OESA News 2019 1Q Edition 1

NEWS Original Equipment Suppliers Association

2019 First Quarter │ Edition 1

Nissan Town Hall Meeting | January 29, 2019 | Register Today!

IN THIS ISSUE...

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The Suppliers' Voice Supplier Pulse

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OESA Events Guest Column: Entrada

This edition is sponsored by:

9 Welcome New Members 10 Calendar of Events

Mexico, Delivered

Why Mexico Needs More Proven Auto Suppliers New whitepaper explores why the shortcomings of Mexico’s automotive supply base are leading to growth opportunities for small-to-midsized suppliers. ine of the top ten global automakers now manufacture light vehicles in Mexico, which is the world’s seventh-largest producer in that category. Mexico cranks out nearly 4 million cars annually, with year over year growth to rival the world’s most proven producing nations. Yet, Mexico’s supply base, particularly beneath the Tier One level, needs help.

For Mexico’s auto sector to continue to grow, more international auto suppliers are desperately needed to fill the most glaring gaps. Download our whitepaper to learn why these shortages equate to opportunities for auto suppliers contemplating their first Mexico operation.

About Entrada Group

90% 23%

of auto manufacturers in Mexico say a strong supply base is very important rate the quality of the local supply base as poor Source: Entrada Group 2016 survey of 100 auto manufacturers with Mexico operations.

Download whitepaper today to learn: • Which auto sector processes are most in demand in Mexico • About changes in the new USMCA trade pact that may affect the auto sector • Best practices and options EM O for launching an initial to ico! u s a Mex operation in e lud p of c Mexico In ma

Download at:

www.entradagroup.com/OESA

Entrada Group guides international manufacturers in establishing an running their own Mexico production, in order to enhance global competitiveness.

Contact: Doug Donahue • Ph. 210-828-8300 • E: ddonahue@entradagroup.com 1 │ OESA News - 2019 First Quarter

Voice

The Suppliers’

Happy New Year!

Julie A. Fream

President and CEO

The automotive supplier industry is beginning the year with dueling supplier sentiments.

The 2019 vehicle production forecast is strong, yet for many supplier executives, there is an uneasiness and concern about the future. According to the results of the 4Q 2018 OESA Supplier Barometer (see full article on page 3), supplier optimism is at its lowest point since 2011. Roughly three-quarters of survey respondents indicated that changes and unknowns in the U.S. trade policy are the greatest threats to the industry for the coming year.

During the next 12 months and beyond, OESA will continue to work to address this concern and others, through more advocacy in Washington, D.C., encouraging greater collaboration throughout the supply chain and ensuring OESA's topical events explore relavent issues and provide actionable insight for suppliers.

In addition, suppliers must focus on planning and engaging in the new mobility landscape.

As I mentioned at the 2018 OESA Annual Conference, I encourage suppliers to evaluate every aspect of their organization and change those practices that get in the way making quick and critical business decisions. As we plan for the future, view your organization with a new lense. In order to address new competitors, new politics, new demands and uncertain times, suppliers must adjust business practices to enable long-term success.

2019 brings the opportunity to explore new ways to manage imports/exports, address the labor and talent shortage, and work with customers and other suppliers. No matter how the future evolves, OESA is working to champion the business needs of the supplier community.

We appreciate the opportunity to represent your voice during these uncertain times.

As always, please feel free to contact me at 248.430.5963 or jfream@oesa.org.

Julie A. Fream President and CEO OESA

OESA News - 2019 First Quarter

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SUPPLIER PULSE

OESA Supplier Barometer Shows Growing Supplier Concern Over Tariffs and Trade Mike Jackson Executive Director, Strategy and Research 248.430.5954 │ mjackson@oesa.org

Despite strong economic fundamentals, a pessimistic supplier outlook persists according to the latest OESA Supplier Barometer - a quarterly survey of executives at North American automotive suppliers on their 12-month outlook. The Supplier Barometer Index (SBI) posted a negative reading of 39 for the 4th quarter of 2018, eleven points below a neutral of 50. The latest reading dropped four points from the Q3 2018 result.

