OESA News 2018 1Q Edition 3

NEWS

Original Equipment Suppliers Association

2018 First Quarter │ Edition 3

April 10-11

Register for the MEMA Legislative Summit

IN THIS ISSUE...

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The Suppliers' Voice Supplier Pulse

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MEMA Summit OESA Events

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OESA Events Calendar of Events

This edition is sponsored by: OESA News - 2018 First Quarter

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Voice

The Suppliers’

Julie A. Fream

President and CEO

Supplier Voices Needed at the MEMA Legislative Summit

"I encourage every

Last year was an unprecedented year for the supplier industry in Washington, D.C., supplier to send at least and 2018 looks to be similar. With the support of the MEMA Government Affairs one representative to the team, OESA actively represents the supplier voice and advocates on your behalf Summit this year; your to support, protect and promote the automotive supplier industry at the federal and input on the future of the state levels. industry is crucial."

While there is still much to do, our recent efforts include: • Providing input in the NAFTA renegotiation and counsel on favorable trade clauses • Monitoring tax reform and its implications for your business • Formally urging broad exemptions or exclusions from potential steel and aluminum tariffs To continue to advance the industry, OESA needs your participation at the MEMA Legislative Summit in Washington, D.C., on April 10-11, 2018. With many important issues facing the industry, the Summit is an excellent opportunity to speak with legislators and regulators that make decisions on issues directly impacting the supplier community, such as: • The future of the North American Free Trade Agreement (NAFTA) • Tariffs on imported goods (including steel and aluminum) • Potential changes to corporate average fuel economy (CAFE) and greenhouse gas emissions (GHG) standards • Legislation on advanced vehicle technology research and development • Tax reform and infrastructure spending OESA and MEMA will arrange for all Summit attendees to have meetings with several House and/or Senate legislators. The meetings will be matched to legislators that represent your manufacturing locations. Talking points will be provided.

I encourage every supplier to send at least one representative to the Summit this year; your input on the future of the industry is crucial. CLICK HERE to register now for the MEMA Legislative Summit.

As always, please feel free to contact me at 248.430.5964 or jfream@oesa.org.

Sincerely,

OESA News - 2018 First Quarter

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SUPPLIER PULSE

CRAFTING A FRAMEWORK FOR SUPPLIER SUCCESS Mike Jackson Executive Director, Strategy and Research 248.430.5954 │ mjackson@oesa.org

Divergent Trajectories The past year saw sales in the United States as a tale of two vehicle categories: cars and light trucks.

By the end of 2017, light vehicle sales surpassed 17.2 million units, posting a decline of 1.8 percent from 2016 levels. This result masks a dramatic divergence in the market as passenger car sales fell sharply by 10.9 percent while light truck sales accounted for a 4.3 percent increase. Within the truck category, crossover vehicles posted the strongest sales gains for the year, up more than eight percent. Utilities posting the highest year over year sales increases in 2017 included the Nissan Rogue, the Chevrolet Equinox and Toyota’s RAV4.

Speed Bumps Ahead Mixed results in 2017 highlight trends worth watching. On a positive note, transaction prices at year end rose almost three percent yearover-year, averaging nearly $33,000 in 2017, primarily due to a richer mix of highly contented pickups and SUVs. However, incentives as a percentage of MSRP averaged a heady 11.2 percent, cutting into margins on many vehicles, especially less-profitable passenger cars.

"Suppliers are encouraged to prepare for a more dynamic sales environment by utilizing scenario planning tools to assess potential business impacts. "

Retail sales accounted for 14 million units and outpaced the market, as volume fell just 1.1 percent from year ago levels. In 2017, fleet sales accounted for 18 percent of U.S. sales volume, with a sizable contribution from the lower margin daily rental market. Moreover, these vehicles have the potential to depress pricing on the new vehicle market as the rental car fleet transitions to the used vehicle auction. High inventories of used vehicles push resale prices lower, providing many consumers added incentive to consider buying a low mileage used vehicle at a deep discount.

All of which raises a reasonable concern regarding how long strong vehicle sales levels can be maintained - and the prospect of an industry downturn. While forecasts vary, the consensus reflects historically healthy sales volumes, with demand set to taper over the forecast horizon. With breakeven points well below forecasts, suppliers are better positioned to weather any mild downturn in sales and production in the nearterm.

Suppliers are encouraged to prepare for a more dynamic sales environment by utilizing scenario planning tools to assess potential business impacts.

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SUPPLIER PULSE The Race for Technology Suppliers are actively assessing acquisitions (more likely for large companies in the next 12 months) and divestitures (more likely for smaller companies). Acquisitions are being driven primarily by the need to gain technologies and access new customers. Global auto manufacturers and suppliers face the challenge of reallocating investments and organizational talent away from lower margin opportunities. Successful companies will establish a dual focus of prioritizing higher margin programs while increasing capabilities and the awareness of these competencies to support competitive portfolios in the EV/AV space that align with a cautious pace of adoption over the forecast horizon.

