The last 18 months has been a bumpy ride for tool shops, but it turns out the results aren’t as bad as what was predicted. We feared a long-term recession, slow recovery, huge drop in vehicle sales, a potential drop in launches and huge profit losses for OEMs. The reality is a rebounding recovery, strong manufacturing, unprecedented demand for durable goods that is driving new products and models in all industries, auto demand is good and OEMs are making money (despite supply chain issues). And new models of ICE vehicles and BEVs mean a strong demand for tooling. This is good news.

Looking Back - 2020

Tool shops made it through COVID-19 with less impact than their Tier 1 and OEM customers. And as expected, capacity utilization declined, but it wasn’t all due to COVID. We knew Ford and GM were going to source little work and people were looking for work before the pandemic.

And while companies were profitable, federal PPP/CEWS funds were critical in making that happen.  

Shop throughput or overall efficiency held up well, though die shops struggled because of lower demand. But COVID-19 definitely tested tooling shops flexibility, though many didn’t have to close like we saw with production shops. However, demand was low in 2020 and the need for skilled labor meant shops held on to people despite not having the work. Top performers utilized COVID to continue right sizing their business, adding additional automation maintaining their capital expenditures, finding better ways to schedule, drive uptime, reduce labor hours and improve lead time. All this drove further efficiency. Unfortunately, many other shops remained static, passing the opportunity to drive real flexibility throughout their organization. 

Looking Forward – The Short-term

As they say, the past is the past, so let’s look at what tooling shops can expect in 2022 and beyond. In talking to tooling shops, utilization is expected to level off due to lead times, delays and the ability to get things out the door.

 We expect the spend forecast to fluctuate with 2022 being equally as high as 2021 but expect the mix of tooling spend and vehicle launches to be greater. An increase in launches in 2022 is primarily due to the large number of BEVs, which have a lower tooling demand from North America tool makers. In 2023, we expect another major drop as the domestic OEMs reload for new/major launches of the full-size pickups in 2024/2025, which means significant spending in 2024.

Tool shops with significant dependence on domestic OEM tool sourcing need to carefully review these forecasts to understand how their business may ebb and flow throughout the next few years – this is a critical task for flexibility and capex and labor planning.

Looking Further Ahead – The Next Decade

Overall, the next decade looks positive for tooling with peaks and valleys primarily driven by domestic OEM full-size pickups and SUVs. These are the programs you want to target being a part of moving forward.

When forecasting, we have to take into account the model new OEMs are using become disruptors in the industry. Here’s a quick recap of where everyone stands today:

• The Detroit 3 still focus on launching new products on a new platform, then three years later, they do a facelift or a major, in another three years they make another change before launching an all new model within 10 years of the original launch. They are very loyal to these timelines because approvals and budgets are strict.

• On the opposite end of the spectrum is Tesla and their ongoing changes to constantly improve thee vehicle as they go.

• Others, including Rivian and Lucid have changed their models and some companies are partnering with others (e.g., Lordstown and FoxConn) to change their approach.

So, will the traditional OEMs budge on their approach as a new generation of leaders and engineers come to these companies and move to a more flexible model? If they do, forecasting tooling becomes more difficult because the scope of a facelift versus a major may be difficult to understand. The Harbour Results team will continue to meet with OEMs to keep up on what, if anything is changing to provide timely and accurate forecasts.