Notwithstanding high consumer confidence, concerns remain over supply chain risks, higher commodity prices, the impact of Section 232 and Section 301 tariffs, as well as policy and implementation uncertainty surrounding the new USMCA accord. Moreover, weak demand for passenger cars continues to negatively impact suppliers.

Each element of uncertainty clouds the planning environment, causing automakers and suppliers to reassess, update and potentially disrupt business investment planning until greater clarity can be determined.

Policy uncertainty and rising cost pressures can contribute to a chilling effect on additional business investment, serving to disrupt market momentum and increase volatility throughout the supply chain.

Suppliers are encouraged to actively mitigate risks while seeking opportunities to identify and leverage market imbalances.

Supplier executive responses reflect a net increase in pessimism over prior quarter survey results. Some 57 percent of responses from smaller, more regionally-focused suppliers reflect increasing pessimism, one and a half times the rate compared to the prior quarter. Additionally, 57 percent of executive responses from larger suppliers, with revenue over $1 billion, became more pessimistic, up from 49 percent in the third quarter.

OESA Supplier Barometer: Q4 2018 Results Describe the general twelve month outlook for your business. Over the past three months, has your opinion become…?

Current Supplier Outlook (Share of Respondents) Q3 2018

60%

70

Jan-2014

Jan-2013

Jan-2012

Jan-2011

Jan-2009

Significantly more pessimistic

Somewhat more pessimistic

Unchanged

Somewhat more optimistic

Significantly more optimistic

Jan-2010

Euro Crisis Begins

30 20

Japan Tsunami/ Grexit Crisis

US Fiscal Cliff

39

Jan-2018

40

Jan-2017

20%

Lehman Collapse

Jan-2016

50

Jan-2015

60

40%

0%

Supplier Barometer Index: (SBI and 6m Average) 80

Q4 2018

101 responses

Rising concerns over policy pulled thelevel Q4 2018 SBI tariffs Score and = 53;trade drops 4 points fromdown the Q1 of 57OESA Supplier Barometer Index (SBI) by four points to 39, eleven points below a neutral reading.

Tax reform supports optimism while trade and declining sales drive pessimism Q4 2018 OESA AUTOMOTIVE SUPPLIER BAROMETER

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SUPPLIER PULSE In addition to the supplier sentiment, the themes of "Human Resources" and "Talent" highlight trends for the fourth quarter 2018 Supplier Barometer survey: Filling in the Gaps: Responses indicate that 58% of suppliers have moderate to wide gaps between their current roles and responsibilities versus skills, yet 97% executives were willing to embrace change needed to reduce skills gaps. Furthermore, 54% of responses reflect suppliers face moderate to wide gaps between current and expected company culture, while 91% are willing to take steps to close cultural gaps. Firms are focusing on expanding training efforts to offset skills gaps, while re-evaluating current policies and enhancing flexibility to foster engagement and reduce gaps in company culture.

Suppliers are encouraged to Managing Turnover and Scarce Candidates: Voluntary turnover actively mitigate risks while seeking rates are extremely high throughout North America. Nearly a quarter opportunities to identify and leverage of suppliers in the U.S. indicate they have turnover rates of over 7.5% market imbalances. for salaried workers while nearly half indicate the same turnover rate for hourly workers. Canada and Mexico also face increasingly competitive labor markets where over a third of suppliers report turnover rates above 7.5% for both salaried and hourly workers. On net, supplier executives anticipate that their growth in employment will lag the pace of sales gains in the U.S., Canada, Europe and South America. Most suppliers indicate that both white and bluecollar technical positions are difficult to fill. Engineering positions are the most challenging to fill in the U.S., specifically mechanical and industrial engineers. Supplier executives point to a lack of qualified candidates and competition from other industries as the main factors contributing to the talent shortage.