The Road Ahead It is no secret that the automotive sector is cyclical, taking dramatic turns as the economy rises and falls. The challenge this represents is considerable given the long-lead times and massive capex outlays required to bring new products and technologies to market. The market environment often changes dramatically by the time a new product is realized, fundamentally impacting its prospects for success or failure.

According to the 1Q 2018 OESA Supplier Barometer, a survey of top executives in the supplier industry, results continue to reflect greater optimism.

In 1Q 2018, the OESA supplier barometer index soared eleven points from 4Q 2017 to a score of 57, with broad based gains in optimism across companies of all sizes. Stronger results have been fueled by passage of the Trump administration’s tax reform plan, a more positive tone on NAFTA and continued market strength.

Despite the strong momentum, uncertainty remains due to ongoing volatility, with trade policy moving ahead of poor sales of programs supplied as the primary threat over the next twelve months.

Flexibility and liquidity will be key to thriving in a volatile environment, and strategic plans should be crafted to mitigate impacts of potential market volatility.

Trucks will continue to dominate launch activity for the foreseeable future.

While car launches will hold steady and even increase somewhat in the next two years due to production localization, pressure will remain on OEMs to align their manufacturing footprints with demand. Suppliers must conduct a careful assessment of their book of business to proactively prepare for future changes.

Despite the potential for uncertainties to negatively impact the industry, supplier feedback reflects growing optimism over strong business fundamentals. New investments and incremental product nameplates support tremendous stability in the market - which make this the right time for OEMs and their suppliers to fund and prepare for the future. Flexibility and liquidity will be key to thriving in a volatile environment, and strategic plans should be crafted to mitigate impacts of potential market volatility.

OESA News - 2018 First Quarter

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LEGISLATIVE UPDATE

GET INVOLVED: REGISTER FOR THE 2018 MEMA SUMMIT!

MEMA's 2018 Legislative Summit Tuesday, April 10 - Wednesday, April 11, 2018 Mandarin Oriental Hotel | Washington, DC

"It's an incredible opportunity because we actually get to go and talk to our Congressmen and Representatives about the key issues. It's powerful!"

-- Lynn Kier, Schaeffler Group USA, Inc

"[Members of Congress] want to see the employees, they want to see those folks flying in from Michigan or Indiana to come talk to them directly."

--Ian Musselman, Continental CLICK HERE to hear real-life testimony from industry colleagues about the MEMA Summit and learn why this is a must-attend event each year.

For more information, visit http://www.mema.org/dcsummit.

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OESA EVENTS

PROFESSIONAL DEVELOPMENT SERIES | MARCH 6, APRIL 27, JUNE 5 The Original Equipment Suppliers Association (OESA) will host a new “Professional Development Series” of meetings in 2018 focused on the development of customer-facing associates of automotive suppliers. These meetings will cover a wide range of topics to provide professional growth assistance and insight to emerging trends in the automotive industry. The Professional Development Series will meet three times in 2018 in the metro Detroit area.

The dates and focus for the 2018 OESA Professional Development Series meetings will be as follows.

• March 6, 2018 Understanding Customer “Pain Points” and Avoiding Mistakes in Contracts and Negotiations • April 27, 2018 Approaches to Address Customer Issues, Understanding OEM Terms and Conditions and Industry Technology Trends • June 5, 2018 Professional Presence, Email Etiquette and a North American Market Outlook OESA members may register individually for each meeting or for all three at a discounted rate.

OESA MOBILITY SUPPLIER FORUM | MARCH 8 The first meeting of the 2018 "Mobility Supplier Forum" will be held on March 8, 2018, at Flex Automotive's Silicon Valley Customer Innovation Center in Milpitas, Calif. Kit Cutler, manager, strategic partnerships and procurement, Zoox, will discuss strategic partnerships and how they view the future of "Mobility."

Tom Alleman, member of Dykema Gossett PLLC and director of its insurance industry group; William Kohler, member of Dykema Gossett PLLC and co-leader of its mobility and advanced transportation team; and Sheryl Toby, member of Dykema Gossett PLLC, and leader of its supply chain practice group, will share insight on issues the insurance industry will face as Executive Sponsor: it pertains to autonomous and connected vehicles. The meeting will wrap up with Eric Hoarau, senior director of technology & business development, Flex Automotive, discussing the importance of cross-industry knowledge exchange as an enabler for advancing mobility.

This automotive forum will meet quarterly in 2018 in California's "Silicon Valley" area, and each meeting will feature a half day of OEM presentations and insights from industry leading experts on issues of common concern for automotive suppliers.

Supporting Sponsor:

For more information and to register for OESA events and council meetings, visit oesa.org, or call 248.952.6401.

