HDMA Supplier Barometer Barometer Q2 2018_… · •Blue collar labor is very tight •California Prop 65 •Can't find machine operators •China tariffs (2) •Consolidation of

HDMA Supplier Barometer

Quarter 2, 2018

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HDMA Supplier Barometer, Q2 2018

Section Pages

Introduction and Summary 3-5

Situation Analysis 6-8

Planning Activity 10-13

Current Issues 14-22

Original Equipment Truck and Trailer Build 23-28

Off-Highway Outlook 29-37

Heavy Duty Aftermarket Outlook 38-42

Industry Trends & Issues 43-46

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Contents


The Q2‐2018 HDMA Supplier Barometer shows a slight softening of 12‐month outlook from 77% in Q1 to 75%. The business activity indexes – inventory, hiring and capacity – also all trended downward in Q2. Concurrent with the announcement by the Census Department of a major downward revision of the Q1 GDP figure, this downturn in outlook could be an indication that the extreme bullishness of the past year may have over‐reached.

While the overall business indicators are slowing and outlook has tempered slightly in Q2, the subsector specific outlooks, forecasts and reports of operations against plan all remain solidly positive.

Concerns over the potential impact of tariffs remains high. Suppliers are battling shortages of raw materials, and, adding further complication to manufacturing operations, are experiencing difficulty in recruiting production personnel.

This quarter we asked for the thoughts on the shape of the commercial vehicle aftermarket of the future. The results can be found at the end of this report.

There were 73 completed returns in the first quarter report.

Introduction


Situation Analysis ‐ Average (50% = neutral)

Q3‐17 Q4‐17 Q1‐18 Q2‐18

Twelve‐month outlook for your business 71% 72% 77% 75%

Company changed prices last quarter 59% 60% 64% *

Company sales 74% 76% 80% 81%

Planning Activity ‐ Average (50% = neutral)

Is your company hiring? 72% 69% 75% 72%

Adding production capacity? 71% 71% 77% 71%

Adding to inventories? 67% 63% 71% 64%

* ‐ Please note, for antitrust compliance, the results of this question are delayed by one quarter.

Summary


Situation Analysis ‐ Average (50% = neutral)

Last Year Current Change

Twelve‐month outlook for your business 70% 75% +5%

Company changed prices last quarter 61% * *

Company sales 69% 81% +12%

Planning Activity ‐ Average (50% = neutral)

Is your company hiring? 68% 72% +4%

Adding production capacity? 69% 71% +2%

Adding to inventories? 63% 64% +1%

* ‐ Please note, for antitrust compliance, the results of this question are delayed by one quarter.

Year-Over-Year Analysis

HDMA Supplier Barometer, Q2 2018Situation Analysis

Question 1. Describe the general twelve‐month outlook for your business. Over the past month, has your opinion become:


Question 2. Has your company changed its prices during the past three months?

Please note, for antitrust compliance, the results of this question are delayed by one quarter.


Question 3. How strong are your company sales?


Situation Analysis – Percent positive long term trend

50% = neutralPlease note, for Q3‐16 questions were changed from a 5 point scale to a 9 point scale. While all efforts have been made to ensure continuity, data may not be directly comparable.

HDMA Supplier Barometer, Q2 2018Planning Activity

Question 4. Is your company hiring?


Question 5. Is your company adding production capacity?


Question 6. Is your company adding to inventories?


Planning Activity – Percent positive long term trend

Please note, for Q3‐16 questions were changed from a 5 point scale to a 9 point scale. While all efforts have been made to ensure continuity, data may not be directly comparable. 50% = neutral

HDMA Supplier Barometer, Q2 2018Current Issues

Question 7. How significant are these issues facing your company?


Issue significance – change over time

* - individual concern vs mean concern for quarter vs same calculation for last quarter or year


• Blue collar labor is very tight• California Prop 65• Can't find machine operators• China tariffs (2)• Consolidation of independent distributors into large multi location groups

• Downsizing of engines• Expedited freight costs both inbound and outbound to obtain material and hit the customer production floors in time due to high demand, labor and material shortages

• Finding good talent• Global negotiations• Impact of Tariff on NAFTA and China Trade• Labor issues (plant workers)• Lack of good skilled labor in the labor pool as well as technical/professional labor (Engineers, etc)

• Margin erosion due to inflationary costs• NAFTA• Proposed Tariffs will significantly impact profitability until we can pass them on to customers.

