Forging Industry Association
June 2018 Quick Read Newsletter
50th Theory & Applications of Forging & Die Design Workshop Was a Great Success!
Last week, thirty-eight forging professionals came together in Cleveland, Ohio, to participate in FIA's Theory & Applications of Forging & Die Design Workshop.
The workshop, led by Colorado School of Mines Assistant Professor Kester Clarke and a team of industry experts, focused on a wide range of topics that carefully explained the principles and practices of forging and die design. Participants were able to submit a real-life problem from their companies for a special problem-solving session. In addition, there were opportunities to network with industry peers, share best practices and forge new relationships.
Over the past 50 years, FIA's Theory & Applications of Forging & Die Design Workshop has continued to evolve and expand, offering insights into the latest forging technology and metal flow simulation software.
"In its history, more than 2,500 forging professionals have attended this workshop," exclaimed FIA President and CEO Jim Warren, "FIA will continue to produce and deliver high-quality training programs to position members of the forging industry for ongoing growth and success."
New FIA Forging Automation 101 Workshop Coming to Chicagoland
FIA is pleased to present a new program specifically developed to give forgers a first-hand look into how robotics and automation can help forging companies increase productivity, lower costs and improve workplace safety. The first FIA Forging Automation 101 Workshop and Plant Tours will take place on August 22-23 at the Chicago Marriott Midway.
Workshop participants will interact with automation equipment experts who have installed multiple systems across the forging industries and learn from plant tour representatives on how automation is working for their companies. There will also be opportunities to network with industry peers at a special group dinner.
If you are interested in exploring future trends in automation and robotics for your shop, this is the program for you. Registration for the FIA Forging Automation 101 Workshop and Plant Tours will be opening later this week. For more information about the workshop and sponsorship opportunities, please contact Jen Christian at 216-781-6260 or email@example.com.
Invest Today in the Leaders of Tomorrow
The Management Development Institute (MDI) is a three-part series of lectures, case studies, roundtable discussions, expert panels, and structured networking specifically developed to provide middle managers with the skills they need to take their careers to the next level. MDI topics include strategic planning, effective business communication, developing human resources, financial management, business law, managing the supply chain and professional development and more.
The first session kicks-off in Cleveland, Ohio, on August 26. Registration for the Management Development Institute will be opening later this week. For more information about the program, please contact Laura Tereshko at 216-781-6260 or firstname.lastname@example.org.
ASM International Recognizes FIA Member Weld Mold with Historical Landmark Award
On Thursday, May 17, ASM International presented FIA Member Weld Mold Company with its prestigious ASM Historical Landmark Award. Attending the event were ASM International dignitaries, distinguished representatives from the city of Brighton and state of Michigan, members of the press, Weld Mold officials and employees, and other invited guests. The Weld Mold Company was recognized for developing and innovating the flood welding process for weld die repair. Weld Mold Company Founder Matt Kiilunen was personally responsible for innovating the process, which took die repair to the next level–increasing die life while reducing customer costs.
From the Statue of Liberty to the Eiffel Tower in Paris, ASM Historical Landmark Awards recognize sites and events that have played a prominent role in the discovery, development and growth of metals, metalworking and all engineered metals. Familiar company recipients have included AT&T, Republic Steel and General Motors.
Congratulations to the Weld Mold Company on receiving this prestigious award!
Prediction: Vehicle Electrification to Accelerated Spin-offs, Mergers & Acquisitions in 2018
Global Trend Toward Banning Internal Combustion Engine and other Technology Disruptions to Accelerate Spin-offs and Mergers and Acquisitions in 2018 for Automotive Suppliers
Disruption caused by several emerging trends had a major impact on automotive suppliers in 2017 and will continue to send shockwaves throughout the supplier sector in 2018. Starting last February, Norway became the first nation to ban the internal combustion engine (ICE) and it intends to allow only the sale of electric vehicles by 2025. Over the course of the year, India, France, and the United Kingdom all made similar announcements as the trend towards the adoption of zero emission vehicles or battery electric vehicles (BEV) has started to accelerate around the globe.
Since, stock analysts have started downgrading the long-term outlooks for even the world’s best suppliers that have significant involvement in ICE ecosystem, as automakers confront intense pressure to completely shift vehicle propulsion from ICE to electric. Analysts are not suggesting that this shift will occur overnight, but they do expect it could create significant risk to many suppliers’ earnings trajectories. Understanding these headwinds and the competitive challenges ahead, suppliers such as Delphi announced in 2017 a spin-off into two separate businesses, and Honeywell, Continental and Autoliv have announced similar spin-offs considering similar strategic concerns.
But this will not only impact large suppliers like Delphi, Honeywell, and Continental. The supplier content for engine, transmission, exhaust and fuel systems is roughly $4,000 USD per vehicle. This content is made up of countless mid-market suppliers who supply forgings, castings, hoses and machined components for these critical systems. In a global market today, that produces approximately 100 million vehicles, this is a $400 billion market segment that will be significantly disrupted by this shift in propulsion technologies.
