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INSIGHTS FROM IHS TALK Much has been written about the technical challenges facing the industry. Stifening legislation, an increasingly connected consumer, the shift toward automated driving and globaliza- tion are the major drivers, though there are others. Given the unprecedented changes ahead of us, several larger suppliers are restructuring their customer and product portfolios, as well as geographic footprints. Realignment of the North American supply community has occurred in phases over the past 100 years. The most signifcant occurred during the 1980s when we witnessed several OEMs hive of supply operations and overhead to focus on the core of designing, manufacturing, selling and servicing light vehicles. Delphi and Visteon emerged as global suppliers aligned with their former owners from a portfolio perspective, though seeking new alignments with other customers. Several "super suppliers" emerged as systems and modules were increasingly procured rather than just discrete parts, shifting coor- dination (and balance sheet) responsibility downstream to the supply base. Another active period of acquisitions and divestitures occurred between 2008-10 when North American vehicle output halved from the year 2000 high of 17.2-million units. Those suppliers who were over-leveraged or lacked operational efciency were quickly exposed as cash fow from low volumes exposed vulnerabilities. Super suppliers grew, private equity entered at rock-bottom valuations, and those that survived the automotive recession unscathed looked to keep fxed costs under control as volumes started to climb. Reducing risk and only adding variable cost when necessary became the operating framework. In 2015 the industry reached over 17.5-million units of North American light vehicle production, a new watershed high. Increased proftability, reliance of the OEMs on supplier technology to meet market demands and widening geographic reach to China, Thailand, Eastern Europe and South America MICHAEL ROBINET, Managing Director, IHS Automotive all ensued. Today, new dynamics are entering the consider- ation set for navigating future waters. Suppliers are using the opportunity to ensure they are optimally positioned for a faster, more competitive marketplace. A couple of these shifts include increasing vertical integration in core sectors, fring their worst customers and selling of non-strategic operations. The combination of low capital costs and strong industry proft- ability equates to several suppliers using this period as one of adjustment for the future. There are several examples of suppliers using this period to restructure. Magna sold of their global interior operations (minus seating) to Grupo Antolin; Lear captured more of the value chain through the acquisition of leather supplier Eagle Ottawa (allowing a private equity frm to exit); several Indian- and Chinese-owned suppliers expanded to North America. With a view toward further electrifcation, BorgWarner recently purchased electric motor maker Remy. Controlling more of the value-add where technology will be key and exiting high capital/low margin businesses are at the core of these transactions. As global production volume growth trends of to a slower 3 percent compound annual growth rate over the next fve years (versus 8 percent from 2010 to 2015), suppliers know that product and customer mix will be more important for proftability. Optimizing the future portfolio for the right customer mix, cadence and risk is driving several suppliers to reduce exposure to customers requiring low technology, higher-than-average resources to support programs and low-margin programs. Suppliers residing in only one region with few international capabilities and a lack of quantifable technologies will be increasingly under pressure, as well. Look for more suppliers to make bold moves toward focusing operations on growth areas, modifying their future risk profle and extending the value chain in core systems to ready for tomorrow's industry. No time like the present for critical strategic planning, especially when a supplier has options. In a down market or when one's technology has low value, options are few. Several larger suppliers are restructuring their customer and product portfolios, as well as geographic footprints. Suppliers Making Bold Moves Michael Robinet has been a managing director of IHS Auto- motive since 2011. Prior to that, he was the director of Global Production Forecasts for IHS Automotive. His areas of expertise include global vehicle production and capacity forecasting, future product program intelligence, platform consolidation and globalization trends, trade fow/sourcing strategies and OEM footprint/logistics trends. 8