• Raw material costs index and non‐index based costs. If we don't have an agreement in place on non‐index costs, we won't get recovery

• Right now capacity is biggest challenge.• Steel tariff (3)• Suppliers keeping pace with demand ramp. Bringing secondary suppliers on line

• Tariffs (4)• Tariffs and how it will change the aftermarket• Unclear regulatory/tariff/NAFTA approach makes it very difficult to plan the business

• Volatility in metal prices due to trade and tariff uncertainty

Question 8. Is there any other significant issue that is facing your company?


In comparison to your business plan, how would you rate your company's past quarter performance by sector?

Sector details in respective report sections. Sectors asked individually.


What is your short term outlook by sector? Please rate the sector performance, not the performance of your company in the sector.

Sector details in respective report sections. Sectors asked individually.


Please characterize the "balance of power" in the relationships with your customers:

Sector details in respective report sections


• Ability to meet customer demand• Being competitive• Capacity (2)• Capacity limitations• Commodity and tariffs costs driving up pricing• Demand increases in OE and OES versus independent

aftermarket increases create demand peaks• Direct labor, material availability and variation in customer

demand & forecast• Driver shortages are holding back potential sales• European partners of NA players increasing significance and

focusing on cost, at the expense of features and benefits that are appreciated/demanded by the end customers

• Forecast accuracy• Globalization of the OEM's can swing the balance of power

towards the OEM• International competition and raw material price escalation

• Keeping up with demand; orders coming in faster than raw materials can supply

• Low cost pricing• Maintaining supply to meet current demands• Margins• Need pricing to recover increase labor and material costs• Overall capacity in the supply chain• Qualified young people interested in our industry• raw material cost increases• Raw material prices• Raw material surcharges passed on to our customers• Recovery of material costs within framework of existing LTAs• Steel‐‐‐‐pricing, delivery, and availability• Supply chain and availability cross border• Supply chain keeping up with demand and maintaining price• Tariffs and getting them through the OEM

What is the greatest challenge faced by your on‐highway business?


• Adaptation of new technologies in automation and electrification will change the future landscape of machines • Capacity, ever‐changing customer releases, raw material price escalation • Commodity and Tariff based cost increases• Customer forecast accuracy• Demand forecasting has been extremely under all year from OEMs• Demand is greater than supply • Demand volatility and parts shortages from supply base• Direct and indirect labor availability and some part specific material availability • Direct labor, forecast accuracy and raw material availability• Impact of Stage V on the cooling system options; it's unclear which approach OEMs will take• Keeping up with demand and tariffs• Maintaining supply to meet current demands• Need pricing to recover labor and material increases• Raw material cost increases• Resource markets• Supply of raw and finished goods ‐ industry machining capacity and ability to hire qualified people

What is the greatest challenge faced by your off‐highway business?


• Being able to get orders to customers on time• China and steel tariffs from Canada since not all competitors

have the steel tariffs since tariff is not put on assembled product

• Competitor Pricing• Consolidation• Consolidation of customers• Customer consolidation • Forecast accuracy and demand volatility• Forecasting communication • Freight costs are impacting freight prepaid program margins• International competition and raw material price escalation• Low cost, poor quality product perceived by customers at

being equal to OE quality• Meeting demand• Obtaining material and labor to ensure on time delivery as

production keeps ramping up• OEM demands on pricing low cost parts coming from Asia• OES leveraging OEM standard position in contracts

• OES private labels• On Line purchases• Pricing adjustments• Private brand competition from OES and IAM customers• Products are lasting longer than ever resulting in the decline

of aftermarket business• Raw material cost increases and the ability to pass them on to

customers• Raw material prices• Regulatory issues regarding their ability to have access to

information and parts• Shrinking buyer decision locations due to merger and

acquisition• Supply Chain• Supply shortages in comparison to demand• The focus on parts sales from OE and limited availability to

the VIN numbers needed to supply fleets

What is the greatest challenge facing your aftermarket business?

HDMA Supplier Barometer, Q2 2018On-Highway Forecasts

What are you forecasting for the North American 2018 Class 8 factory build range?

* - Average of cell midpoints.

Avg. 314,250*


What are you forecasting for the North American 2018 medium duty (Class 5,6,7) factory build range?

Avg. 260,750*



What are you forecasting for the North American 2018 Class 8 trailer factory build range?

Avg. 258,750*



In comparison to your business plan, how would you rate your company's past quarter performance for your on‐highway OE truck and trailer business?

Percent Positive: 82.28%


What is your short term outlook for the overall on‐highway OE truck and trailer business? Please rate the sector performance, not the performance of your company in the sector.



