Automotive Engineering - October 2022 - 6

SUPPLIER EYE
Good news and bad news for 2023
T
he Fall season brings the annual rite of
passage for the industry - setting budgets
for the next calendar year. The balance
of building revenue forecasts driven
by vehicle demand, while constructing the cost
side to establish profitability, is given extra attention
at this time. While most suppliers will lay out
a three- or five-year AOP (Annual Operating
Plan), the primary focus is on the forecast for
next year. Budgets determine available capital for
reinvestment, labor rates, expected material costs
and in the end - a forecast of profitability.
Looking toward 2023-2024, forecasting both revenue
and costs is more difficult than at any time I
can recall in my 35 years of vehicle forecasting.
While historically there have been minor supply
interruptions to slow vehicle output, nothing
in the past compares with the events that have
hammered the industry since late 2019 - a
multi-week labor dispute between the UAW and
General Motors, followed in the last 12 quarters
by more labor stoppages, a global pandemic
and a semiconductor supply crisis. For three
years, production output has been driven by a
supply dynamic, not consumer demand.
Suppliers have struggled to find balance as
OEMs cut shifts of less desirable vehicles to allocate
microchips toward output of more profitable
vehicles. Inventories have slipped badly in
the process.
The auto industry does not adjust well to a constant
barrage of supply disruptions because the
business is very linear. One issue at a time, please.
Beyond the slowly improving chip-supply situation,
geopolitical events of 2022 and related
economic factors have spurred inflation levels
not experienced in decades. Russia's invasion of
Ukraine and the war that continues, coupled
with the reckoning of China's dominance in materials
and processes critical for electric vehicles,
have driven a new focus on supply security.
Complicating the significant material-cost inMichael
Robinet
Executive Director,
Consulting,
S&P Global Mobility
SAE Foundation
Trustee
michael.robinet
@spglobal.com
Fixed contracts,
combined
with the lack
of volume
guarantees
from OEMs,
have been a
gut punch for
suppliers.
creases has been the inability for many suppliers
to raise prices in concert with these rising costs.
Fixed contracts, combined with the lack of volume
guarantees from OEMs, have been a gut
punch for suppliers.
In a previous column, I wrote about ILL -
Inputs, Labor and Logistics - impacting the
profitability of players at every tier of the supply
chain. Many months later, those factors continue
to force additional caution into already conservative
future planning.
That brings us to setting budgets for 2023.
The good news is that many supply constraints
are easing, if gradually. The output dynamic is
slowly improving. But inflation and shortages of
labor and some materials remain significant
challenges. So, when can we expect consumer
demand to return as the primary factor driving
vehicle production output ?
Suffice to say, as global banks quickly raise interest
rates to stave off higher-than-desired inflation,
retail affordability is compromised. Slower economic
activity is the unfortunate result.
The industry eventually will work through
the supply-driven constraints, raise vehicle inventories,
and reduce waiting times for new
vehicles. In the process, understanding how
the extreme inflation of 2022 (extending more
modestly into 2023) will impact vehicle demand
- and knowing how to successfully navigate
through it - is key.
S&P Global Mobility expects energy and material
prices, labor, and logistics costs to slowly
moderate, with the auto industry shifting to a
demand-driven dynamic by 2024 - four years
after supply constraints were the order of the day.
The industry is beginning to understand how
to deal with slow demand while it simultaneously
grapples with a constant barrage of supply
constraints.
6 October 2022
AUTOMOTIVE ENGINEERING

Automotive Engineering - October 2022

Table of Contents for the Digital Edition of Automotive Engineering - October 2022

Automotive Engineering - October 2022 - Intro
Automotive Engineering - October 2022 - Sponsor1
Automotive Engineering - October 2022 - CVRA
Automotive Engineering - October 2022 - CVRB
Automotive Engineering - October 2022 - CVR1
Automotive Engineering - October 2022 - CVR2
Automotive Engineering - October 2022 - 1
Automotive Engineering - October 2022 - 2
Automotive Engineering - October 2022 - 3
Automotive Engineering - October 2022 - 4
Automotive Engineering - October 2022 - 5
Automotive Engineering - October 2022 - 6
Automotive Engineering - October 2022 - 7
Automotive Engineering - October 2022 - 8
Automotive Engineering - October 2022 - 9
Automotive Engineering - October 2022 - 10
Automotive Engineering - October 2022 - 11
Automotive Engineering - October 2022 - 12
Automotive Engineering - October 2022 - 13
Automotive Engineering - October 2022 - 14
Automotive Engineering - October 2022 - 15
Automotive Engineering - October 2022 - 16
Automotive Engineering - October 2022 - 17
Automotive Engineering - October 2022 - 18
Automotive Engineering - October 2022 - 19
Automotive Engineering - October 2022 - 20
Automotive Engineering - October 2022 - 21
Automotive Engineering - October 2022 - 22
Automotive Engineering - October 2022 - 23
Automotive Engineering - October 2022 - 24
Automotive Engineering - October 2022 - 25
Automotive Engineering - October 2022 - 26
Automotive Engineering - October 2022 - 27
Automotive Engineering - October 2022 - 28
Automotive Engineering - October 2022 - 29
Automotive Engineering - October 2022 - 30
Automotive Engineering - October 2022 - 31
Automotive Engineering - October 2022 - 32
Automotive Engineering - October 2022 - 33
Automotive Engineering - October 2022 - 34
Automotive Engineering - October 2022 - 35
Automotive Engineering - October 2022 - CVR4
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