Automotive Fastener Market, The
Jacobs, Charles F
Through all the dark days of declining production levels in the manufacturing sector, auto sales have been reported as remaining consistently strong. And more and more overseas brands have been establishing manufacturing plants here. A strong, growing market. An industry that buys a hundred thousand pieces of a fastener at a time. How many of us have thought: that’s where we should be selling fasteners-to the car and truck makers and their component suppliers.
Right?
Wrong!
The grass is no greener on that side of the fence. In fact, it’s full of a lot of nasty weeds. As that well-known radio commentator would say, “Now you’ll hear the rest of the story.”
When in need of an informed and realistic overview of the fastener business, we regularly turn to Rob Harris, Executive Director of the Industrial Fastener Institute. His reaction, when asked about the attractive automotive fastener market, was typically clear and concise, though preceded by a laugh:
“There’s a fire storm out there! Anyone that considers the auto fastener market attractive because of the high volumes and sustained high sales levels had better look again.”
He pointed out that Ford, GM and DaimlerChrysler’s U.S. operations have been putting tremendous pressure on U.S. fastener makers to reduce prices as they try to offset some of the profit-draining costs associated with their generous consumer incentive programs. Those programs have been the driving force behind the strong retail sales. The car makers have used price levels for import fasteners as leverage in driving down domestic prices.
Those attractive import fastener prices represent more than just leverage, of course. The current goal of Ford and GM is to directly source as many as 10 billion fasteners annually from the LCC. LCC? A subtle euphemism for the “Lowest Cost Countries.”
Rob Harris also pointed out that those many popular overseas labels now being produced in the U.S.-including Toyota, Nissan, Honda Hyundai, BMW and Mercedes-do not represent much of a market for U.S. fastener suppliers. These are assembly plants and the finished components are brought in from overseas. To the extent that fasteners are needed in assembly operations they are either imported from established overseas sources, purchased from their established fastener sources that have followed them into the country (see following interview with Topy International) or the overseas automakers are investing and partnering with small U.S. fastener makers. It’s pretty sad, though, that when Toyota considers purchasing components domestically their first concern is quality. “Art” Nimi, CEO of Toyota Motor Manufacturing, USA, is quoted in USA Today as saying that North American parts suppliers average 500 defects per million parts as compared to 15 defective parts per million in Japan.
GM: BE CHEAPEST OR BE GONE
The story carrying that headline, in the November 3 issue of Automotive News, has prompted a lot of comment. A new clause in GM purchase agreements permits cancellation without obligation if GM finds a comparable part that’s cheaper. That’s regardless of inventory, tooling or development costs. The policy puts into words what Rob Harris was describing as the tremendous price pressures being applied by the automakers to improve a declining profit picture. The announcement was followed in December with a “request” to all major fastener suppliers to reduce prices by another 4 to 5%. That policy may be good for GM, but it’s not good for the country. It certainly is not good for the country’s fastener makers. In the long run, it’s probably not even good for GM. What happens if car buyers adopt that philosophy-especially when China starts shipping in finished vehicles? Who’s gone then?
IS THERE A 6-CYLINDER RICKSHAW IN OUR FUTURE?
Under extreme pressure from the U.S. to offset a trade surplus that hit $103 billion in 2002 and even more last year, China has accepted trade agreements that will allow the Big 3 automakers to ship in thousands of vehicles and increase their stakes in a Chinese auto market that is already the world’s third largest and destined to become the largest. The Big 3 better read the fine print, however.
While not an immediate threat to U.S. producers, China looms large on the auto horizon. The country already has the capacity to produce all types of automotive components. According to Automotive News, exports of Chinese made vehicle components, which currently total $5 billion annually, will grow to $30 billion in four years. China also intends to be exporting cars to the American market within a few years.
Implementing that goal, Automotive News reports that China recently issued a draft of a new policy that requires that the proprietary technology and intellectual property of foreign manufacturers in China be made available to the Chinese. The draft also specifics that 50% of all auto sales in China by 2010 must come from domestic companies that own 100% of the vehicle’s technology. As one executive of a foreign carmaker operating in China put it, “If enacted, the policy means that if you are in a joint venture you pretty much have to transfer your technology to your Chinese partner.” And down the road comes that 6-cylinder rickshaw.
GONE
Even without GM’s dire pronouncement, it seems that a number of suppliers to the auto industry are on the exit road. Automotive News states boldly that one half of today’s Tier 1 and Tier 2 suppliers to automotive will be out of business in 10 years. That bleak outlook comes from a financial survey conducted by AlixPartners LLC, an international investment firm specializing in corporate turnarounds. The survey adds that because of downward price pressures created by excess capacity and global competition, suppliers will experience lower and lower profits. To remain competitive, some suppliers and automakers have set up operations in China where the cost of manufacturing is as much as 30% lower than in North America, Europe or Japan. The survey concludes that it will be China’s growing auto industry that will cause the most dramatic changes for the world’s suppliers.
