SUPPLIER EYE

The Fall season brings the annual rite of passage for the industry - setting budgets for the next calendar year. The balance of building revenue forecasts driven by vehicle demand, while constructing the cost side to establish profitability, is given extra attention at this time. While most suppliers will lay out a three- or five-year AOP (Annual Operating Plan), the primary focus is on the forecast for next year. Budgets determine available capital for reinvestment, labor rates, expected material costs and in the end - a forecast of profitability. Looking toward 2023-2024, forecasting both revenue and costs is more difficult than at any time I can recall in my 35 years of vehicle forecasting.

While historically there have been minor supply interruptions to slow vehicle output, nothing in the past compares with the events that have hammered the industry since late 2019 - a multi-week labor dispute between the UAW and General Motors, followed in the last 12 quarters by more labor stoppages, a global pandemic and a semiconductor supply crisis. For three years, production output has been driven by a supply dynamic, not consumer demand. Suppliers have struggled to find balance as OEMs cut shifts of less desirable vehicles to allocate microchips toward output of more profitable vehicles. Inventories have slipped badly in the process.