Rising to the Challenge: Despite widespread shortages of qualified candidates, suppliers are maintaining their hiring standards across salaried and hourly employees. More have opted to redefine job roles to suit available skill sets, leveraging existing talent to cope with bringing in less experienced workers. The industry is striving to attract younger workers with greater emphasis on flexibility, in terms of schedule and workspace while adding scope via cross-functional job rotation. Career and succession planning are a strategic business priority, followed closely by leadership and training as suppliers strive to retain and engage current employees.

OESA Supplier Barometer: Industry Threats Average Rating

What are the greatest threats to the industry over the next 12 months?

0%

10%

20%

30%

40%

50%

60%

70%

80%

90%

100% November

July

Changes in government trade policy

3.1

3.1

Poor sales of vehicles in programs supplied

4.2

5.1

Implementation of new government regulations

4.6

5.2

Weakness in the U.S. Economy

4.6

5.2

Likelihood of higher interest rates

5.2

5.2

Inability to address internal labor constraints

5.2

5.7

Terrorism or some type of international event

6.5

6.7

Inability to fulfill customer volumes

6.8

7.3

1=Greatest threat

2

3

4

5

6

7

8

9

10=Smallest threat

Score = 53; threat, drops 4 from the quarter, Q1 levelunchanged of 57 Trade policy remains the SBI greatest industry at points 3.1 in the fourth from Q3 2018.

Poor sales ofTax programs identified as the second threat, declining substantially from Q3. reformsupplied supportswas optimism while trade and largest declining sales drive pessimism Q4 2018 OESA AUTOMOTIVE SUPPLIER BAROMETER

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A full copy of the Q4 OESA Automotive Supplier Barometer results are available on the OESA website at under the resources tab.

OESA News - 2019 First Quarter

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OESA EVENTS

OESA 2019 Consumer Electronics Show Supplier Briefing | Jan. 7 OESA announces the 2019 Consumer Electronics Show (CES) Supplier Briefing on Jan. 7, 2019, at the MGM Grand in Las Vegas. Senior industry experts from IHS Markit will discuss innovative technologies and provide attendees with a panel-style expert preview of what to look for in automotive technology at the 2019 CES. IHS Markit experts Egil Juliussen, Ph.D., director of research & principal analyst, automotive technology, Colin Bird-Martinez, senior analyst, automotive software, apps and services, Brian Rhodes, connected car research lead, Jeremy Carlson, principal analyst, autonomous driving, automotive, and Mark C. Boyadjis, global technology lead, automotive advisory services, will share insights on automotive electronics, connectivity, mobility futures, software trends, ADAS and more.

Register in the events section of http://www.oesa.org. For additional registration and program information, contact OESA at 248.952.6401 or info@oesa.org.

Exclusive Sponsor:

IHS Markit NAIAS Vehicle Tours | Jan. 17 OESA invites industry executives to attend an exclusive guided tours of the 2019 North American International Auto Show (NAIAS) with IHS Markit on Jan. 17, 2019. Participants will learn how future production vehicles and design concepts impact the supply base from a technology, procurement and global ER&D perspective.

Following a special NAIAS briefing, industry-leading analysts from IHS Markit will direct 60-minute tours on the show floor identifying strengths and weaknesses of OEM product strategies and platforms. These exclusive tours offer a unique opportunity for candid discussions on vehicles launched at the show and the business impact on the industry. The tours also enable supplier executives to better focus on OEM product goals and objectives.

OESA encourages early registration as space in each tour is limited and not guaranteed. Once capacity is met, no further registrations can be accepted. Tours will be led out of the IHS Markit hospitality suite at COBO Center, Room 321 on January 17, 2019.

Attendees must register for the IHS Markit briefing through IHS, then for the tour in the events section of http://www.oesa.org. For registration assistance or program information, contact OESA at 248.652.6401 or info@oesa.org.

