Posted By
KIM KORTH
on
7/12/2010 11:35 AM
For the last year, IRN has been counseling our clients that the days of relative stability and predictability in the economy are gone and we are entering a period of much higher volatility. The last couple of weeks are certainly a case in point. In terms of the stock market, the first week in July saw the worst weekly decline in the market since the recovery began in mid 2009. With continued worries about the European debt crisis, the mixed signals on the U.S. economy, and several days of hundred-point drops in the Dow before the 4th of July holiday, many people were convinced the market rally had finally ended and we were headed into the dreaded “double dip” recession. As you know, not only did the stock market stop its decline last week, it had three of the best days in history for stock market performance in July. Go figure.
Other leading indicators were equally volatile. From less than anticipated auto and retail sales (up but not as strong as analysts had hoped) to better than expected jobless numbers (even with the census hires going away) to worse than expected new housing starts (the loss of the new owner tax credit) - anyone following these trends began to feel a lot like an observer at a tennis match. So, with all of these mixed signals, where is the economy really headed? Toward more of the same. With 24 hour news media coverage and virtually instantaneous transmission of everything, increasingly rapid swings in outlook are becoming the norm. What does this mean to an automotive supplier?
• Get used to much greater volatility in inputs - materials, exchange rates, logistical costs, etc. Anything you can do to protect yourself from this volatility going forward is critical (e.g. material pass through).
• Avoid getting seduced into assuming there will be steadily improving vehicle production and sales. While we do believe we will see a return to more “normal” levels in the next few years, you must look at your numbers platform by platform and vehicle by vehicle. Create a best case/worst case planning scenario for the life of the program and try and keep your fixed costs tied to the worst case.
• The commercial side of program management is as important as the engineering side. Protecting (or improving) your profitability during program launch will be a key attribute of successful suppliers going forward.
Finally, get used to living in a world where the only real certainty about tomorrow is that it will be different from today.
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