Business sentiment of original equipment manufacturers (OEMs) fell to its lowest in Q2 2020, according to an Original Equipment Suppliers Association (OESA) survey.
The association’s automotive supplier barometer—a quarterly survey of business and market sentiment among OESA members—plunged to 15 points, its lowest level since the survey began, dipping from 47 points in Q1 2020 because of pessimism over the market and factory restarts.
A chief concerned among respondents was increasing credit risk of the OEM industry’s suppliers. The majority of respondents anticipated steep supplier distress with the percentage of sub-tier suppliers—businesses that provide raw material and equipment for the OEM industry—that were added to the “watch list” increasing by 25pc during the quarter compared to the same period last year because of worsening finances.
In terms of sourcing, OEMs saw the highest risk from constraints related to the supply of powertrains, and electrical and electronic systems. Tight supply, respondents felt, could also lead to challenges meeting orders and production requirements once factories resumed activities, the survey indicated.
Credit risk from sub-tier suppliers, as well as the inability to meet production requirements due to supply shortages could add to OEMs’ business distress, the survey noted. On the other hand, financially strong firms looked to benefit by expanding their businesses through acquisitions, or new offerings and diversification in a consolidated market.
OEM respondents estimated that around 10pc of production material was exported from the US, while around 20pc was imported. The highest share of imports was for high cost material at 40pc. However, the rate of exports to Asia, Mexico, and China increased despite the pandemic.