OESA News 2018 1Q Edition 2

NEWS

Original Equipment Suppliers Association

2018 First Quarter │ Edition 2

Feb. 16

Members-only GM Purchasing/Supply Chain Town Hall

IN THIS ISSUE...

3 4

The Suppliers' Voice Supplier Pulse

6 8

Guest Column MEMA Summit

9 11

OESA Events Calendar of Events

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

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Welcome to a land alive With opportunity The UK’s automotive sector has grown by over 70% since 2009 – it’s now the fastest-growing in Europe, with over $5 billion worth of supply chain opportunities for US companies.

Find out more at great.gov.uk

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Voice

The Suppliers’

Julie A. Fream

President and CEO

How to Improve NAFTA: A Supplier’s Perspective

As part of OESA’s on-going effort to voice the supplier industry’s position on the North American Free Trade Agreement (NAFTA), we recently sent a letter to the Trump administration. Through MEMA’s lobbying efforts, we are urging the administration to continue negotiations with Canada and Mexico with the common goal of sustaining and improving the agreement.

"NAFTA works, and while modernization is desirable, the U.S. should do no harm to this critical trade agreement."

A withdrawal from NAFTA would have a detrimental impact on the U.S., Canadian and Mexican economies, and the continued prosperity of the automotive industry necessitates the U.S. to stay at the negotiating table.

The letter lists five specific recommendations to improve NAFTA: 1. Recognize innovative technology developments by providing suppliers a framework to include research and development (R&D), engineering, designing, and software development expenditures in regional value content calculations (RVC); 2. Retain tariff shift for automotive parts; 3. Standardize the rules of origin for automotive parts to allow the options for either tariff shift or RVC with no required tariff shift; 4. Ensure that aftermarket parts, including remanufactured goods, are not treated differently from new goods imports; and, 5. Provide incentives to U.S. companies to train and expand the U.S. workforce.

The letter is part of a multi-pronged, comprehensive effort to communicate the supplier industry’s position on NAFTA. The message is straight forward: NAFTA works, and while modernization is desirable, the U.S. should do no harm to this critical trade agreement.

The MEMA advocacy team represents the governmental concerns of OESA members. Member companies are encouraged to have a representative on the MEMA Government Affairs Committee (GAC). The committee addresses critical supplier issues such as trade, CAFE and GHG emissions, automated vehicle legislation and workforce development. The next meeting is in Washington, D.C (and via webinar) on Feb. 28.

For more information and to register for the meeting, contact Catherine Boland at cboland@mema.org.

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

Sincerely

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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 4Q 2017 OESA Supplier Barometer Index, a survey of top executives in the supplier industry, results continue to reflect greater optimism.

The OESA Supplier Barometer Index score rose six points in the fourth quarter of 2017 to a score of 46, however, inventories, production volumes and the political environment have continued to hold sentiment down. Poor vehicle sales moved ahead of trade policy as the primary threat over the next 12 months. Keep in mind, the 4Q 2017 results do not capture the passage of the Trump administration’s tax reform plan, those results will be reflected in the 1Q 2018 survey to be completed in early March.

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.

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GUEST COLUMN

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GUEST COLUMN

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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

THE AUTOMOTIVE SUPPLIER’S LEGAL GUIDE TO 2018: BUCKLE UP AND GET READY FOR RAPID CHANGE | FEB 7 On Feb. 7, 2018, Warner Norcross & Judd LLP (WNJ) will present “The Automotive Supplier’s Legal Guide to 2018: Buckle Up and Get Ready for Rapid Change,” at the MSU Management Education Center in Troy, Mich. This session will shed light on recent developments and trends that automotive supplier attorneys and senior executives should understand and prepare for as 2018 gets underway.

Rapid and volatile changes in the market and softening forecasts for industry volumes are warning signs that automotive suppliers should start preparing now to position and protect their operations. WNJ attorneys will discuss vital topics to help suppliers prepare for potential industry disruption.

In the fast-moving world of automotive suppliers, it is essential to have the latest information on protecting intellectual property. Issues to be addressed include: joint development agreements and joint ventures; protecting IP when working with non-traditional suppliers; IP due diligence in mergers, acquisitions and divestitures.

Supporting Sponsor:

OESA MEMBERS-ONLY GM TOWN HALL | FEB 16 OESA will host the 13th annual members-only General Motors Purchasing/Supply Chain Town Hall on Feb. 16, 2018, at the General Motors Design Dome in Warren, Mich. Steve Kiefer, senior vice president, global purchasing and supply chain, General Motors, and members of his Global Purchasing & Supply Chain (GPSC) senior leadership team will provide an update participate in a question-and-answer panel session.

Members of the GPSC senior leadership team joining Kiefer include: • Rachel Bhattacharya, Chief Growth Officer, General Motors Company and Maven • Kim Brycz, Executive Director, Global Product Purchasing • Jim Bovenzi, Executive Director, Demand / Supply • Andrew Farah, Chief Technology Architect, Autonomous Technology • Pam Fletcher, Vice President, Global Electric Vehicle Programs • Kathy Worthen, Executive Director, Global Purchasing Program Management One-on-one networking opportunities will be made available with GM executives following the formal meeting. This meeting is open to OESA members only.

Executive Sponsors:

Supporting Sponsors:

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

PROFESSIONAL DEVELOPMENT SERIES | MARCH 6, APRIL 27, JUNE 5 In partnership with affiliate members, OESA will host a new "Professional Development Series" focused on the development of customer-facing industry executives. These meetings will cover a wide range of topics on professional growth and provide insight on emerging trends in the automotive industry. The meetings are for OESA members only and will meet three times in 2018 in the metro Detroit area.

OESA members may register individually for each meeting or for all three at a discounted rate.

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 Michael Brosseau President Brose North America David C. Dauch Chairman and CEO American Axle & Manufacturing, Inc. (AAM)

OESA MOBILITY SUPPLIER FORUM | MARCH 8 The Original Equipment Suppliers Association (OESA) announces the 2018 "Mobility Supplier Forum." The meeting series is intended to help West Coast automotive suppliers advance their business interests in connected and transformative technologies. 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.

Companies can participate in the forum two ways: Send up to three team members to attend every meeting for $2000 per year or $225 per person/ per meeting.

Executive Sponsor:

Supporting Sponsor:

(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 Feb

07 Feb

16

The Automotive Supplier’s Legal Guide to 2018 MSU Management Education Center Troy, MI Members-Only GM Purchasing/Supply Chain Town Hall GM Design Dome Warren, MI

March Professional Development Series I MSU Management Education Center Troy, MI

6

March Mobility Supplier Forum Flex Automotive Milpitas, CA

8

April

10-11

MEMA Legislative Summit Mandarin Oriental Hotel Washington, D.C.

OESA Board of Directors (Continued from page 10) Jacqui Dedo Co-Founder Aware Mobility, LLC Paul Doyle CEO Coastal Automotive 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

UPCOMING OESA COUNCIL MEETINGS* Feb

6

Feb

7

Advanced Technology Counci OESA Conference Center Southfield, MI Joint Communication Executives and Automotive Public Relations Council OESA Conference Center Southfield, MI

Feb

Young Leadership Council 5 OESA Conference Center Southfield, MI

Feb

Young Leadership Council 6 OESA Conference Center Southfield, MI

8

15 Feb

22

Sales Executive Council Somerset Inn Troy, MI *Open to peer group council members and invited guests.

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 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.

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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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