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Yearly Archives: 2004

2004 Outlook

By Pete Julius

What does 2004 have in store for us? If we can continue to build on the momentum of the latter part of 2003, we should experience a prosperous 2004.  However, major backlashes resulting from the war in the Middle East, significant changes in import/export regulations, further devaluation of the dollar, rising interest rates or another massive terrorist attack could stifle our economy’s progress.  Much of the minimal progress that has occurred within our economy over the past couple of years has been attributed to consumer spending.  In order for 2004 to be a good year, businesses must increase their capital expenditures, take risks, and stop procrastinating.  In the January 12, 2004 issue of BusinessWeek, the economic indicators at the end of last year and the projections for 2004 seem to indicate that we will indeed have a good year.  

Within this issue is a 40-page spread looking at 2004.  In addition to the economic indicators, the special section also grades expected industry activity for 2004.  The grades were based on a number of different variables, including

  •  Projected sales growth
  • Consumer demand
  • Low prices
  • Capital spending
  • New technology
  • Necessity

Many other variables were used to grade each industry.  This report broke the industries into five categories: information technology, life sciences, manufacturing, services, and finance.  Each category had graded segments. The table below lays out the grades given for each segment.

Grade Industry
A IT: semiconductors, telecommunications

Manufacturing: construction

B IT: software, hardware, services, consumer electronics

Manufacturing: energy, automotive

Services: media, advertising, professional services

Finance: banking, insurance

C Life Sciences: healthcare, pharmaceuticals

Manufacturing: defense & aerospace

Services: retail, transportation, travel

D Manufacturing: heavy manufacturing

Services: education

Source: BusinessWeek

This special BusinessWeek report does not rank every industry segment, but provides us with a good idea of where our economy is likely to head this year.  It appears that services and light manufacturing-related industries will be the big winners in 2004.  Heavy manufacturing will continue to falter, due to more businesses shipping operations overseas to China.  On the topic of operations going overseas, it is important to note the increasingly popular trend of organizations outsourcing and/or moving service-oriented operations to other countries, such as India and the Philippines.  As we have preached to our clients in recent years, economic development organizations will need to focus on what industries need to stay in this country, what we do best, and what we can do that no one else can replicate.

Source: BusinessWeek, January 12, 2004, “ Outlook 2004: America’s Key Industries,” pages 88-127

The automotive industry outlook for 2004

By Jeff Vedders

With the North American Auto Show in full swing this month, and with the recent update of the Standard and Poor’s Auto and Auto Parts Survey, we thought this would be a good time to look at the projected outlook for the industry for 2004.

Standard and Poor’s is anticipating sales of 17.1 million units in 2004 over 16.5 million units in 2003.  Also, according to economists’ reports earlier this month, the Big Three expect sales to increase for the first time within the past four years.  However profits are not likely to follow.  It appears that consumers may have been trained to expect incentives, and they will in turn wait for these incentives before buying a car.  In fact, from January 2002 to November 2003, average incentives rose from $1,409 to $2,386, and whenever incentives were cut back, sales slowed.

Incentives make vehicles more affordable, so consumers are using them to buy a higher class of vehicle or to purchase additional features and options in their vehicles.  The proportion of luxury vehicles sold in the U.S. is going up.  According to Ford, approximately 10% of its 2003 sales will be premium branded, which is up from 6% in 1996.  Incentives are also having a negative impact on used vehicle prices by making new vehicle prices much more attractive.  This in turn may hurt manufacturers, as vehicles coming off of a lease are worth less than the manufacturer originally intended.

Standard and Poor’s also projects limited growth in the U.S. replacement parts market in 2004, as improved quality of original parts has reduced the need for aftermarket parts.

Sales of hybrid vehicles (hybrid vehicles run on gasoline and electricity) are increasing.  According to Standard and Poor’s, Toyota, the leader in development and commercialization, has three models in production and anticipates three more for the 2005 model year.  Toyota sold 140,000 hybrids globally between 1997 and mid-2003.  Within the next few years, Toyota plans to sell 300,000 hybrid vehicles worldwide each year.  J.D. Power and Associates estimates the U.S. market for hybrid vehicles will reach 500,000 units by 2008.  Based on these projections, other automakers including Ford and General Motors plan to release hybrids in 2004.

Standard and Poor’s expects Toyota’s market share increases to continue, eventually overtaking Chrysler in the U.S. market and taking over Ford’s number two spot globally.  General Motors is currently number one globally.  However, even though Toyota is currently number three globally in sales, they are number one globally in profitability.

Globally, China’s automotive market continues to grow at a fast rate.  According to Standard and Poor’s, for the first nine months of 2003, production rose 87% and sales increased 69% compared to 2002.  The Chinese market is also profitable.  The China Association of Automobile Manufacturers (CAAM), estimates sales in 2003 to rise to $93 billion with profits exceeding $7.2 billion.  At current growth rates, in 2005 China could become the fourth largest vehicle maker, behind the U.S., Japan and Germany.  As a result, General Motors, Ford, Volkswagon, and Toyota have all announced plans to increase output or open new facilities with joint venture partners.

Sources:

“Auto & Auto Parts,” Efraim Levy, CFA, Standard & Poor’s Industry Surveys, December 25, 2003

“Car Sales to Surge, but Not the Profits,” Jamie Butters, Detroit Free Press, January 7, 2004

TechnoCars

By Leigh Howe

2004 is looking good for automotive companies as the industry continues to push new product launches.  The automotive industry will be a major force in this year’s economy.  What is driving life into the automotive industry?  Consumer confidence and the economy are up, but technological advances are also major factors.  The coming innovations and technology are outlined below.

