Rest of decade looking good for automotive tooling spend

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Canadian and US tool shops serving the automotive market should expect a bright future, albeit with a few challenges, according to market research conducted by Harbour Results Inc.


The 150-200 tool shops participating in quarterly surveys from Harbour Results were expecting their utilization rate to hit 84% this quarter, clear indication they expect to be busy into the end of 2021. The participating tool shops also rated their current sentiment about their prospects as “optimistic”, forecasting 10% revenue growth for 2021-2022 with 90% expecting EBIT of greater than 3%.

The optimism is well placed, according to Cara Walton, director, Harbour Results Inc. Conditions for the automotive industry and the tool shops that service it didn’t deteriorate due to Covid the way it was initially feared they would.

“Remember back to March, April and May of 2020 — we were very concerned. We didn’t think people would continue buying cars. We didn’t know if people could go back to work. There were a lot of things that were pretty scary. But the bottom line is that things are okay today. The manufacturing industry is good. Obviously there are a lot of supply chain challenges but demand is there. We have an economy that is rebounding, durable goods demand that will likely remain strong and an automotive industry that’s healthy with a consumer base that can continue buying vehicles. What all these things tell me is that the automotive and manufacturing industries are sitting in healthy positions.,” Walton said during PwC’s 25th edition of the Automotive Tooling Seminar, hosted virtually recently.

More importantly, we have positive tooling spend coming our way, Walton added.

North American automotive tooling spend is forecasted to rise to $2.6B for the fourth quarter, its highest level for 2021 and almost one billion higher than the first quarter spend, according to Harbour Results. By the second quarter of 2022 it’s forecasted to climb to $2.7B. In total, 2021 is expected to generate $7.6B in tooling spend while 2022 comes in at $7.3B. In comparison, North American tooling spend in 2020 was $5.2B.

Yet Walton said the drop in tooling spend in $2020 wasn’t Covid driven.
“For quite a while we forecasted a down year in 2020 because OEMs had just come off from quite a few huge model launch years – the 2017 and 2018 launches of new trucks. The spend rebounded in 2021 and will continue strong into 2022,” she explained.

Walton is forecasting another drop in tooling spend for 2023, forecasted at $5.8B as OEMs once again take a breather, before what she expects to be “a massive year” in 2024 with tooling spend forecasted at $8.6B.

“The reason 2024 spikes so much is because we will be doing the new Ford 150 launch and the Dodge RAM and when those trucks come to market we have massive increases in tool spend,” she said but cautioned that those launches may be moved up into 2023 or pushed into 2025 depending on market fundamentals.

Forecasting tooling spend for the remainder of the decade to 2030, Walton said the overall demand forecast is very positive. She is forecasting $8.8B in tooling spend for 2025, $9.2B for 2026, and $7.9B for 2027 before the market dips again in 2028 but still to a respectable $6.1B and climbs to $8.1B for the final year of the decade.

What’s driving the increased need for tooling is two-fold: The launch of new models of iconic truck brands such as the FI50 and RAM, which come with many trim levels; the introduction of more battery electric vehicles (BEVs) at the same time. Of the 130 major vehicle sources for tooling spend in North America by 2025, Walton expects 35 of them to be BEVs.

“We are really excited about what’s happening in the market today,” she emphasized.

That’s not to say that tool shops won’t be without challenges for the rest of the decade. The fact that no two years are forecasted to be identical makes for a challenging way to manage a business. Walton added that while there is a lot of opportunity, tool shops have to be aware of the pressures placed on margins even while demand is high.

They will also need to be aware of the “what if” scenarios. For example, if the BEVs take hold with a consumer adoption rate higher than forecasted, BEV tooling spend will increase while the traditional internal combustion engine vehicles continue to be produced. But if BEV launches don’t do as well as hoped, OEMs may start to cut back on their sedan and SUV facelifts to save money.

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