Please characterize the "balance of power" in the relationships with your OEM truck and trailer customers:

Avg. 3.84

HDMA Supplier Barometer, Q2 2018Off-Highway Outlook

Please rate your sales in the last ninety days as compared to forecast for the OE Agricultural market (units with greater than 50 hp)



Please rate your sales in the last ninety days as compared to forecast for the OE Construction market (units with greater than 50 hp)



Please rate your sales in the last ninety days as compared to forecast for the OE Mining market



Please rate your sales in the last ninety days as compared to forecast for the OE Industrial market (units with greater than 50 hp)



Please rate your sales in the last ninety days as compared to forecast for the off‐highway aftermarket



Comparison of off‐highway sectors where 50% = at plan


In comparison to your business plan, how would you rate your company's past quarter performance for your off‐highway business?



What is your short term outlook for the overall off‐highway business? Please rate the sector performance, not the performance of your company in the sector.



Please characterize the "balance of power" in the relationships with your OEM off‐highway customers:

Avg. 4.21

HDMA Supplier Barometer, Q2 2018Aftermarket Outlook

In comparison to your business plan, how would you rate your company's past quarter performance for your business for the following markets?

Percent Positive Indep: 72.79%OES: 68.78%


What is your short term outlook for aftermarket business by sub‐sector? Please rate the sub‐sector performance, not the performance of your company in the sector.

Percent Positive Indep: 74.87%OES: 72.49%


What is your 12‐month outlook for heavy duty aftermarket sales distribution by channel?


How significant an impact are counterfeit parts having on your aftermarket business?

Avg. 4.31


Please characterize the "balance of power" in the relationships with your customers:

AverageIndep: 5.53OES: 4.12

HDMA Supplier Barometer, Q2 2018Industry Trends & Issues

How will the following HD aftermarket changes influence your business? (negative or positive)


How significant will the same changes HD aftermarket influence the overall market? (small to large)


• Acceptance of private label parts which are cheap• Amazon / Alibabba• Changes to the equipment and how fleets operate • Consolidation of distributors and suppliers• Consolidation• Continued consolidation of customer base and continued patent protection of parts causing challenges for aftermarket parts production

• Continued consolidation of independents either by large chains, or by dealers Continued consolidation of the independent distributors

• Continued growth in e‐commerce, shift away from OES for parts and service outside of warranty period

• Continued infiltration of off‐shore all‐makes brands fostered by domestic competitors

• Customer and fleet consolidation• Customer consolidation• Dealer Groups all makes programs and expansion out

of OEM parts into import/aftermarket parts• Direct fleet sales• E commerce (2)• Electronic maintenance of products• Even more consolidation at dealer level leading to more dealers buying direct

• Faster assured delivery• Fewer customers• How parts are purchased and the growth of air disc in the heavy duty market

• Increased commoditization and channel conflict due to consolidation into buying groups, larger fleets, rental companies combined with the growth of e‐commerce

• Inventory management at brick and mortar distribution locations

• Landscape of brands will continue to evolve; customer private brands will continue to play larger role

Thinking five years ahead, what will be the most significant change in the HD aftermarket compared to business conditions today?


• Less relationship based sales ‐ technology controls when where and how vehicles are maintained

• Modernization of fleet• New technologies could cause trend to change (e‐commerce may start to dominate like standard retails today).

• No aftermarket• Normal market slowing• OEM's will continue to dominate the aftermarket channels through terms and conditions

• Online sales with have major growth in the next 5 years with some suppliers choosing to sell direct to end users online

• Pace of technology and what impact it will have on traditional components (drive train, electronics/connectivity)

• Parts being widely available on‐line direct to consumers "Amazon Effect"

• Private brands cannibalizing branded offerings• Regulations surrounding environmental requirements; especially in metropolitan areas

• Rise of disc brakes changing aftermarket needs• Technology (2)• Technology changes within the fleet customer requirements affecting how and from whom they acquire that technology

• Technology will make it more difficult for the HD companies to supply all make parts

• Telematics• The move to on line shopping• Trailer OEM's signing large Truck Dealer groups to represent their lines (smaller dealers are shrinking)

• VW will take over Navistar and bring large purchasing power driving price‐downs at suppliers

• Ways in which WD's effect supplier growth: will they change with the times?

Thinking five years ahead, what will be the most significant change in the HD aftermarket compared to business conditions today?

Documents

HDMA Supplier Barometer Barometer Q2 2018_… · •Blue collar labor is very tight •California Prop 65 •Can't find machine operators •China tariffs (2) •Consolidation of