Industry Focus: Automotive

Product Transformations, Chip Shortages, Labor Scarcity Take a Toll, But Industry Is Rebounding
industry focus: automotive

Like virtually every other sector of the U.S. economy, 2020 was extremely difficult for the U.S. auto industry. Automotive industry analysts at Seraph say sales were down 14.7% in 2020.

The industry rebounded, however, and was up 32% in the first half of 2021. Needless to say, that whiplash led to its own problems: product shortages and an inability to keep up.

Layered on top of these of-the-moment issues, however, are some fundamental concerns that may seem familiar in other industries.

“There are common themes across our customers of all sectors, which are labor scarcity and costs as well a customer expectations increasing,” said Rob Glynn, director of sales for MHI member TGW North America.

Those strong headwinds of labor and increased expectation come when the automotive industry is undergoing a dramatic change in the products it delivers—the rise in electric vehicles and the growth of SUVs.

That latter point, analysts at Seraph note, brings its own concerns. The SUV market is expected to account for 55% of sales by 2025, Seraph said. OEMs will need to offer small, medium and large options, according to the analysts there. There is one other difference: “Buyers in the truck market tend to be fiercely loyal to a brand… In the SUV market, the American brands are fighting fierce competition from every corner.

That seems to be the million-dollar—if not billion-dollar—question for the auto industry in general.

Challenges in production capacity

While the pandemic severely restricted auto sales, the industry hasn’t been able to fully capitalize on a rebound because of ongoing supply chain issues. One of the most potent: a shortage of semiconductor chips which created production problems beyond automotive. Given that the average American car includes 1,400 of these small semiconductors, the shortage was profound. General Motors shut down production early in 2021 while Ford anticipated it could see production that was 10 to 20% lower than expected. Analysts at IHS Markit said global automotive manufacturers might produce 672,000 fewer vehicles in Q1 2021 than anticipated.

Ford would later say that its second quarter also would be impacted by the chip shortage, which could cost the company $2.5 billion in sales for the year.

One of the greatest challenges for automakers is that they don’t have the heft of other competitors for semiconductor chips. The telecommunications and computer industries buy three and four times as many chips as automakers. So, when shortages became apparent—and broadly affected a number of industries—automakers were not first in line for new deliveries, Bloomberg reported.

That points out what may lead to a sea change in how the automotive industry sources its parts. The industry has long followed a model developed by Toyota in the late 1960s for just-in-time part delivery, which reduced the costs to the automotive manufacturer.

Bloomberg reports “that strategy has served the industry well, saving money and helping it organize a system for sourcing the 40,000 or so components that go into a modern vehicle, many of which can be made in a matter of days. But semiconductors—the heart of sensors, engine management and battery controllers, infotainment and eventually systems that will pilot vehicles—are created in a process that takes months. And building and equipping a factory to produce them requires years.”

It’s not just chips, either. “Prices for key commodities such as steel, copper and resin are driving index-based pricing in order to protect our customers and our business,” Glynn said. “Ocean transportation of components is harder to schedule, and currently costs more than twice what the steady market required a few years ago.”

While supply chain issues and shortages may eventually be solved, another looming issue brings other challenges to production: finding workers.

“Because of the shortage of available materials, work hours are being curtailed, and the amount of work that can be completed has declined,” said Jim Brotherton, general manager of Columbus McKinnon’s Brighton, MI., plant. “However, even if the materials issue could be solved in the immediate future, the obstacle remains of not having access to a large enough workforce. Additionally, the equipment normally used to power and lift equipment on production lines and at workstations is not being utilized as frequently. Therefore, it does not require replacement or upgrades as often.”

Technology to the rescue

Some of the very challenges that face the auto industry can be solved partially by technology.

Workforce shortages can be solved with the implementation of new automation solutions, said Beilfuss. “Utilizing automation in automotive production can have a significant impact on a facility. Not only can automation help increase productivity and maximize the uptime and performance of operations, but it can also improve product quality, increase energy efficiency, and provide numerous safety and health benefits.”

numerous safety and health benefitsISTOCK.COM/IMAGINIMA

Some of those safety features, Beilfuss said, might mean automation to remove workers from harmful environments, or products with ergonomic benefits. Diagnostic and analytic capabilities can improve uptime by allowing manufacturers to proactively schedule maintenance.

Automated material handling “should include highly configurable and comprehensive software capability,”

Glynn said. “The automotive business also requires large-scale storage and retrieval capacity, with very high SKU capability. Scalability is critical so you can solve today’s challenges at the right investment, with flexibility for meeting tomorrow’s needs with readyto-implement additional capability.” Glynn also points to the benefits of warehouse automation, which could help automakers lessen “the cost impacts of labor scarcity through reduced touches and foot travel, avoid high real estate costs through compact operational footprints, and provide high energy efficiency through optimized and on-demand system components. Automation integration is made easier, specifically on the manufacturing side, due to standardization and supplier compliance programs. This focus on package sizing and quality fit well when pursuing automation solutions. Our customers may start with strategic interests for growth or supply chain speed, but they also demand strong returns on investment.”

Given the financial challenges facing automakers, that emphasis on costs and ROI is certainly not going to disappear anytime soon.