a::Marketing Automotive OEM Products

OEM suppliers to the auto industry are finding that less (cost) is more (business).



By Alex Strzetelski

Companies supplying interior fabric products to the U.S. – based automotive industry have seen many structural changes over the last several years. Cooperation has replaced antagonism, material recycling has replaced material waste, and savings have replaced overruns. The words that continue to be the most talked about are cost, cost and cost. Every company in the materials chain from seating supplier to fiber supplier is being challenged to find ways to reduce costs. Each supplier has offered innovative approaches, while industry has implemented several significant changes.

Most areas of the automotive interiors segment have seen their segments growth become a bit sluggish in 1995, largely because of a slowdown in total automotive production. In 1996, however, this decline is likely to reverse, but only slightly, as pent-up demand and the U.S. economy begin to pick up. The overall automotive interiors segment is estimated to ship approximately 345 million square yards of fabric by years end and struggle through a 1-2 percent growth rate. Certain applications will experience slightly higher growth as their applications continue toward 100% penetration. Other applications, however, will only grow at the automotive industries’ production levels.



Styling and seating

Interior styling has become a popular way for automotive companies to drive sales and increase growth. Always with an eye toward reducing costs and selling more cars, automotive companies have found that it is less expensive to restyle the interior than the exterior.

Color is the prime interior restyling element. Fabric choice is the other. In 1995, woven velors are the seating system fabric of choice, and have been forecast to make up an estimated 29 percent of all interior seating applications. Double raschels are close behind at 23 percent. The remainder includes flat woven (18 percent,) Tricot knit (4 percent) and leather (9 percent). Leather will likely see an increase in usage, as will jacquard circular knits.

Global opportunities

With very few automotive manufacturers not jointly owned or otherwise connected with another in some other country, opportunities for U.S. suppliers are practically global. These days, U.S. manufacturers are looking toward South America, particularly Brazil, for profit potential. Ford, for instance, is planning to spend $2-3 billion in Brazil over the next four years to catch up with the country’s top car makers, General Motors and Fiat. Brazil is not the only South American country to see automotive expansion plans. Fiat is is planning to build a $600 million plant in Argentina with hopes of producing 15,000 units.
Another example of the automotive industry’s internationalization and the opportunities it has to offers comes from Germany. The dollar’s value against the German mark has continued to drop over the last several quarters, reaching a post war low last spring. As this occurred, German automotive companies found that domestic production was becoming increasingly cost-prohibitive.

To help cut costs, Mercedes-Benz increased parts sourcing outside Germany from 15 percent to 30 percent. It also began building new production facilities in other countries, including the United States. Future plans call for production and assembly outside of Germany to reach 10 percent of all automobiles produced.

Economic forces have dictated that German companies look abroad to make their businesses more profitable. Other countries, notably the United States and Japan, have been less inclined to let market forces dictate their decisions. In June 1995, these two countries agreed to a trade pact for automotive parts and structural economic considerations.

The agreement, however, is largely based on Japanese automobile companies increasing overall car sales and on individual Japanese companies willingness to buy U.S.-made parts. Currently there is no mechanism that requires the Japanese to make such purchases. (It should be noted that Japanese auto plants in the United States do buy a substantial amount of automotive interior fabric.)

However, if Japanese companies begin to buy even a fraction of their parts from American sources, many tier one and tier two suppliers will benefit. Based on American projections of future Japanese production figures, U.S. suppliers can expect an increase of approximately 25 percent (2.65million units, $6.75 billion in parts.) in transplant production, the possible purchase of $2 billion in export parts, and 200 more U.S. owned dealerships in Japan.

Strengthening

Although several issues face the automotive industry, its manufacturing process continues to become more efficient and competitive. Revenue per car continues to increase as suppliers find more efficient ways of providing better, more cost effective, products.

Not many industries can say that the final assembler has a good idea of how the initial material is manufactured and used. The automotive industry can. The shocks that suppliers have felt in the past have made them stronger and more innovative.

Still, the automotive market continues to evolve rapidly, and the future holds numerous new challenges requiring suppliers to remain nimble in their manufacturing processes.


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