Exclusive Sponsor:

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OESA EVENTS

OESA Nissan Town Hall Meeting | Jan. 29 OESA is pleased to host the OESA Nissan Town Hall on Jan. 29, 2019, at the Laurel Manor in Livonia, MI. Rob Pitt, regional purchasing head, Nissan North America Inc., and additional product development and purchasing executives will provide updates and participate on a Q&A panel session. Executives joining Pitt on stage include: • • • •

Heath Holtz, Senior Vice President of Manufacturing, Supply Chain Management and Purchasing, North America Mark Swenson, Vice President, Total Customer Satisfaction, Nissan Group of North America Takeshi Yamaguchi, Senior Vice President of R&D, North America Dan Mohnke, Senior Vice President of Sales & Marketing, Operations, North America

There will be informal networking before the meeting and the formal commodity networking following the meeting.

Current and prospective Nissan suppliers and those interested in learning more about Nissan’s future strategic plans are encouraged to attend this town hall.

OESA members may register in the events section of http://www.oesa.org. For registration and program information, contact OESA at 248.952.6401.

Upcoming OEM Town Hall Meetings Jan 29

Nissan Town Hall Laurel Manor Livonia, MI

Feb 19

GM Town Hall Marriot Renissance Center Detroit, MI

OESA News - 2019 First Quarter

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GUEST COLUMN

The Top Three Reasons Auto Suppliers Need to Consider Mexico Production Prepared By: Doug Donahue Principal, Entrada Group Ph. 210-828-8300 E: ddonahue@entradagroup.com

“How will we stay competitive?”

This is probably the most common question that owners and top executives from companies that supply to automotive OEMs and Tier Ones/Tier Twos across North America struggle with every day as they look to the future.

Cost and proximity clearly factor into competitiveness. As a production destination, Mexico fares well on both counts. But the other reasons motivating auto producers to look at Mexico production may not be as obvious. We’ve distilled these motivators down to the top three for this article, to highlight some common advantages of Mexico for auto suppliers that have not yet launched operations in the country.

All are based on the input of our clients in Mexico or on input from producers that have not yet taken the plunge.

“If you’re serious about serving the auto sector, you need a Mexico strategy” –Bill Baughman, Founder and President, Plastomer, Detroit-based auto supplier and Entrada Group client

Reason #1: Mexico Offers a Proven Track Record for Growth Mexico has enabled most of our auto sector clients to gain new customers and business, strictly by virtue of their presence in the country.

Automotive producers in Mexico would always prefer to source product locally for many reasons, including: cost savings, just-in-time delivery, shorter supply chain and storage cost savings. Furthermore, such companies also prefer to work with an in-country supplier that is IMMEX compliant. Entrada Group clients, for example, operate under our IMMEX license and

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About Entrada Group

Entrada Group guides international manufacturers in establishing and running their own cost-competitive Mexico operations.

Our manufacturing support platform manages all your general and administrative services, reducing cost and risk, and generating long-term growth.

Visit us: www.entradagroup.com

are fully compliant with all Mexico Customs laws, making it easier for them to bid on projects from in-country customers.

John White, Executive VP of Telamon, a longtime Entrada Group client in Mexico, feels that the growth of large companies entering Mexico has opened doors to his company to supply product that may have otherwise been sourced abroad.

“A lot of our customers have put a footprint closer to our facility and that has helped us get in to broaden our portfolio and work with new companies that we haven’t served in the past,” John said.

Reason #2: Cost in Mexico: Both a Push and a Pull Hourly direct-labor costs in Mexico vary greatly depending on the region of the country. For example, fully loaded direct labor costs $2 per hour at our manufacturing campus in Zacatecas versus $4 hourly at our campus in Guanajuato (for well-managed operations). Labor can be significantly costlier near the border or in Monterrey. This “pull” of cost savings is difficult for auto suppliers facing cost pressures to ignore.

