For the second straight year, North America experienced year-over-year sales growth in the automotive sector.
That has led to record production levels for auto manufacturers, both foreign and domestic, in the United States and Mexico. Mike Jackson, senior executive of North America vehicle production forecasting for IHS Automotive, said producers in the U.S. and Mexico kicked out 17.8 million vehicles in 2016 and there is little reason to suggest a big downturn anytime soon.
“Never before in history have we produced that many vehicles,” Jackson said, in an interview with GSA Business Report during the 2017 S.C. Auto Summit.
The previous production high was set in 2000 when automakers produced 17.2 million vehicles.
One reason for the success auto manufacturers are having is the shift in vehicle sales. What was once a regional strategy of production and sales has turned worldwide.
“The industry is more global than it has ever been and that is a factor of high demand,” Jackson said. “The reality is the production at the height of the economic downturn was about 8.6 million vehicles, so to see where we are now is pretty remarkable.”
Another key to production upswing is product is being manufactured to meet customer demand. Jackson said the sport utility vehicle market is a prime example of auto manufacturers recognizing the need to diversify production.
“That is a segment that has gained mass global appeal,” Jackson said. “There is greater opportunity to leverage the strong presence of the SUV capability to meet the global demand.”
He cited BMW’s strategy with its sport activity division as an example of that global appeal. In 2016, Spartanburg-based BMW Manufacturing Co. exported $9.53 billion. The plant is the exclusive producer of the BMW Group’s X model SUV and, according to BMW figures, 86% of the 287,000 South Carolina-produced X models were exported in 2016.
Jackson said the auto industry remains mindful of the fact that, in the United States, it operates under some degree of political policy. But, he said “the U.S. is just one part of the global market.” He added industry executives are anticipating policy that will grow jobs in the market, as has been the message of President Donald Trump.
The potential for policy that creates significant changes in the industry is there, such as higher import or export tariffs, which could lead to higher costs for manufacturers, but Jackson said auto leaders aren’t necessarily playing conservatively when it comes to growth.
“The industry recognizes under the new administration the rules for operating may change,” Jackson said. “That means they will be mindful, but they won’t overlook opportunities for growth.”
And, because the auto industry targets a more global reach, exports from the United States continue to grow at a strong rate. Jackson said manufacturers in the United States exported 1.5 million units in 2016 compared to the average of 500,000 shipped out in previous years.
“That is a good thing,” Jackson said. “It is contributing to significant job growth in the U.S., Canada and Mexico.”
One potential policy change auto manufacturers are expecting is tax cuts for both individuals and businesses. Jackson said it would make sense for any potential business tax cut to be associated with some kind of reinvestment.
But, any “dramatic disruption” in the industry, whether from dramatic policy shifts or tariff battles between countries, would not be good for the auto business, Jackson said. He added that is a reason why there isn’t the anticipation of any major policy shifts that will negatively impact the industry.
“Policy implications are real, but factories have a useful life of 40-50 years,” Jackson said. “These supply chains that have been established are evidence of that.”
He said future strategy for automakers and their respective supply chains will have to include looking ahead to the future as opposed to operating day-by-day. With new technologies evolving and customer demand for it changing, Jackson said companies need to be thinking five years from now today.
“Manufacturers have to operate differently because the level of competition is higher,” Jackson said. “There is pressure throughout, but it requires a strong strategy.”