The outlook is across firms of all sizes, with the largest, most globally exposed suppliers having the most “pessimistic” view
Research Triangle Park, N.C.—According to the Q3 2024 MEMA OE Vehicle Supplier Barometer Index (SBI)—a gauge to measure the sentiments of North American supplier executives — market pressures are reflected in the latest reading of 39, down by 6 points from Q2 2024 and 11 points below neutral.
The results show a consistent trend of increasing pessimism over the past 10 quarters. The outlook is across firms of all sizes, with the largest, most globally exposed suppliers having the most “pessimistic” outlook. Light and commercial vehicle suppliers are equally pessimistic about the coming 12 months.
Concerns about poor sales in the programs supplied surpassed concerns about weakness in the U.S. economy as the primary threat to the industry in the coming 12-months, raising the threat level compared to the last quarter. Anecdotes point to continued weakness in the electric vehicle market and continued volatility in commercial vehicle markets as the primary areas of concern.
The Q3 2024 MEMA OE Supplier Barometer, sponsored by Deloitte, focused on Innovation and Capital Markets. The results indicate:
- New orders and production have decreased widely across the industry on both a year-over-year and one-month basis. Customer inventories are building, and the backlog of orders is declining. Costs continue to rise.
- Thirty-six percent of suppliers believe they are ahead of their peer groups’ pace of innovation while 18 percent feel they are behind. Best practices of those who consider themselves as innovation leaders include investing in R&D, talent, automation, and developing new products.
- Suppliers consider automation and robotics to be the largest opportunity when it comes to innovation; followed by advanced materials and processes, electrification and artificial intelligence.
- Suppliers have limited the integration of artificial intelligence in their businesses. IT, communications, engineering, and operations leverage minimal integration. Some suppliers stated they are restricted from using AI in the workplace due to confidentiality concerns.
- Suppliers see their capital needs accelerating for all capital requirements next year, particularly for M&A opportunities. Commercial loan rates, the cost/size of credit lines and the maximum size of loans are expected to ease in comparison to this year.
- Confidence for access to capital is strong for all areas of capital use. Suppliers are emphasizing their equity positions on their balance sheets and looking for debt reduction.
“Suppliers across light and commercial vehicle markets face pressures of declining orders and output while many new programs, including EVs in particular, have fallen short of plan even as costs continue to rise, dragging sentiment into negative territory for the 10th consecutive quarter,” said Mike Jackson, executive director, strategy and research, MEMA, The Vehicle Suppliers Association.
“Despite these hurdles, suppliers continue to drive the industry forward, with capex set to jump 5.6% next year and executives confident in their ability to access capital to fuel innovation in automation, advanced materials and electrification.
“More than a third of supplier executives (36%) see themselves as leading the industry in innovation, gaining competency and access to technologies through R&D efforts, joint ventures and M&A while also leveraging AI. Some 57% of leaders see increased capital needs for M&A in the coming year while sentiment on AI usage reflected more caution, as capabilities and formal policies continue to be developed,” Jackson said.
The Q3 SBI chart, a full copy of the Supplier Barometer results and the Deloitte commentary on the Q3 2024 MEMA OE Supplier Barometer are available on the MEMA website here.
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