AUTO SALES AND PRODUCTION
While we have heard all of the reports about strong auto sales, fastener suppliers to the industry explain that there have been dips as well as peaks in the auto sales picture and point out that U.S. production was down 7 to 8% last year. Mike Delfin, Automotive Sales Manager for Tinnerman-Palnut Engineered Components, indicates that the industry, is expecting sales to hold about even this year, but is nevertheless forecasting a further decline of 2% in production. This, he observed, will permit some flexibility in model inventory reductions.
That estimate of sales holding even could prove a little optimistic and a decline might further impact production levels. Earnings reports toward the end of the year raise questions as to whether consumer sales incentives can be maintained at the levels we’ve seen over the past two years. Big 3 car sales have already shown some softening – down some in October, up (thanks to increased consumer incentives) in November-while Toyota USA and Nissan USA have posted steady increases, thanks to the popularity of new models. Strong truck sales have provided the underlying strength for the Big 3. As far as passenger car sales are concerned, there were a couple of months near the end of the year when Toyota outsold Ford in the U.S. market. Toyota also appears to be well ahead in the development of environmentally friendly cars. Their goal is to significantly reduce CO2 emissions. The company’s popular electric/gas hybrid, the Prius, is in its second year of production. Its popularity here in the U.S. indicates that our auto buyers are either environmentally concerned or they can’t resist the thought of getting 60 miles to the gallon in the city. Hopefully, it’s a little of both. The company will soon be adding the hybrid technology to the Lexus line and to the Highlander SUV.
TRUCK PRODUCTION TO CLIMB
The industry’s most optimistic forecasts relate to production of the big, over-the-highway trucks. According to Michael Kagan, Asset Manager at Salomon Brothers, “The trucking fleet is being held together by baling wire. The trucks are falling apart.” Truck payloads rise and fall with the economy and they’ve now been down for three years. Heavy-duty rigs normally last for five years or one million miles and trucking companies have seriously pushed them to the limit. It’s replacement time. There’s another incentive for buying current model trucks: new emission standards go into effect on all trucks beginning with the 2007 models. Production last year was already running ahead of the 180,000 produced in 2002. Expectations are for a 240,000 production rate in each of the next two years.
STAYING AHEAD OF THE “FIRE STORM”
In our discussions with some of the key automotive fastener makers, it is obvious that fastener innovation plays an important role. There were a couple of comments that auto assembly engineers feel they have taken out all of the extraneous costs and the only savings left are in acquisition costs. Fortunately, many of our leading fastener producers continue to prove them wrong. Designing in high performance fasteners to reduce costs is what helps them survive. Here’s how a few select auto fastener suppliers view the market:
The 76 year old Decker Manufacturing Company in Albion, Michigan has weathered all of the tips and downs of the automotive fastener market. Decker produces finished steel hex nuts, heavy hex nuts, square nuts, weld nuts, wheel nuts, all-metal locknuts, flange nuts, solid rivets and pins as well as pipe plugs and drain plugs, with the auto assembly plants, Tier 1 and Tier 2 component suppliers among their major customers. Bernie Konkle, Jr., Marketing Manager at Decker, reports that import competition and continual price pressure from the industry has had its effect. “We’ve gone 15 years without a price increase,” he explained, “in spite of constant cost increases in such things as insurance, health coverage and fuel.” According to Konkle, sales have shown a little softness as they followed Big 3 production levels, but Decker has maintained its market share. The company is putting more emphasis on producing custom parts to print to strengthen profit levels. They have also made major changes to improve efficiencies. Decker currently plans more diversification and is increasing its size range to meet the needs of the construction industry for domestic product.
Automotive Division, Emhart Fastening Teknologies, Mt. Clemens, Michigan, produces prevailing torque nuts (Gripco), Crownlock Nuts, Toplock Nuts, Two-Way Locknuts, Flange Nuts, Weld Nuts and Weld Bolts. The company sells to the assembly plants, Tier 1 and Tier 2 component suppliers and to the wholesale packagers supplying the auto aftermarket. They have maintained market share through a highly competitive period and, according to Jim Berry, Director of Marketing, their sales have held up quite well. As Berry explained it, Emhart Automotive sells the fastener plus the application. He cited the company’s success in selling weld studs to provide secure assemblies without the need for fastening holes and the corrosion those holes foster. Weld studs also add flexibility. With a design change you simply reprogram the welders without worrying about existing holes.