GUEST COLUMN

Why Entrada Is Investing in a New $50 Million Celaya Manufacturing Campus In 2016, Entrada Group inaugurated our second Mexico manufacturing campus, in a region of Central Mexico (the Bajio) that is at the epicenter of Mexico’s fastest-expanding manufacturing activity, and also home to scores of leading global OEMs and suppliers to the auto sector.

Entrada made a significant strategic investment in our future, as we believe our $50 million, 60-acre Celaya manufacturing campus will position our clients and future clients for success in this important part of Mexico.

Plastomer, a Detroit-based, owner-operated auto supplier of fabricated products (foam, rubber and semi-rigid materials) to numerous OEMs and Tier Ones, has been a client at Entrada’s Celaya campus since the beginning.

After evaluating several different Mexico production locations, Plastomer chose Entrada’s manufacturing campus in Celaya. Plastomer’s executives felt the Bajio offered the best combination of four essential factors: cost-competitive operations, access to experienced human capital, proximity to several existing customers and, perhaps best of all, a prime location from which to serve potential new customers.

Bill Baughman, Plastomer’s Founder and President, knew that production in Celaya would not only put Plastomer closer to current automotive customers, it would also give them a big advantage for business development in the region. “Your customers and potential customers in Mexico want to see and experience your plant for themselves and they can’t do that when the plant is in Michigan,” Bill said.

Click here to visit our website to read more about Plastomer’s Mexico experience.

At the same time, many automotive suppliers are “pushed” to Mexico by their own customers, who present them with a mandate to lower prices or lose the business. Nick Coulter, Operations Manager for Electrex, another longtime Entrada Group client, faced such a proposition, which drove them to approach us about establishing Mexico production several years ago. “We had a US customer that told us ‘If you can’t figure out a way to cut your cost by 20 to 30 percent, then we’re moving to a different supplier and you’re going to lose our business,’” Nick said. “So we went into immediate action and within six months of that conversation, we had the facility up and running in Zacatecas with Entrada Group.

We were forced into it but, in hindsight, it was one of the best decisions we ever made,” he said.

Reason #3: USMCA Ratification Looks Very Promising The long period of uncertainty surrounding the future of NAFTA appears finally to be over. Most are optimistic about approval and enactment of USMCA as of this writing, though a new US Congress and new government in Mexico have yet to assure passage. Overall, there aren’t major changes to the original pact, which was implemented in 1994 and was overdue for modernization.

Yet the auto sector, in particular, was closely scrutinized throughout negotiations and the three nations appear to have reached a compromise on rules-of-origin levels. Under USMCA, 75% of the value of the vehicle must be produced within the region to qualify for zero tariffs (up from 62.5% under NAFTA). If that threshold isn’t met, tariffs revert to WTO levels (which are 2% for sedans and 25% for light trucks, for example).

By offering customer proximity, an affordable labor pool and free-trade access, Mexico production has helped Entrada Group’s many automotive clients grow over the years. A burgeoning auto sector in Mexico should further bolster this growth.

OESA News - 2019 First Quarter

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WELCOME NEW MEMBERS Crowe LLP 55 Campau Ave NW Suite 500 Grand Rapids, MI 49503 (800) 2769304 www.crowe.com Member Representative: Joe Tomaszewski, Partner Alternate Representative: Josh Cole, Principal Crowe LLP is a public accounting, consulting and technology firm with offices around the world. Crowe uses its deep industry expertise to provide audit services to public and private entities. The firm and its subsidiaries also help clients make smart decisions that lead to lasting value with its tax, advisory, risk and performance services. Crowe is recognized by many organizations as one of the best places to work in the U.S. As an independent member of Crowe Global, one of the largest global accounting networks in the world, Crowe serves clients worldwide. The network consists of more than 200 independent accounting and advisory services firms in more than 130 countries around the world.

