MHI Solutions Improving Supply Chain Performance
In the U.S. and international auto industry, the wheels are spinning. That cliché takes on multiple meanings in today’s automotive manufacturing sector. There are the new ideas that come from a technological revolution and infotainment that is common place in today’s vehicles. Then there’s the lack of traction that comes when pressure from regulators— pushing for more fuel efficiency and safety—is applied.
That leaves the industry in danger of getting stuck with opposing forces—especially where the consumer is concerned. More gadgets and safety features drive up the price of the cars at a time when consumers are showing a reluctance to pay for them.
The industry is clearly in f lux, but it provides possibilities for material handling and logistics leaders to help solve some of the challenges, especially as original equipment manufacturers (OEMs) are seeking more technology in their plants.
A look at the major trends
From the manufacturers’ standpoint, the world shifts in 2016, when new Corporate Average Fuel Economy (CAFE) standards take effect. Automakers must average 34.1 miles per gallon in their overall sales.
Strategy&, formerly Booz & Company, assessed these impending changes by looking at Ford’s F-150 pickup trucks. Ford has replaced steel with aluminum in its 2015 model to improve fuel efficiency by lowering the weight. That adds about $500 in raw material costs, Strategy& anticipates. Ford announced an increase of $395 in its base model—not recouping the increased costs to meet the CAFÉ standards. The National Automobile Dealers Association estimates meeting the 2016 requirements will add about $1,000 to the overall cost of production. Consumers are unwilling to pay, Strategy& reports.
They’re also unwilling to pay for the cost of federally mandated safety equipment. All new vehicles must have backup cameras, per the U.S. Department of Transportation, adding another $200 or so to production costs.
And speaking of those consumers, they are firmly in the driver’s seat. “Consumers appear to be rethinking their long love affair with individual automobile brands and viewing cars more as transportation machines,” Strategy& reports. “Although this is not likely to have a major impact on sales volume, it is affecting how much people are willing to pay for automobiles. That willingness is also affected by the waning of product differentiation, due partly to a general increase in vehicle quality throughout the industry. The Detroit Three have caught up with Japanese OEMs, and the mass market is catching up with luxury. Consumers are also demanding more sophisticated infotainment systems at a low price, and are expecting more high-end features to be standard.”
By Sandy Smith