Fred Hubacker and Walter Popiel: The Crystal Ball is Cloudy – OESA News
Fred Hubacker and Walter Popiel wrote an article for OESA News titled “The Crystal Ball is Cloudy.”
As we wind move into the early stages of 4th quarter, automotive industry uncertainties continue to mount at an unprecedented pace. As decision makers and investors assess the risks and opportunities, we take stock in a few of the driving themes of 2019 and beyond:
- Trade Policy — While the intent of pursuing equitable trade policies, practices and rules with major US trading partners is a positive, the tariff wars that have erupted have far reaching implications across the economy, most notably the global auto industry. In an industry where investment and sourcing decisions are made well in advance of new vehicle launches, incoherent trade policy applies unforeseen risk to the execution of carefully considered business plans. While the projected SAAR can be carefully analyzed, leaders remain flummoxed in an era where a threat communicated on a social media platform can drive share prices. Even USCMA, which replaces and modernizes NAFTA, appears to be at a political standstill with no early resolution in sight.
- Electric Vehicles — There is certainly no doubt that electric vehicles, from various hybrid configurations to full battery, are coming in the very near term. The adoption rate, however, remains in question. Many parts of the world are moving much faster to an electric future, as the EU and China for example, have significantly more aggressive timetables than the USA. OEM’s have responded with literally billions of dollars of investment in electric vehicle platforms and body styles. Among the many issues, however are: affordability, consumer acceptance, infrastructure, range and the future of the ICE powertrain. Many of the major supply chain players are capably funded and staffed to support a world where both electric and ICE exist. Unfortunately, many are incapable of either and so deciding where to place your bet, and your investments, can be a murky choice at best.
- Autonomous Vehicles — While the hopes and hype may have cooled just a bit regarding the timing and availability of fully autonomous vehicles, it’s another example of technology that is long on capital requirements, but unproven in the marketplace. Indeed, many important and significant driver assistance and safety advances have been developed and implemented into the vehicles we drive today. Suppliers have been key to those advances, but a fully autonomous vehicle may still be in the distant future. Patient owners and shareholders may reap the rewards, but few auto companies live in a patient environment. The crystal ball is very far from clear on this technology.
- Wall Street — Nothing is less predictable than the swings in the financial markets and the overall mood of Wall Street when it comes to the automotive sector. In the past several years we have witnessed a very robust US auto industry supported enthusiastically by the banking industry, private equity firms, and venture capital money managers. However, the market has been fickle in how those rewards have been doled out. While some OEMs have enjoyed Silicon Valley like rises to glory despite significant uncertainty, others making similar investments in a more disciplined manner have at times been punished. Despite record low unemployment, low interest rates, low gasoline prices and a steady increase in job creation the industry equity performance has been pedestrian as we remain in the shadow of the late 2000’s. Europe’s outlook is weak, China has failed to meet even the most draconian estimates, and tariffs threaten to undermine a global supply network established over decades. All of these concerns are here and they are all real. Could this mean consolidations are inevitable? Wall Street rewards enterprise value creation through synergistic opportunities and risk diversification. Who will be acquiring whom in the near future remains to be seen.
- Labor Shortages/Unrest — With unemployment at record lows, the ability to locate and retain a quality workforce has proven to be a major and a persistent problem. This situation, unfortunately, exists at all levels in organizations from the factory floor to senior executives. Whether it’s a stamping press operator, program manager, manufacturing process engineer or a software engineer the problem is the same; a severe shortage of qualified men and women in the auto industry to hold these positions. Compounding this issue is the fact that labor is uneasy about their membership being compensated fairly for their contributions to the economic success of their companies. Whether a worker walkout is the only way to settle these issues is debatable, but it adds considerable uncertainty to the management of your business. A typical balance sheet doesn’t list our most significant asset – our workforce – but without it the company wouldn’t exist.
So dust off your crystal ball, shake it a few times and perhaps the dust will settle for a clearer view into the future on these issues. This industry is resilient enough and smart enough to solve everything that it has faced in the past decades through a combination of leadership and savvy; in the boardroom, on the factory floor and in the halls of our legislators. It will do so again.