A final push in the month of December may have helped auto makers again set an all-time record for U.S. sales, but executives at two Milwaukee area suppliers say it’s hard to see the market going even higher.
But Husco’s Todd Zakreski and Strattec’s Frank Krejci also said a small sales dip in 2017 might provide suppliers with a chance to take stock of their production and look to the future, even as the industry faces some uncertainty from President-elect Donald Trump’s pledges to limit Mexican production of cars sold in the U.S.
Preliminary data from Autodata Corp. suggested automakers would eclipse the 17.48 million vehicles sold in 2015. General Motors reported a 9.9 percent jump in sales for December and Ford was up slightly for the month. Both companies, along with Fiat Chrysler, ended the year with sales down slightly. Honda, Nissan and Hyundai were among those with year-over-year gains.
Krejci, president and chief executive officer at Milwaukee-based Strattec Security Corp., said the record sales over the last two years have come in an environment with low interest rates and aggressive incentives from auto makers. He expects interest rates will rise and the auto makers won’t be able to get even more aggressive with their incentives.
“The amount of incentives that were out there in November and December were significant,” said Zakreski, president of Waukesha-based Husco Automotive, noting he’ll be interested to see the financial performance of the OEMs in a few weeks.
He said the input he’s gotten from OEMs is that 2017 will be relatively flat or might decline in a few areas.
Krejci said he doesn’t expect to see much change in sales for 2017. If the numbers do go higher, it won’t be by much and he thinks the same would be true for a decrease. He also said a slight drop from the record pace of the last two years wouldn’t be terrible for auto suppliers.
“Just because production is going up, doesn’t mean that it all drops to the bottom line,” he said, noting that high demand has led to increased overtime and shipping costs among other things.
Easing off the record pace would give companies a chance to focus on efficiencies instead of just meeting volumes, he said.
Zakreski agreed a slowdown would provide an opportunity to make process improvements, but also noted in Husco’s case the company has won new business that will be launching in the coming years and less production pressure would allow for more focus on that.
He noted some industry leaders have predicted cars will see more changes in the next 10 years than they did in the last 50. He said with all the technology being added to cars, it will be interesting to watch what happens to consumer demand.
“If you see technology changing so quickly, it can be really enticing,” he said, noting it would have the potential to reduce some of the cyclical aspects of the auto industry.
Some of the changes include added consumer technologies, the rise of autonomous vehicles, potential for electric and hybrid vehicles and striving for greater fuel efficiency in gasoline and diesel vehicles.
Zakreski said for suppliers, part of the challenge with an area like electric vehicles is that the market remains small.
“It’s a place all of us need to be developing technology, it’s just a matter of trying to do it in a smart way that allows you to be profitable,” he said.
How big is the Trump effect?
The industry also appears to have been stirred by President-elect Donald Trump, who has repeatedly gone after automakers for building cars in Mexico instead of the United States.
On Tuesday, Trump went after General Motors for producing some Chevy Cruze models in Mexico and selling them in the U.S., threatening to implement a border tax if the company didn’t make the cars domestically.
The same day, Ford announced it was cancelling plans to build a $1.6 billion plant in Mexico, opting instead to invest $700 million in Michigan facilities to produce new electric and autonomous vehicles.
For Strattec, Ford’s decision would seem to be a blow as the company is in the midst of building a 135,000-square-foot door handle paint and assembly facility in Leon, Mexico, about two hours from where the Ford plant would have gone.
With many OEMs locating production in Mexico, Krejci said the idea was to have the capability to provide painted door handles in close proximity to their production facilities.
He said Ford is certainly an important customer for Strattec, but there are a number of other assembly plants in the areas and enough business to “more than justify” the new facility.
While Ford is a major customer for Husco, Zakreski said the decision won’t have much impact on his company. He noted Husco already ships into Mexico and has no plans for a plant there. Many of Husco’s products also ship easily and inexpensively, so the end location isn’t a huge issue.
In the larger picture, Zakreski and Krejci suggested Trump’s efforts to bring OEM production from Mexico to the U.S. could be limited.
Krejci noted the companies have shifted production of small cars to Mexico because it is not profitable to do it here. The market for smaller cars has been shrinking in the U.S. as consumers opt for trucks and SUVs. Krejci predicted that forcing small car production into the U.S. would result in higher prices and cause the market to shrink even more.
But Krejci also noted some of the Mexican production isn’t destined for the U.S. but for Mexico and other Central and South American countries.
“The economics for the OEMs still make sense if they can ship to their other global locations,” Zakreski said. “There’s still a Mexican strategy that all the OEMs are going to continue to evaluate, but it might not be necessarily for North America.”