MEMA OE Automotive Supplier Barometer

Budget constraints make talent acquisition harder

Looking to the year ahead, many automotive suppliers are still working through a multitude of issues impacting their business. The softening of EV demand momentum is causing some turmoil while the rise of software-defined vehicles is impacting every aspect of the auto value chain—requiring OEMs and their suppliers to fundamentally rethink development tools, manufacturing processes, and talent strategies.

In the most recent MEMA survey, 36% of respondents said their US headcount will likely decline in the next 12 months, owing to the need for restructuring efforts in the face of uncertain market conditions. A lot will likely depend on the forward trajectory for EV demand and the outcome of negotiations between the three North American trading partners. In the meantime, suppliers should be developing a set of strategic options to pivot their regional manufacturing footprint to align with shifting trade policies.

"In light of lingering skills gap and talent acquisition challenges, suppliers may be well-served to explore the potential benefits that AI can bring to their organization. In this way, they may be able to extract the efficiency gains required to refocus their remaining resources on achieving the flexibility to maintain alignment with ever shifting business conditions."

—Jason Coffman, Principal, Deloitte Consulting LLP

Download the PDF

Embracing the evolving nature of innovation

Suppliers are increasingly concerned about the risk of slowing sales among the vehicle programs to which they are attached. Vehicle inventories continue to rise, along with the incentives designed to help keep an increasingly cost-conscious consumer engaged in the new vehicle retail market. In response, many suppliers surveyed are attempting to address these utilization concerns by implementing time-tested strategies, including flexible manufacturing and diversification into non-automotive sectors.

"Many suppliers may be looking to M&A opportunities to kick-start their innovation efforts by acquiring new technologies and skilled talent. However, they should look to invest the time and resources required to comprehensively prepare their business prior to an acquisition."

—Jason Coffman, Principal, Deloitte Consulting LLP

Download the PDF

EV transformation and the risk of stranded capital

The transition to electric vehicles (EVs) was not expected to be easy, but the slowing of EV momentum is hitting some suppliers hard. Companies have been investing to keep pace with ambitious all-battery EV production targets just to have those plans pushed out in favor of internal combustion engine and hybrid models.

Many companies are either delaying capital expenditures, redeploying capacity to other programs, or attempting to negotiate with their OEM customers in the hope of extracting some relief in their contracts. Survey respondents also pointed to potential weakness in the US economy as the greatest threat to the industry over the next 12 months, overshadowing their concern about poor sales volumes.

"As the industry continues to feel its way through the transition to electrified mobility, increased collaboration between OEMs and suppliers could go a long way toward addressing the challenges they face as an integrated value chain."

—Jason Coffman, Principal, Deloitte Consulting LLP

Download the PDF

Losing momentum in electric vehicle demand

Let’s be clear, sales of electric vehicles are still growing in the North American market. However, the momentum of electric vehicle sales, which is likely driven by ambitious regulatory targets tied to decarbonization goals, is an important issue facing many automotive suppliers. Results from the 2024 Deloitte Global Automotive Consumer Study indicate that 67% of US consumers would most want a traditional internal combustion engine (ICE) in their next vehicle, compared to 58% last year. This development aligns with results from the Q1 2024 MEMA Barometer survey that suggest the top threat facing auto suppliers is softening demand for the vehicle programs they support, particularly electric vehicle demand.

"Lower demand for EVs is causing dealer inventories to swell, which is prompting some manufacturers to trim production in favor of more profitable ICE models, likely leaving some suppliers to wonder whether their OEM customers will achieve their quoted EV program volumes."

—Jason Coffman, Principal, Deloitte Consulting LLP

Download the PDF

Q4 2023 -- Labor negotiations are putting talent issues back in the spotlight

As the UAW and Detroit 3 automakers continue to work toward ratifying a new labor agreement, suppliers have been left to wonder when the dust will eventually settle and what the outcome will mean for them. Companies responding to the Q4 MEMA OE Barometer have identified issues related to the UAW strike as the biggest threat to the industry over the next 12 months.

From production losses and resulting cash flow pressures to the uncertainty around restarting parts of the supply chain that have been directly affected by strike actions, the path to recovery will likely be a complicated and risky process for many suppliers.

"As the auto industry continues to work through a prolonged period of disruption and evolution, suppliers should also look inward to understand how these forces are impacting the talent that underpins their organization."

—Jason Coffman, Principal, Deloitte Consulting LLP

Download the PDF

Q3 2023 -- Suppliers anticipate labor negotiations and seek capital to fuel growth

After weathering crisis after crisis for the past few years, automotive industry suppliers are now bracing for the impact of labor negotiations. The latest results from the MEMA OE Q3 2023 Automotive Supplier Barometer indicate that "labor availability constraints" have overtaken concerns about potential weakness in the US economy as the greatest threat to their business over the next 12 months. Other concerns include the likelihood of higher interest rates and poor vehicle sales, reflecting the rapid return of large dealer inventories and significant incentives in the market.

Another area of focus for some suppliers is the need for capital to drive a variety of strategic initiatives, ranging from new tooling and facilities to product innovation and M&A opportunities.

"When it comes to driving innovation, the need to keep pace with the generational shift to electric vehicles appears ever-present. Some suppliers have responded by constructing capital strategies that are highly supportive of working with external partners to shore up technology gaps and accelerate R&D programs."

—Jason Coffman, Principal, Deloitte Consulting LLP

Download the PDF

Q2 2023 -- Sub-tier stress builds while sustainability tries to get traction

Concerns about business prospects persist across the auto supply sector. Survey respondents point to potential weakness in the US economy, in addition to material costs and shortages, as the greatest threat to the industry over the next 12 months. A stagnant forecast is worrisome to suppliers trying to keep up with a long list of customer requirements, including cost efficiencies, directed buy arrangements, the shift to electric vehicles (EVs) and the need to invest in EV infrastructure, and environmental, social, and governance (ESG) compliance.

Meanwhile, the current environment may yield opportunities to consolidate customer relationships, competitors, and conquest business.

"As suppliers pivot from one challenge to another, they should balance their focus on addressing near-term threats with a longer-term view to aligning their business for success down the road. Companies should also keep an eye out for opportunities to gain market share and solidify customer relationships as sector growth begins to flatten off.…"

—Jason Coffman, Principal, Deloitte Consulting LLP

Download the PDF

Q1 2023 -- Supplier concerns abound in an uncertain landscape

Key findings in the first quarter of 2023 underline the level of uncertainty felt across the automotive supply base. Executives surveyed point to weakness in the US economy as the top risk factor for automotive sector growth, along with labor shortages, ongoing supply chain disruptions, plus the overall industry transformation driven by EV infrastructure investment and software.

However, there may be some near-term relief on the horizon tied to vehicle levels that continue to normalize as the industry works through remaining automotive shortages related to shortfalls in semiconductor availability.

"This is a unique time in the automotive supplier industry as some companies race to realign their business in the face of major disruptive forces while having to cope with global economic headwinds. As digital technology transforms the nature of mobility, consumers could demand different features and functionality, encouraging a shift from hardware to software."

—Jason Coffman, Principal, Deloitte Consulting LLP

Download the PDF