Today’s marketplace volatility and an endless stream of additional economic and regulatory challenges in the automotive industry often leave both manufacturers and suppliers with the need to turn to professionals with relevant expertise and experience they can trust for guidance as they navigate the current tensions and operational turbulence.
Guiding automotive manufacturers and suppliers through turbulent times
Kevin Krakora helps companies navigate shifts in the automotive industry
Meet Kevin A. Krakora, Managing Director and the Automotive Practice Leader at Getzler Henrich & Associates LLC, one of the nation’s oldest and most respected middle-market corporate restructuring and operational improvement firms. With more than 30 years of experience in corporate turnarounds, strategic management consulting, financial and operational restructuring, and debtor bankruptcy situations, Krakora provides expert guidance to numerous companies and leadership teams with their complex turnarounds and restructurings. A trusted advisor to numerous boards, Krakora recently served as the global president and chair of the Turnaround Management Association. He is a Certified Turnaround Professional and a frequent national and global speaker on restructurings and distressed mergers and acquisitions.
We recently met with Krakora to talk about today’s market challenges and gain expert insights from his experience working with companies that have successfully navigated the turnaround process.
What drives your passion for your work with companies facing such large challenges?
I enjoy bringing order to chaos and helping distressed companies find solutions for challenging operational and financial situations. I recognized early on that I didn’t want to work for only one company. I thrive on consulting, continuous learning, staying up to date with evolving trends and the very latest technologies, and then applying what I’ve learned to help my clients through their difficult situations.
How are Tier 1 and Tier 2 suppliers performing in today’s market?
I’ve seen many automotive business cycles and am acutely familiar with the leaders, key constituencies, and situational protocols specific to this industry. Generally speaking, most suppliers are “hanging in there.” The top-performing companies have operational costs under control and are doing their best to anticipate and react to the more uncontrollable aspects of their businesses.
The OEMs (original equipment manufacturers) are currently more selective with the suppliers they will support in difficult times. They are willing to entertain strategic price increases only if the supplier has a well-supported rationale and if they are comfortable with the production and delivery of a specific supplier. If the OEMs believe that the financial situation is caused by more serious, fundamental operational issues, then they may be inclined to resource and shift to a more stable alternative supplier.
How do you see traditional ICE (internal combustion engine) suppliers managing the shift to EVs (electric vehicles)?
Since EVs are the future of the automotive ecosystem, we are helping by leading our clients along that path. For those suppliers that have traditionally served only the ICE market, many are migrating to non-automotive applications for their core products and technologies. For example, we worked with one company that manufactured sound-dampening material for under-the-hood noise reduction. With EVs no longer having that issue, the company expanded its offerings to architectural products where they could use their core technologies for non-automotive applications.
Other clients are working on light-weighting, to reduce the overall weight of their manufactured products, for the shift into EV to help offset the heavy EV battery packs, thereby extending the total driving range, which is critical to the OEMs.
Do opportunities exist for traditional ICE parts manufacturers or displaced ICE parts and technologies as they migrate to EV platforms?
Yes, while the shift from ICE to EV will take time to fully implement, there will undoubtedly be opportunities along the way to leverage the displacement of certain parts production and technologies. As ICE platforms wind down, there will be less need for large upfront tooling costs and M&E (machinery and equipment) expenditures, which will allow for increased positive cash flows on those lines. At that point, those cash flows will likely enable automotive suppliers to fund the development of other product lines or high-potential projects, while also being attractive to others looking to consolidate production and maximize capacity and utilization during the wind-down.
Suppliers need to be proactive and not overlook any and all potential opportunities that may arise from discontinuing ICE platforms. Savvy suppliers can create a competitive advantage by either divesting production as it winds down, or by consolidating production to maximize cash flows.
What are the key outcomes from successful automotive manufacturing turnarounds that will help to shape the industry's approach to future economic challenges and production transformation?
Clearly, it takes collaboration and communication, at all levels and with all key internal and external stakeholders. In my experience, the challenges are usually shared pain points, and their successful resolution requires a shared vision. We really strive to achieve as many goals and implement a solution that is as optimal as possible for everyone given the circumstances.
Each situation is different, which is why we have various methodologies, tailored approaches, and customized strategies to produce the best outcome. Our success is built on earned trust, transparency, shared understanding of the process, and ensuring clear and consistent communications throughout the project with leadership, employees, and all key stakeholders.
What other issues are top of mind in the industry?
There is concern about vehicle sales and changing consumer demand. Vehicle prices remain relatively high due to the economic pressures on the manufacturers, such as commodity costs, shipping, transportation and general inflationary increases on all inputs into parts and services. In addition, rising interest rates and consumer financial uncertainty make it increasingly difficult for buyers to finance new vehicles; so we expect a softened demand in the near term. Production overall appears to have remained relatively stable, which indicates that there will likely be increased pressure to lower vehicle prices to move inventories.
Kevin Krakora can be contacted at: [email protected].