Today, countless suppliers produced machined components for the ICE ecosystem. It is widely understood that approximately 70 percent of the machined components going into the vehicle are tied to the ICE. This shrinking market will create excess capacity and will have a significant impact on this supplier universe. There will be a significant number of strategic issues for these component suppliers to consider:
The tipping point for electrification may yet be a few years off, however, these headwinds and competitive challenges will have a significant impact on the value of all ICE suppliers as the market shifts increasingly to electrified vehicles. This is why large suppliers like Delphi and Honeywell are making significant strategic decisions today.
Thus, considering this fast-changing landscape, it is clear that for 2018, the top five most important stories affecting global auto suppliers are:
1. China will announce the ban of the ICE by 2030; Germany will follow.
In early September, Xin Guobin, China’s vice-minister of industry and information technology, told a forum of automakers held in Tianjin that the government would ban the production and sale of fossil fuel cars. Most Chinese automotive insiders believe this ban will take place starting in 2030. BAIC Group’s chairman, for example, said the company’s goal is to stop sales of its conventional fuel-powered cars in Beijing by 2020 and stop their production and sales nationwide by 2025.
You can expect Germany to follow quickly with its own ban of ICE, as it strives to shift to electrification to retain technological leadership to protect the German automotive industry.
2. More automotive supplier spin-offs.
As technological advancement creates new products and business model opportunities, suppliers will continue to refocus their product portfolios away from some of their traditional mechanical products and expand their electronic/electrical offering to position themselves for the new future. Other suppliers will follow the lead of suppliers such as Delphi, Honeywell and Autoliv who have completed or announced spin-offs, due to:
Expect these challenges to potentially drive spin-offs from companies such as Valeo who has a portfolio of both traditional mechanical products and new electrical, electronic or software related products.
3. Mega-mergers will continue, led by the new tech entrants.
With the advent of connected and automated cars, the consumer and industrial electronics giants and new entrants from the semiconductor industry view the auto industry as an attractive growth market. Companies such as LG, Panasonic, Samsung, Toshiba, Mitsubishi and Hitachi are bringing expertise in high-volume production of lithium-ion batteries from the consumer and industrial electronics sectors, giving them the critical scale needed to compete.
And with this market alone having the potential to grow to over $100+ billion by 2030, expect more large-scale acquisitions of traditional suppliers by these tech players in 2018, such as Samsung’s rumored interest in acquiring Magneti Marelli.
But this type of M & A activity will not be limited to the new entrants. Consolidation strategies will be used where the primary focus is to create financial synergies and competitive advantage and leverage in these changing markets. An example of a recent large transaction includes Dana’s acquisition of GKN Driveline (which was originally planned to be a spin-off from GKN). The merger will combine GKN's Driveline division with Dana in a deal worth $6.1 billion and the resulting combination will have annual sales in excess of $13.4 billion.
4. Private equity firms increasingly will dominate automotive mid-market merger and acquisition activity.
As technological advancement creates new products and business model opportunities for larger suppliers, mid-size and smaller suppliers who lack global reach and scale will be continually disadvantaged in a fast-paced environment that requires increasing investment and significant business transformation. These mid-market companies lack resources required to make the necessary strategic shifts in new product/technologies to remain competitive.
For example, one can question how a traditional mid-market manufacturer of ICE components can deal with an industry disruption like the ban of the ICE and the shift towards battery electric vehicles. This type of business transformation will require significant investment and the development of new core competencies and new products over the next several years.
Many suppliers faced with this situation will opt out and exit the business instead of taking on the risk associated with transformation. In this environment, the investors likely to have the appetite to take on these challenges will not be strategic investors but will increasingly be financial investors like private equity firms.
5. Investor activist activities will increase within the automotive supplier space.
In late 2016, stock analysts had already started downgrading the long-term outlooks for suppliers that have significant involvement in the ICE ecosystem, as automakers confront intense pressure to completely shift vehicle propulsion from ICE to electric.
While this shift will not occur overnight, analysts expect it could create significant risk to many suppliers’ future earnings trajectories. Understanding these headwinds and the competitive challenges ahead, Delphi and some other major suppliers have already undertaken strategic spinoffs to proactively address investor concerns.
Other suppliers that are not already making strategic shifts – including many of the top 100 auto suppliers – will likely face increased pressure from activist investors who seek to unlock value and raise stock valuations.
Overall, it is clear, the automotive supply chain will see more challenge and change in 2018 than the industry has witnessed in the previous 50 years.
Information for this article was submitted by Paul Eichenberg, Paul Eichenberg Strategic Consulting. Paul manages his own automotive consulting firm called Paul Eichenberg Strategic Consulting. Paul’s clients include hedge funds, investment banks, private equity investors and automotive suppliers. For more insights, visit www.chief-strategist.com.
Paul will be making a presentation on this topic at the September 11-12 Forging Industry Technical Conference, visit the event webpage.
Mark Your Calendar - Next Technology & Workforce Development Summit Set for September
The next Forging Foundation sponsored Technology & Workforce Development Summit will be held at the Illinois Institute for Technology on Thursday, September 6, 2018.
FIERF Magnet School Professor Sammy Tin will welcome FIA members to campus to share IIT capabilities that can serve the forging industry supply chain through collaborative research and student interaction to feed your workforce development pipeline. What are your needs? Come share with other FIA members in this interactive format!
For more information, contact Karen Lewis at email@example.com or at 216-862-6967.