With its headquarters plant in Elgin, Illinois and seven manufacturing facilities in Wisconsin, ITW Shakeproof Automotive Division is a major player in the auto fastener market, producing a wide range of threaded fasteners, including Self-Drilling Screws, Thread Forming Screws, Strip-Resistant Screws, Sems Screw and Washer Assemblies, Keps® Nut and Washer Assemblies and special cold formed parts. Jim VanIngen, General Manager of the Automotive Division, acknowledges that the pressure on selling prices has been extreme with import prices constantly being used to establish a price level. VanIngen mentioned that the auto industry’s incentive driven consumer sales programs were so effective that they pushed car production out of normal cyclical patterns, creating a challenge for production schedulers. With its tradition of developing fasteners that reduce assembly costs and meet special application needs, Shakeproof, for the most part, avoids the “fastener auction” so prevalent in the industry. As an example, VanIngen cited ITW’s newly developed BosScrew(TM), describing it as a significant new concept in fastener performance and function in the tradition of Shakeproof’s other basic contributions to assembly technology.
In comparative tests, this screw has been proven to hold more securely than any other screw in virtually all plastic materials. It has a drive-to-strip ratio 60% better than any other screw in plastic and a resistance to back-off or loosening that is almost 450% better. The BosScrew doesn’t just accommodate plastic creep it uses plastic creep to enhance the screw’s resistance to loosening. VanIngen reports that the screw is being well received by automotive engineers because they can eliminate oversize heads, flat washers, spring elements, metal sleeves and suffer plastics while reducing screw length, clearance hole diameters and boss siy.c. The ITW Shakeproof Automotive Division is anticipating a stronger sales picture this year, in part because of the cost-saving appeal of this new fastener.
Dave Cronovich is Vice President of Automotive & Distribution for MNP Corporation, Utica, Michigan. In its several manufacturing facilities, MNP produces wire and rod and manufactures and distributes cold headed standard and special fasteners. MNP’s focus is on state-of-the-art engineering. The company recently made a major investment in four new heat treat furnaces for its Utica facility, giving it complete quality and service control from raw material to finished product, except for secondary operations such as plating. Cronovich describes the auto assembly plants and tier 1 suppliers as a major factor in MNP’s sales picture.
Consequently, he says, they have been fighting price pressures for 12 years. He estimates that GM’s requests for “price give-backs” have totaled 30% over the past few years. Cronovich also expressed concern over steel prices and pointed out the scrap prices had gone up about 65% in the past year. He has heard reports that GM many not continue its consumer prices incentives this year because of their effect on earnings and the difficulty in getting further relief from suppliers. He acknowledges that imports will continue to gain ground among the Big 3 as they fight to reduce costs. Cronovich has an interesting take on the effect of imports on quality standards: he feels that the attractive prices may cause U.S. automakers to be lenient on quality, creating, in effect, two quality standards, one for domestic producers and one for overseas producers. This must ultimately impact on end-product quality while creating one more cost hurdle for U.S. fastener suppliers. In spite of it all, MNP substantially increased market share in 2003, thanks to its emphasis on special parts and the fact that it has retained all of its knowledgeable employees. Cronovich expects the current year to be pretty much a continuation of ’03 sales levels.
The newly formed MRC Industrial Group, Inc., headquartered in Warren, Michigan, manufactures specialty fasteners, rivets, hinge pins and other tubular products plus nuts and nut assemblies, primarily for Tier 2 automotive suppliers. MRC was created through the acquisition of Michigan Rivet Corporation and its wholly owned subsidiary, The McLaughlin Company, by a group of investors led by Steven K. Engelman who was formerly President of the Engineered Products Group of SPS Technologies. Both of the MRC plants are QS9000 and ISO9000 certified and encompass more than 225,000 square feet of floor space. Engelman, now President and CEO of MRC, obviously knows his way around the automotive fastener market and is familiar with the price pressures and import threats. He acknowledged that some people thought he was crazy to be going into the automotive fastener market at a time like this. He nevertheless exuded confidence. “We efficiently produce a cost-effective quality line of products and we’re confident we can prosper in the niche we serve.”
MRC products are used in hinge and door latch assemblies, parking brakes and in suspension and seating systems. Engelman’s biggest concern with China is the possibility that auto component manufacturers may move their operations to this extremely cost-friendly environment. That, of course, can have serious drawbacks as the Chinese acquire proprietary technology and move independently into the marketplace.
