining supply to meet current demands Need pricing to recover labor and material increases Raw material cost increases Resource markets Supply of raw and finished goods industry machining capacity and ability to hire qualified people

22 Current Issues What is the greatest challenge facing your aftermarket business? Being able to get orders to customers on time China and steel tariffs from Canada since not all competitors have the steel tariffs since tariff is not put on assembled product Competitor Pricing Consolidation Consolidation of customers Customer consolidation Forecast accuracy and demand volatility Forecasting communication Freight costs are impacting freight prepaid program margins International competition and raw material price escalation Low cost, poor quality product perceived by customers at being equal to OE quality Meeting demand Obtaining material and labor to ensure on time delivery as production keeps ramping up OEM demands on pricing low cost parts coming from Asia OES leveraging OEM standard position in contracts OES private labels On Line purchases Pricing adjustments Private brand competition from OES and IAM customers Products are lasting longer than ever resulting in the decline of aftermarket business Raw material cost increases and the ability to pass them on to customers Raw material prices Regulatory issues regarding their ability to have access to information and parts Shrinking buyer decision locations due to merger and acquisition Supply Chain Supply shortages in comparison to demand The focus on parts sales from OE and limited availability to the VIN numbers needed to supply fleets

23 On-Highway Forecasts What are you forecasting for the North American 2018 Class 8 factory build range? Avg. 314,250* * - Average of cell midpoints.

24 On-Highway Forecasts What are you forecasting for the North American 2018 medium duty (Class 5,6,7) factory build range? Avg. 260,750* * - Average of cell midpoints.

25 On-Highway Forecasts What are you forecasting for the North American 2018 Class 8 trailer factory build range? Avg. 258,750* * - Average of cell midpoints.

26 On-Highway Forecasts In comparison to your business plan, how would you rate your company's past quarter performance for your on highway OE truck and trailer business? Percent Positive: 82.28%

27 On-Highway Forecasts What is your short term outlook for the overall on highway OE truck and trailer business? Please rate the sector performance, not the performance of your company in the sector. Percent Positive: 79.66%

28 On-Highway Forecasts Please characterize the "balance of power" in the relationships with your OEM truck and trailer customers: Avg. 3.84

29 Off-Highway Outlook Please rate your sales in the last ninety days as compared to forecast for the OE Agricultural market (units with greater than 50 hp) Percent Positive: 72.10%

30 Off-Highway Outlook Please rate your sales in the last ninety days as compared to forecast for the OE Construction market (units with greater than 50 hp) Percent Positive: 75.18%

31 Off-Highway Outlook Please rate your sales in the last ninety days as compared to forecast for the OE Mining market Percent Positive: 72.22%

32 Off-Highway Outlook Please rate your sales in the last ninety days as compared to forecast for the OE Industrial market (units with greater than 50 hp) Percent Positive: 65.42%

33 Off-Highway Outlook Please rate your sales in the last ninety days as compared to forecast for the off highway aftermarket Percent Positive: 70.61%

34 Off-Highway Outlook Comparison of off highway sectors where 50% = at plan

35 Off-Highway Outlook In comparison to your business plan, how would you rate your company's past quarter performance for your off highway business? Percent Positive: 75.72%

36 Off-Highway Outlook What is your short term outlook for the overall off highway business? Please rate the sector performance, not the performance of your company in the sector. Percent Positive: 76.74%

37 Off-Highway Outlook Please characterize the "balance of power" in the relationships with your OEM off highway customers: Avg. 4.21

38 Aftermarket Outlook In comparison to your business plan, how would you rate your company's past quarter performance for your business for the following markets? Percent Positive Indep: 72.79% OES: 68.78%

39 Aftermarket Outlook What is your short term outlook for aftermarket business by sub sector? Please rate the sub sector performance, not the performance of your company in the sector. Percent Positive Indep: 74.87% OES: 72.49%

40 Aftermarket Outlook What is your 12 month outlook for heavy duty aftermarket sales distribution by channel?

41 Aftermarket Outlook How significant an impact are counterfeit parts having on your aftermarket business? Avg. 4.31

42 Aftermarket Outlook Please characterize the "balance of power" in the relationships with your customers: Average Indep: 5.53 OES: 4.12

43 Industry Trends & Issues How will the following HD aftermarket changes influence your business? (negative or positive)

44 Industry Trends & Issues How significant will the same changes HD aftermarket influence the overall market? (small to large)

45 Industry Trends & Issues Thinking five years ahead, what will be the most significant change in the HD aftermarket compared to business conditions today? Acceptance of private label parts which are cheap Amazon / Alibabba Changes to the equipment and how fleets operate Consolidation of distributors and suppliers Consolidation Continued consolidation of customer base and continued patent protection of parts causing challenges for aftermarket parts production Continued consolidation of independents either by large chains, or by dealers Continued consolidation of the independent distributors Continued growth in e commerce, shift away from OES for parts and service outside of warranty period Continued infiltration of off shore all makes brands fostered by domestic competitors Customer and fleet consolidation Customer consolidation Dealer Groups all makes programs and expansion out of OEM parts into import/aftermarket parts Direct fleet sales E commerce (2) Electronic maintenance of products Even more consolidation at dealer level leading to more dealers buying direct Faster assured delivery Fewer customers How parts are purchased and the growth of air disc in the heavy duty market Increased commoditization and channel conflict due to consolidation into buying groups, larger fleets, rental companies combined with the growth of e commerce Inventory management at brick and mortar distribution locations Landscape of brands will continue to evolve; customer private brands will continue to play larger role

46 Industry Trends & Issues Thinking five years ahead, what will be the most significant change in the HD aftermarket compared to business conditions today? Less relationship based sales technology controls when where and how vehicles are maintained Modernization of fleet New technologies could cause trend to change (ecommerce may start to dominate like standard retails today). No aftermarket Normal market slowing OEM's will continue to dominate the aftermarket channels through terms and conditions Online sales with have major growth in the next 5 years with some suppliers choosing to sell direct to end users online Pace of technology and what impact it will have on traditional components (drive train, electronics/connectivity) Parts being widely available on line direct to consumers "Amazon Effect" Private brands cannibalizing branded offerings Regulations surrounding environmental requirements; especially in metropolitan areas Rise of disc brakes changing aftermarket needs Technology (2) Technology changes within the fleet customer requirements affecting how and from whom they acquire that technology Technology will make it more difficult for the HD companies to supply all make parts Telematics The move to on line shopping Trailer OEM's signing large Truck Dealer groups to represent their lines (smaller dealers are shrinking) VW will take over Navistar and bring large purchasing power driving price downs at suppliers Ways in which WD's effect supplier growth: will they change with the times?

47 Timothy Kraus President, Chief Operating Officer Thank You Megan Guess Senior Manager, Marketing Communications & Member Services Jennifer Hjalmquist Executive Director, Marketing & Member Services Beth Walters Barkovich Senior Director, Membership Development Katelyn Litalien Senior Manager, Marketing Operations & Member Services Traca Williamson Manager, Administration and Member Services Richard Anderson Director, Market Research Steve Handschuh MEMA President & Chief Executive Officer Ann Wilson MEMA Senior V.P., Government Affairs