automotive

Automotive Manufacturing

Industry Insight

Date April 2016

By the Numbers

Synopsis

Current trends

  • Solid first quarter vehicle sales indicate the industry is well-positioned for another strong year
  • Values for large tonnage stamping presses have increased 10 percent or more during the past 12 months

Key statistics

  • Industry revenues: $126.9 billion (U.S. car and auto manufacturing)
  • Major product categories: Cars, light trucks, SUVs
  • Significant companies: Fiat Chrysler Automobiles, Ford Motor Company, General Motors Corporation, Honda Motor Co. Ltd., Toyota Motor Corporation, Volkswagen of America, Inc., Nissan North America Inc., Hyundai-Kia Automotive Group
  • Market share of top: The four largest companies control approximately 70% of the market
  • Recent sales trends: U.S. durable goods manufacturers’ shipments of motor vehicles and parts increased 8.8 percent year-to-date in January 2016 compared to the same period in 2015. U.S. retail sales for motor vehicle and parts dealers increased 6.0 percent in the first two months of 2016 compared to the same period in 2015

Strong sales opening opportunities for suppliers: Unit sales of new vehicles for March 2016 increased 3.2 percent over 2015 sales with light trucks leading the way with an 11.4 percent increase. Sales of passenger cars, however, decreased 5.9 percent during the same timeframe. Year-to-date numbers show a similar pattern, with truck sales up 10.4 percent and cars down 4.8 percent. This rapid growth in new-vehicle unit sales is a cause for concern for domestic auto manufacturers (and their suppliers) trying to keep pace with market demand. Many plants are running three shifts in addition to bringing new capacity online, forcing Tier 1 and Tier 2 suppliers to rethink how to keep pace with demand. Automakers are finding the need to reinvent vehicles more frequently and get to market faster to remain competitive, which requires investment in machinery and tooling.
 

Supplier expansions driving machinery demand: To meet complex OEM requirements and tighter production schedules, automotive suppliers are expanding and investing in operations. Tier 1 supplier Yorozu Corp. announced plans to build an advanced metal stamping facility in Alabama at the cost of more than $100 million. Magna International said it plans to build a new facility in South Carolina to help BMW supply painted and exterior molded assemblies. KSM Castings announced it will invest $80 million to offer different production processes at its plant in Shelby, North Carolina. And these are just a few of many recent examples of expansion and investment. Together, they are a clear indicator of a rapidly growing market for machinery used to manufacture automotive parts and assemblies.
 

Machinery leveraged to finance growth: With this industry picking up, many suppliers have changed the way they finance their operations. The market is seeing companies take advantage of cheap money and higher used machinery values to find competitive, affordable financing to expand operations. One company in the Eastern U.S., for example, was able to rework its debt by using CNC machinery as collateral to lower monthly debt obligations from $1 million to about $500,000, a testament to the value of high-demand machinery.
 

Stamping presses gaining value: Large tonnage (over 1,500-ton) big bed transfer presses have increased in value during the last 12 months by 10 percent or more, depending on the make and size, due to limited supply. Several used equipment dealers have reported presses being sold within days of being made available and at asking prices. Mid-tonnage (400- to 600-ton) progressive presses are also seeing values increase in the 5 to 10 percent range. Values for late model mechanical presses have remained steady during the last year, while values for older machines have fallen slightly.
 

Market for die cast equipment is softening: Inquiries are down for both new and used die casting machines. Smaller machines (less than 600-ton) have seen a reduction in values of about 20 to 25 percent in the used market. Larger machines (over 900-ton) have been stable to slightly down. Newer machines are most desirable, and older machines (pre-1985) have little value in the market. Recent offers are for virtually all cold chamber units with little or no interest in hot chamber machines. Auxiliary equipment, including sprayers, ladles and robots, is showing slightly higher demand. Calls for Metal Mechanics hydraulic trim presses are up since the beginning of the year.
 

Maintenance critical to maintaining value: The age, maintenance practices and utilization of machinery are all key value considerations. Newer equipment is generally more desirable as the market wants the most modern technology. Maintenance practices are important as proper care can extend the useful life of equipment beyond normal expected useful lives. Poor maintenance can shorten the life of machinery and lead to production issues. Utilization is important since a machine being run on a single shift will have a longer chronological life than a machine running multiple shifts. These multiple shifts increase the effective age and reduce the remaining life, thereby affecting value. Lenders should expect appraisers to consider these factors when estimating value.
 

Lenders should be wary of certain collateral: Custom assembly, sequencing and single purpose automotive production machinery is generally expensive to purchase due to high design and engineering costs. These machines will have very limited resale value unless sold to an end-user making the exact same part. In liquidation scenarios, these machines generally only have component value or scrap value. Other equipment with potential for limited value return include paint equipment, part specific test and measurement equipment, and installation intensive equipment, which can be cost prohibitive to remove. Standard metalworking and plastics equipment, which remains common in many types of manufacturing, is typically widely marketable and good collateral.