There are two leading “performance enhancement” companies that continue to perform well in the competitive automotive market. We refer to ND Fasteners in Clawson, Michigan and Nylok Fastener Corporation with its world headquarters in Warren, Michigan. While serving such diverse markets as aerospace, agricultural equipment and the military, both acknowledge that automotive is an important part of their sales picture.
ND Fasteners adds nylon patches and pellets to screws, nuts and bolts to enhance prevailing torque; thread locking adhesives; and a variety of coatings for locking, sealing, masking, lubricating, etc. To apply its materials, ND has 14 facilities nationwide and is now, according to ND’s President, Richard Wallace, operating in Taiwan. ND’s technical staff works directly with Big 3 engineers in developing new coatings and materials to meet specific needs. The company works with the fastener manufacturers in applying its patches and coating to their products prior to shipment. Wallace describes the auto market as being down last year “but it didn’t fall off the map”. For ND, the year, as a whole, was saved by a strong fourth quarter. Wallace expects that growth to be maintained in the current year. ND, too, has been subject to the intense pressure on prices applied by the Big 3. As they are consistently asked for price give-backs, the fastener producers look, in turn, to their suppliers for relief. The answer for ND, according to Wallace, has been enhanced automation and continual improvements in efficiency.
Bill Sikowski, Automotive Marketing Manager for Nylok, reports that competitive pressures have had an effect on price levels but sales levels have held up well considering the industry’s reduced car production levels. Sikowski indicated that Ford and GM truck sales and production were a bright spot in the overall picture. Nylok produces fastener coatings for locking, sealing, high temperature resistance and to protect threads from contamination during the production and assembly process. The auto industry buys pre-coated fasteners and Nylok works through fastener makers to apply the coatings. Sikowski described Nylok’s marketing approach as “pro-active engineering” as they work directly with advance engineering at Ford, GM and Chrysler to effectively implement design needs. With over 150 patents, Nylok, for the most part, stays well ahead of those competitive price pressures, The company recently added a third shift to meet service demands.
Prestige Stamping, Inc., Warren, Michigan, is caught in that classic vice that to one degree or another effects every fastener supplier to automotive. Costs are increasing while pressure from auto buyers forces down prices. As Sales Manager Jeff Rink described it, the situation at Prestige reflects the more acute situation faced by every stamping producer. “Basically,” he said, “we supply a disk with a hole in it. Models and applications may change but our product remains essentially the same. We have little opportunity to introduce a new fastener design and requote.” That means that once they concede a price they live with it. Rink said that today they are selling at the same prices they were selling at back in the 80’s. Prestige manufactures steel flat washers, SAE and USS Grade 5 and 8 flat washers, sems washers, Belleville conicals, fender washers and small stampings. The plant is QS and ISO9000 certified. With raw material representing 65% of the selling price, the steel tariffs, now classified as “illegal” by the World Trade Organization, have had a devastating impact on stamping company profits. When asked how Prestige was affected, Rink explained that they use flat rolled steel and within 12 hours of the tariffs being imposed he received a 30% price increase. The overall increase over 18 months ranged from 35% to 40%. By comparison, the most recent demand from auto buyers was for a 7% to 8% price reduction. In spite of it all, sales are up about 8% at Prestige and backlogs are growing. Rink says the challenge now is to make some money on it. Prestige, too, is putting more sales emphasis on the non-automotive markets.
One of the grand old names in fasteners is Tinncrman, now Tinnerman-Palnut Engineered Components, with headquarters in Brunswick, Ohio. Today, the company makes spring steel and plastic fasteners and multi-component assemblies. Tinnerman-Palnut products are widely used throughout industry with the automotive industry being a major factor in the total sales picture. We discussed current conditions with Bob Windsor, Vice President, Marketing & Sales; Mike Delfm, Automotive Sales Manager and Lori Knapp, Marketing Services Manager. When we described the auto market as being somewhat “recession proof” we got a laugh out of all three. Mike Delfin explained that it was hardly that. There had been several dips in auto production over the past couple of years with last year running about 7% below the 2002 level. This, of course, was reflected in Tinnerman-Palnut’s automotive sales levels. They appreciated the fact that it was nowhere near as bad as the decline in other parts of the manufacturing sector. According to Delfin, a further decline of about 2% in automotive production is forecast for next year.