EDAG 1875 Research Dr Suite 200 48083 Troy, MI (248) 7861801 www.edag-us.com Member Representative: Jan Schulte, CEO Alternate Representative: Kai Uwe Salzmann, CTO EDAG are experts in the development of vehicles, production plants and the optimization of your processes. When it comes to automobile development, you need someone with a fully integrated approach to the question of mobility and a passion for development.

That's us. Our expertise includes the integrated development and optimization of vehicles, production facilities, derivatives and modules. This has made us what we are today: the acknowledged, independent engineering experts for the automotive industry and your business contact for the mobility of the future!

Seraph 5800 Crooks Road Troy, MI 48098 (248) 854-6662 Seraph.com Member Representative: Dr. Walter Maisel, President, International Operations Alternate Representative: Ambrose Conroy, Chairman and Founder Product development & launch is a complex cross functional undertaking that demands the highest levels of leadership. It is not a linear process - it is the net outcome of many operations, each with potentially competing objectives, performance measures, and timelines. Seraph has successfully led and rescued complex product developments in automotive, electronics, and medical device industries. Seraph has delivered 20% to 30% productivity improvements while improving delivery to time, cost, and quality in R&D organizations that have been struggling with a complex portfolio. Often, key projects absorb increasing engineering and management resources in the latter stages of delivery.

Seraph understands how to apply “the intent of lean” to the product development system in contrast to a linear production process.

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CALENDAR OF EVENTS OESA Board of Directors Executive Committee Chairman of the Board Ramzi Y. Hermiz President and CEO Shiloh Industries, Inc. Immediate Past Chair Mike Mansuetti President Robert Bosch LLC Vice Chair Françoise Colpron Group President Valeo North America

2019 UPCOMING EVENTS Jan

7

Jan

17 Jan

29

Vice Chair Ken Hopkins President and CEO Neapco Holdings, LLC Officer Julie A. Fream President and CEO OESA 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. Jacqui Dedo Co-Founder Aware Mobility, LLC Jon DeGaynor President and CEO Stoneridge Paul Doyle CEO Coastal Automotive John Dunn President and CEO, The Americas Plastic Omnium Auto Inergy Division

2109 CES Supplier Briefing MGM Grand Las Vegas, NV IHS Markit NAIAS Vehicle Tours COBO Hall Detroit, MI Nissan Town Hall Meeting* Laurel Manor Livonia, MI

UPCOMING OESA COUNCIL MEETINGS Jan

8

Jan

16

Nov 7

Young Leadership Council 7* OESA Conference Center Southfield, MI Chief Executive Officer Council* Crowne Plaza Detroit, MI

Jan

Legal Issues Council* OESA Conference Center Southfield, MI

Jan

Chief Purchasing Officer Council* OESA Conference Center Southfield, MI

22 24 Jan

31

Human Resources Council* OESA Conference Center Southfield, MI *Open to members and invited guests.

REMINDER Council and Membership dues for 2019-20 are due.

Please contact OESA for additional information 248.952.6401

OESA Board of Directors Scott Ferriman President MAHLE Industries, Incorporated Denise Gray President LG Chem Michigan Inc. Tech Center Ronald Hall Jr. President and CEO Bridgewater Interiors, LLC Michael Haughey President North American Stamping Group, LLC Kenichiro "Ken" Ito Executive Director DENSO Corporation Chris Obey President, Automotive Flex Lon Offenbacher President and CEO Inteva Products Michael Robinet Managing Director IHS Markit Samir Salman CEO NA Region Continental Automotive Systems, Inc. Daniel Sandberg President and CEO Brembo North America, Inc. Dan Sceli President and CEO Peterson American Corporation Armando Tamez CEO Nemak Jim Teets President and CEO ADAC Automotive Katsutoshi Uno Chairman and CEO HIROTEC AMERICA, Inc.

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

OESA News - 2019 First Quarter

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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

Abby Napier Communications Specialist

248.430.5964 abuford@oesa.org

248.430.5951 jlaskowski@oesa.org

248.430.5957 anapier@oesa.org

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