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February 03, 2017 01:00 AM

Auto suppliers' outlook dips even with record year

Rubber & Plastics News staff
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    It came down to the wire, but the winning streak for the U.S. automotive industry continued during 2016. Thanks in part to some late-year creative salesmanship, light vehicle sales in the nation rose for the seventh consecutive year, with the 17.5 million cars and light trucks sold eclipsing the then-record 2015 total by a mere 56,000 vehicles.

    Behind the numbers, a couple of themes pop out. First, consumers aren't looking to downsize their rides anytime soon. As recent as 2013, cars and light trucks split the U.S. market fairly evenly. But oil prices have remained low, driving consumers to forgo autos and look for larger vehicles.

    For 2016, light trucks commanded a 60.7 percent of the market as sales topped 10 million units for the first time. Nearly 1.1 million were sold in December alone.

    That is a trend tire manufacturers should like, as larger vehicles means higher volume for bigger tires, which bring in a higher profit margin, particularly when those customers need replacement tires a few years down the road.

    Car sales, though, were just 6.9 million for the year, the fourth lowest total since 1962. That disparity has caused some concern for suppliers, as planning is made more difficult because some vehicle models they supply have seen volumes much lower than anticipated.

    To extend the U.S. light vehicle growth streak, however, auto makers leaned heavily on incentives to close the deal with hesitant buyers. In fact, incentives offered to consumers during December were about 20 percent higher than a year earlier.

    The strong sales numbers to end the year means any pent-up demand the industry feasted on in 2016 now is exhausted, according to the National Automobile Dealers Association.

    Still, though, nobody expects 2017 to be a disaster for the U.S. auto industry. Forecasters still expect sales to remain above 17 million units, which still would rank among the top five years in history.

    But production levels will drop, a fact suppliers to the automotive sector must cope with. IHS Markit projects North American vehicle production will drop from 17.85 million last year to 17.6 million, and 600,000 of that will come from new capacity. Factories producing light trucks will fare better than car plants.

    Even as U.S. sales set another record, the outlook auto suppliers had on the auto industry already was starting to drop, according to the Original Equipment Suppliers Association. The group's quarterly Supplier Barometer Index in October was at its lowest level since 2012, ranking in the "pessimistic" category, as many believe a market downturn is increasingly likely.

    The group representing suppliers to the automotive industry said the outlook by suppliers actually has been dropping since 2013, even as the U.S. car sector continued to post volume increases each year.

    Taking a cautious approach, though, will serve suppliers well, as they will be better prepared to react if the market does indeed take a dip.

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