When the question of imported fasteners and price pressures was raised it was obvious that the nature of their product and their emphasis on application-specific, cost-effective components somewhat isolated Tinnerman-Palnut from the price giveaways. Bob Windsor, Vice President Marketing & Sales, pointed out that they had been particularly successful in identifying meaningful cost reductions for their customers by replacing threaded fasteners with various clips. Clips provide a significant savings in both piece part costs and installation time. On the subject of the Big 3 looking to increase fastener purchases from the Lowest Cost Countries, Windsor observed that the threaded product area would probably be more vulnerable to that threat. Mike Delfin echoed the comment of several others when he said that his major concern with Chinese competition was the attraction the country’s low-cost business climate might have on manufacturers making subcomponents for the auto industry. “We wouldn’t just lose a part, we’d lose a customer.” Relative to Tinnerman-Palnut’s outlook for the current year, Windsor said that 2003 was the best product development year in the company’s history and he expected that would have a positive impact on their sales levels for some time to come.
Topy Precision Manufacturing, Inc., located in Elk Grove Village, Illinois, is part of Topy International, a Japanese based, world-wide manufacturer of top quality spring steel fasteners, push-ons, self threading nuts, stamped spring nuts (“U”, “J” and Flat) and other stamped components. Over 20 years ago, Topy was one of the first component suppliers to follow its Japanese automotive customers into the U.S. Topy also sold to the Japanese appliance manufacturing plants that opened shop in Mexico. Today, about 75% of Topy’s sales are to Nissan and Toyota plants in the U.S. The percentage has increased as their Japanese appliance customers move their plants in Mexico to China. Talk about a small world!
Dave Heraty, Topy Sales Manager, reports that sales have held up well for Topy as demand for U.S. produced Nissans and Toyotas has remained strong. The company has added precision ground washers to its product line. This represented a major investment in state-of-the-art grinding and dcburring equipment. A major application for precisely ground precision washers is in transmissions. With its highly efficient production equipment, high quality standards and products that have broad application throughout the industrial market place, Heraty advised that Topy is looking to expand its non-automotive business through distribution.
AUTO AFTERMARKET
The human population grows and the car and truck population grows. Those vehicles are built better and last longer and, therefore, the auto aftermarket-the service shops, body shops and fleet operators dedicated to keeping those cars and trucks running-also continues to grow. The fastener needs of this market are served by specialty wholesalers who buy and custom package (door hardware, lamp hardware, etc.) and then sell in turn to the specialty distributors that call on the aftermarket facilities. With a relatively small group of fasteners per package, the packaging cost represents a good part of the total cost. The deteriorating fastener prices at the OEM level do not have a great impact on the aftermarket packagers. As Steve Leonard, General Manager of Disco Automotive Hardware in Sulphur, Oklahoma, points out packagers are nevertheless buying more and more fasteners from overseas in response to the growing use of these products in original equipment and the increasing numbers of foreign labels in the vehicle population. Disco has been enjoying excellent growth in the Mexican market because of the high number of older vehicles operating there.
TRENDS IN THE AUTOMOTIVE AND TRUCK INDUSTRIES
It’s been a tough year for the Big 3 automakers. When the economy is tough, generally the first thing affected is discretionary product. There are normal, valid concerns from suppliers that major new programs will be delayed or cancelled while focus is placed on cutting current costs. Two areas that can be short changed in the immediate future to boost the bottom line short-term are Research and Development cuts and product cost cuts. All Big 3 are participating in this short-term thinking that will cause them to lose additional market share to transplants like Toyota and Honda. Do you think Toyota and Honda have cut back on R&D?
Trends in product cost cuts include increasingly squeezing the suppliers on price, sharing of platforms and major components between aligned automakers and “decontenting” or scaling back on features. For example, ABS brakes are no longer standard equipment in all GM models. The major area of “decontenting” is being felt in the chassis/suspension part of the car followed by decreases in comfort features. Increased “content” is being made in the information/entertainment arena with such systems as On Star, digital phones, navigation systems and e-mail. The addition of electronics is rendering the current 12V electrical architecture insufficient. The trend is more and more towards electrical function versus the traditional mechanical function. Auto manufacturers that provide both will capture the best of future rising trends in sales volume and sales price.
SUMMARY
It is dangerous to look too far down the road as far as the U.S. auto industry is concerned. There are obviously some major changes ahead. U.S. automakers continue to lose market share to overseas labels, both those produced here and those brought in. The impact of China on the overall picture, while at the moment difficult to define, will be significant.
A couple of things we do know: the auto industry will continue to be a major user of fasteners; there will continue to be more cars and trucks produced and the U.S. fastener industry is sufficiently creative and flexible to remain a major player in the picture – no matter how it develops.
That large, difficult-to-define “miscellaneous” industrial fastener market, depressed as it may have been, is sure looking a lot more attractive, though.
For a complete listing and all contact information for companies mentioned in this article and for additional companies, visit www.fastenersources.com.
Copyright American Fastener Journal Jan/Feb 2004
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