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OESA EVENTS OESA Board of Directors Executive Committee Chairman of the Board Mike Mansuetti President Robert Bosch LLC Immediate Past Chair Samir Salman CEO NA Region Continental Automotive Systems, Inc. Vice Chair Françoise Colpron Group President Valeo North America Vice Chair Ramzi Hermiz President and CEO Shiloh Industries, Inc. Officer Julie A. Fream President and CEO Original Equipment Suppliers Association Officer Steve Handschuh President and CEO Motor & Equipment Manufacturers Association

Directors Oscar R. Albin Executive President INA, Industria Nacional de Autopartes A.C. Paul Barnett President Principal Manufacturing James Bradbury President Grand Rapids Controls Company LLC David C. Dauch Chairman and CEO American Axle & Manufacturing, Inc. (AAM) Jacqui Dedo Co-Founder Aware Mobility, LLC

PLANNING FOR COST RECOVERY CLAIMS: STRATEGIES, PERSPECTIVES AND BEST PRACTICES | MARCH 20 OESA, in partnership with Brooks Wilkins Sharkey & Turco PLLC (BWST), will host Planning for Cost Recovery Claims: Strategies, Perspectives and Best Practices on March 20, 2018, at the MSU Management Education Center in Troy, MI. Subject matter experts from BWST will identify, analyze and discuss supplier challenges with customer cost recovery demands and corresponding claims, and recovering from downstream subsuppliers. The session will spotlight key tactics that customers use to pursue costs - including time constraints, limited root cause information and commercial pressure. This event will benefit both customer- and supplier-interfacing professionals.

In addition, Ryan Hickey, quality team leader, Robert Bosch, LLC, will discuss how to employ software tools to significantly improve critical data analysis during a cost recovery investigation. He will explain and demonstrate the practical uses of Microsoft’s Excel Visual Basic macros to efficiently and accurately crunch the numbers.

Attendees will gain a better understanding of: • Trends and influences driving customer approaches to cost recovery • Tools to avoid losses when the supplier’s parts are not tied to the costs at issue • How to speed up the process for information access in both directions • Opportunities to mitigate risk before customers make demands

Supporting Sponsor:

Paul Doyle CEO Coastal Automotive (Continued on page 11)

For more information and to register for OESA events and council meetings, visit oesa.org, or call 248.952.6401.

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CALENDAR OF EVENTS

2018 UPCOMING EVENTS March

Professional Development Series I MSU Management Education Center Troy, MI

March

Mobility Supplier Forum Flex Automotive Milpitas, CA

6 8

March

20

April

10-11

Planning for Cost Recovery Claims: Strategies, Perspectives and Best Practices MSU Management Education Center Troy, MI MEMA Legislative Summit Mandarin Oriental Hotel Washington, D.C.

SAVE THE DATES July 17

Toyota Town Hall Saline, MI

Sept. 13

Volkswagen Town Hall Novi, MI

Oct. 2

Nissan Town Hall Livonia, MI

Nov. 30

Ford Town Hall Dearborn, MI

OESA Board of Directors (Continued from page 10)

John Dunn President and CEO, The Americas Plastic Omnium Auto Inergy Division Douglas J. Grimm Immediate Past Chairman of the Board, MEMA Michael Haughey President North American Stamping Group, LLC Ken Hopkins President and CEO Neapco Holdings, LLC Kenichiro "Ken" Ito Executive Director DENSO Corporation Don Manvel Chairman and CEO AVL Americas Chris Obey President, Automotive Flex Lon Offenbacher President and CEO Inteva Products Michael Robinet Managing Director Automotive Advisory Services IHS Markit Dan Sceli President and CEO Peterson American Corporation

UPCOMING OESA COUNCIL MEETINGS* March

Enterprise Leadership Council OESA Conference Center Southfield, MI

March

Chief Financial Officers Council OESA Conference Center Southfield, MI

8

15

March

27

March

28

March

29

IT Leadership Council OESA Conference Center Southfield, MI

Wes Smith President and CEO E & E Manufacturing Co., Inc. Armando Tamez CEO Nemak Jim Teets President and CEO ADAC Automotive James Verrier President and CEO BorgWarner Inc.

Tooling Council OESA Conference Center Southfield, MI Warranty Management Council MSU Management Education Center Troy, MI *Open to peer group council members and invited guests.

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Original Equipment Suppliers Association Check out our online publication at www.oesa.org/news

25925 Telegraph Rd., Ste. 350 │Southfield, MI 48033-2553 248.952.6401 │oesa.org │info@oesa.org Connect with us on

OESA News is provided by members of the OESA Communications Team.

April Buford Senior Director, Communications

Jeff Laskowski Senior Manager, Communications

248.430.5964 abuford@oesa.org

248.430.5951 jlaskowski@oesa.org

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