The Importance of the Supplier Industry to the U.S. Economy
In the past, the OE supplier industry and OEMs or original equipment manufacturers – or the automakers – have been lumped together whenever industry statistics or positions on critical issues were discussed. OESA is raising the profile of the supplier industry so that it is recognized as an economic powerhouse providing some two-thirds of the value in the auto industry. The value of all parts shipped into U.S. assembly plants (from independent companies and plants owned by the vehicle manufacturers) is over $250 billion. The vehicle manufacturers themselves employ some 670,000 persons. The supplier industry employs an additional 1.8 million persons. These numbers from the Center for Automotive Research (CAR) means that an auto assembly job has a multiplier of 7.7, the one assembly job supports an additional 2.9 persons in the supply chain and an additional 3.7 workers if you include all expenditures that flow through the economy for a total job multiplier of 7.7.
For a long time, legislators and policy makers both at the state and national levels have overlooked the supplier industry by going directly to the car makers for input and technical feedback on legislation and regulation. The notion that the two groups share the same position on all issues is simply incorrect. There are times that suppliers and OEMs have a differing stance on issues of critical importance. An example was the recent tariff imposed on imported steel in late 2002. The automakers were “silent” on this policy in Washington, D.C., while members of the supply chain were slammed by increases in steel prices and steel shortages. Our industry worked tirelessly in Washington, D.C., to have this tariff repealed, which it finally was in December 2003. OESA has been working hard to raise the profile of the supplier industry, as it is distinct from the automakers, and we are beginning to see this recognition grow.
North American Outlook
Robust economic growth extended into 2004 with employment gains finally taking hold. Even with a tightening monetary policy by mid-year to dampen fears of accelerating inflation, economic growth was able to average over 4.4 percent (preliminary) in 2004 and is expected to average a respectable 3.5% in 2005. As the result, North American vehicle production came in at 16.24 million units, down only 40,000 units from 2003. Based on strong U.S. economic growth, U.S. vehicle sales came in at 16.9 million units, some240,000 units over 2003. Early forecasts for 2005 have sales and production falling some 3 to 5 percent across the region. Suppliers’ 2005 financials will be impacted by these production schedule reductions as well as rising raw material and energy costs, health care expense, new product launch expense, and global operation capital needs. While it is a difficult industry to make money in, it is not completely impossible. There are many companies who out perform their peer group by having differentiated product, lean manufacturing and administration operations, and a strong balance sheet.
OESA was founded in 1998 to provide a forum for automotive suppliers to share information and ideas, and to act as a voice for the supplier industry when appropriate. OESA currently has 374 members, representing global sales of more than $300 billion. Member sales represent over 65% of the North American market. OESA represents the entire supply chain, from the largest systems integrator, to very small suppliers, and suppliers of raw materials. Approximately 60 percent of OESA member companies have less than $150 million in sales. OESA operates what we call peer group councils – top industry executives in a particular job function, such as CFO, sales and marketing, legal, environmental, purchasing, etc. These councils meet quarterly to discuss issues of common interest, recommend solutions, and set the strategic direction of the Association according to their priorities. This allows OESA to plan and execute programs that are timely, topical, and relevant.
The above article was excerpted and updated from the 2004 OESA Industry Review. This is an invaluable resource for information on the automotive industry with a unique focus on suppliers, containing statistics, insights, trends, and overall economic outlook. For more information, please go to www.oesa.org.