Manufacturers and logistics providers may find themselves dizzy trying to balance demand and capacity with economic worry.
Is the automotive industry in for another whirlwind ride as the global economy hits more sharp turns? The dangers remain, with high unemployment, government debt and austerity measures in Europe and the US coupled with slower growth in emerging markets. Recent manufacturing data suggested declining output in Europe and much of Asia, with limited or little growth in North America and China.
But not all signs are negative. Car sales in the US, UK, France and Germany have held up well (although August may be too slow a month to prove a real indicator). Chinese commercial vehicle sales are lower but passenger cars are growing, albeit at a more moderate pace (as is Beijing’s desire). Japanese production and sales are on the way to recovery.
What happens next may become a self-fulfilling prophecy. Concerns over economic uncertainty and capital losses will make their way into the mindset of the sector, as many are already convinced that Western economies will sink further because of–choose your ideological slant here–government debt/cuts/(de)regulation/fiscal (dis)coordination etc.
But supply chain managers do not decide economic policy; they can only adjust the speed and volume of their flows depending on the direction they believe the tracks ahead will take. The market, in coming months, may not mimic the recent rollercoaster stock market, but even treading cautiously may leave some carmakers and LSPs with whiplash.
That is because few–if any–companies are going to predict things correctly as the zeitgeist macroeconomic issues do not apply themselves evenly across companies. For example, even as UK manufacturing output shrank in August, reports on the ground have suggested under-capacity and supply chain pressures. Even a justified caution over investment could lead to constraints. This has been evident in the recovery so far, with shortages of tyres, diesel engines and truck transport in many markets, at the same time that there has been overcapacity in petrol engines in some areas and for global container and ro-ro shipping.
Those with a chance of succeeding will need patience– strategies are not made or unmade on monthly or quarterly results–and above all flexibility. An analyst reminded me recently that car factories are not like bakery ovens where you can switch from baguettes to pretzels depending on the flavour of the day. But he noted that the smartest carmakers are those that can quickly shift their supply chains, whether to assemble a model at a different plant at short notice or to shift vehicle stock between hot and cold markets. Logistics providers are a vital part of this flexibility, but the gap between cautious planning and aggressive agility might be too wide for many to straddle. Whether the sector is in for more ups or downs, you better brace for a bumpy ride.