The automotive sector is a major element of OEM demand for wire and cable. Electrical and electronic systems within a vehicle are linked together by cable in the form of a wiring harness. Cables are used in a variety of sizes, ranging from heavy gauge battery cables to very light conductors carrying electronic signals. Specifications for automotive cable also vary, with, for example, enhanced high temperature performance needed for cables used in engine compartments and special cables required for ABS brake sensors. The amount of cable used per vehicle varies widely, with less cable being used in more basic car models, especially those sold in emerging markets, and more cable being used in more complex models that have many additional features requiring electrical controls. Introduction of electric?/?hybrid vehicles, though not yet a major market, will also increase cable content. In total, CRU estimates that approximately 0.9 million tonnes of copper is used globally in vehicle wiring harnesses. At present virtually all auto cable uses copper conductor, though some companies are developing auto cable with aluminium conductors. In addition to the cable contained in the wiring harness, insulated wire is also used within vehicles in the form of magnet wire in motors and alternators.
As a result of the financial crisis, the weak state of some of the main players in the automotive industry has regularly been front-page news in recent months. According to analysis of the automotive industry by KPMG International,
In Japan the overall situation for the car industry in 2008 does not appear as bad as in North America, as sales in the Japanese domestic market for January to November 2008 reported by the JAMA (Japanese Automobile Manufacturers’ Association) were down by only 3% on the equivalent period in 2007. However, even though the year-to-date comparison shows only a modest reduction, the situation in the Japanese market has become much worse more recently. In November 2008 total sales of new cars in Japan were down by 19% on November 2007. The main impact of weaker demand in Japan has been on sales of standard-sized cars, down by 32% in November 2008, and on sales of small cars (down 24%). Sales of very small cars (»mini cars«) were actually 3% higher in November 2008 than in November 2007. Daihatsu’s Japanese sales of mini-cars are up by 9% in the 2008 year-to-date, but producers of larger cars have made cutbacks. Toyota, for example, has curtailed production of Lexus models. Sales into the domestic market account for only 40% of Japanese car production, so exports have been important in sustaining Japanese production in 2008. In the first 10 months of 2008 car exports from Japan have been strong, especially to markets in Asia and Europe, but exports to the North American market have weakened.
The South Korean car industry is even more dependent than the Japanese industry on export markets, with around 70% of production being exported in 2008. In data reported by the KAMA (Korea’s equivalent of the JAMA) for the period January to October 2008 there has been only a slight drop in total vehicle production compared to the equivalent period in 2007. Though production in the third quarter of 2008 was down compared to 2007, in October 2008, contrary to the trend in many other countries, Korean production of vehicles recovered. There has been a significant drop in Korean production of larger passenger vehicles (MPVs), while production of smaller cars (e.g. Kia’s Morning/Picanto subcompact model) has been growing. Korea is not immune to the global slowdown and in November 2008 the situation changed for the worse: in that month vehicle production was 18% lower than in November 2007. Hyundai has talked in terms of »an industry collapse« and car-makers are seeking tax reductions to stimulate domestic demand for cars.
In other Asian countries there has also been a slowdown in vehicle production, but these emerging markets have not been as badly hit as the more mature markets of Western Europe and North America. The Indian car market has actually continued to grow during 2008, but the level of growth has been lower than car-makers had anticipated earlier in the year. In India inventories held by car dealers have increased, and Maruti Suzuki has reacted by offering higher discounts to customers. Even in China the boom in sales of cars halted in the second half of 2008. Chinese production of vehicles peaked in March and April 2008, according to national statistics. Even though there has been some decline since then, production in recent months is broadly similar to the average level of production in 2007.
2008 has been a very strong year for the auto industry in Brazil. Data from ANFAVEA, the Brazilian association of vehicle manufacturers, show that light vehicle sales for January to October 2008 were up by 23% on the equivalent period in 2007. The strong showing of the Brazilian market has helped to support the performance of global car companies such as GM, which have had big problems in other, weaker markets. However, even in the Brazilian market there were indications of a slowdown during the later months of 2008. Brazilian light vehicle sales were 3% lower in October 2008 than in October 2007. The situation in Argentina is similar, as light vehicle production was up by 16% in year-to-date terms compared to January to October 2007, but there was a 4% drop in October 2008 compared to October 2007. As a result some vehicle plants in the region have begun to cut back production, for example GM at São Jose dos Campos.
As a result of the growing crisis in the industry, some major car producers may have to dispose of some of their businesses or consider mergers. Ford has already cut its stake in Mazda and is considering the sale of Volvo, based in Sweden, in order to raise cash and strengthen the weakness of the group’s balance sheet. If, as seems likely, the current global crisis in the industry is prolonged, there is likely to be substantial restructuring. In the US industry analysts have suggested that mergers amongst the Big Three, e.g. between GM and Chrysler, may be necessary to produce a viable US car industry. Having already bailed out parts of the financial sector, the US government may not be keen to provide extensive financial support to the US car industry, but the alternative – closure of one or more of the Big Three, with a knock-on effect on suppliers of parts – may not be politically acceptable. Even a large-scale merger could imply widespread redundancies as rationalisation takes place. After several months of lobbying and political infighting, in December 2008 a proposal to extend US$14 billion government financial support in the form of loans to the US car industry failed to win the approval of the US Senate. President Bush has, however, suggested that financial assistance could be made available from the existing government bail-out fund, but it is not yet clear what conditions would be attached to such assistance.
Traditionally the car-makers have expected their suppliers to meet their requirements with ever higher levels of performance and with year-on-year cost reductions. Over the last few years suppliers have been squeezed between customer expectations of cost reductions and higher raw material price increases. Though cable-makers are most acutely aware of the impact of higher copper prices, there have been major rises in virtually all the raw materials used in building cars. Some car-makers have been particularly reluctant to accept any price increases from suppliers of parts, even when the impact of higher material costs has been clear (and outside the control of the supplier). However, this pressure could not be sustained indefinitely, as there is a real risk that key suppliers may go out of business. In some cases car-makers have moved to single sources of parts in an effort to force prices down: as suppliers struggle to cope with the impact of the current crisis, car-makers are exposed to the risk of losing their only source of supply. One of the most obvious examples is the relationship between General Motors and Delphi. Though Delphi was separated from GM ten years ago, GM has not been isolated from Delphi’s problems. During 2008 GM has had to provide additional financial support to Delphi, which has been in Chapter 11 bankruptcy protection since 2006, and attempts by Delphi to attract outside investors have so far been unsuccessful. Less critical businesses supplying parts may be allowed to fail. In Europe, for example, the UK arm of Wagon Automotive, a supplier of auto parts, went into administration in early December 2008, as it was unable to raise additional finance from its bankers.
next to -> VEHICLE HARNESS TRADE