Safety is on first.     Auto safety over the past decade has been about air bags and antilock brakes. However, technologies that compensate for veering, tailgating, and dozing are nearing the showrooms.  The point is to prevent accidents from happening in the first place, not just protect the passengers when there is an accident.

Examples of coming automobile safety technologies:

 

MANUFACTURER TECHNOLOGY EARLIEST COMMERCIALIZATION
Ford
(Dearborn, MI) 
Video sensors that detect objects in a driver’s blind spot and   trigger warnings during turns 2006
DaimlerChrysler
(Stuttgart, Germany)
Radar-assisted cruise control that maintains separation from other cars at low speeds (devices
for highway speeds are already in some cars)
2006
DaimlerChrysler, Ford, Honda (Tokyo, Japan), Nissan (Tokyo, Japan) Video sensors that track lane position and warn drivers against drifting into other lanes 2007
BMW
(Munich, Germany)
Camera that tracks eyelid movements and triggers an alarm to alert drowsy drivers 2008
DaimlerChrysler, Ford, GM
(Detroit, MI)
Data flow computer that tracks high-stress driving actions and blocks nonessential information 2008

          MIT Technology Review October 2003, “Building a Better Driver” by Peter Dizikes

Fuel-saving features.  Even though the industry seems to be uncertain which technology will eventually win, the Japanese are developing hybrid gasoline-electric vehicles and the Germans are stressing high-mileage diesel engines.   Hydrogen fuel cells, though a longer term play, are also an option for the automotive market.

Advanced electronics.  Electronics have replaced most mechanical systems in cars; however, many technologies have only been available at the luxury-car level.  Now, more and more of the advanced electronic features will be available in midrange-models.  Some examples include the following:

  •  Credit-card style systems will likely replace car keys within the next three years.  These systems are already available in some Cadillacs, Infinitis, and BMWs.
  • Every car will come equipped with a computer-like screen in the dash.  This will embed more GPS systems and provide the ability to add maps and locate hotels and restaurants, among other destinations.
  • Wi-Fi will be enabled in most every car to provide weather, news, and other information.  Gas stations and restaurants will become wireless hot spots.
  • Remote diagnostics will be available to assist in roadside troubleshooting.  Dealers and manufacturers will be able to collect data directly from your car.
  • Voice-activated systems, which are already available in BMWs and Lexus, will be far more common.

Sources and More Information.

New & Expanded Announcements

By Jeff Vedders

We recently analyzed US new facility and expanded facility activity for 2003.  There were a total of 5,427 announcements in 2003.  This compares with 6,645 announcements in 2002, 9,679 announcements in 2001 and 11,602 announcements in 2000.  That means there was a 22% drop in activity from 2002 to 2003, and there was a 53% drop in activity from 2000 to 2003.  All announcements represent an investment of $1 million, 50 employees, or 20,000 sq. ft.

Source: Whittaker Associates, Inc. and Conway Data Scoreboard

Of the 6,645 announcements reported for 2002, 2,720 were new facility announcements while 2,707 were expanded facility announcements.

2002 Top New Facility Announcements Analysis

As can be seen below, most of the top industries dropped off in activity from 2002 to 2003.  Computer and electronic product manufacturing leads all categories with a drop off of 44%.  Although much of the new activity is down, there are still a few categories that remain active and are increasing in activity.  Interestingly, after a drop-off of 78% between 2001 and 2002, building, developing, & general contracting (spec properties) is up nearly 96% over 2002 levels.  Truck transportation facilities and wholesale trade, nondurable goods are up over 2002 levels.

2003 New Announcements 2002 New Announcements Percentage Change NAICS Code NAICS Description
479 245 95.51% 233 Building, developing, & general contracting
188 272 -30.88% 421 Wholesale trade, durable goods
156 186 -16.13% 541 Professional, scientific & technical services
146 200 -27.00% 336 Transportation equipment manufacturing
123 142 -13.38% 325 Chemical manufacturing
112 97 15.46% 422 Wholesale trade, nondurable goods
97 122 -20.49% 721 Accommodation
92 130 -29.23% 311 Food manufacturing
92 109 -15.60% 326 Plastics & rubber products manufacturing
69 109 -36.70% 333 Machinery manufacturing
68 91 -25.27% 332 Fabricated metal products manufacturing
58 104 -44.23% 334 Computer & electronic product manufacturing
56 69 -18.84% 331 Primary metal manufacturing
55 48 14.58% 561 Administrative & support services
52 23 126.09% 484 Truck transportation

Source: Whittaker Associates, Inc. and Conway Data Scoreboard

2002 Top Expanded Facility Announcements Analysis

As with the new announcements, most of the top industries dropped significantly in activity from 2002 to 2003.  Printing and related support activity, machinery manufacturing, and wholesale trade, durable goods lead all categories with drop offs of 35%, 34% and 34% respectively.  Categories showing a significant increase include building, developing, & general contracting and truck transportation (558% and 100%).

2003 Expanded Announcements 2002 Expanded Announcements Percentage Change NAICS Code NAICS Description
263 364 -27.75% 336 Transportation equipment manufacturing
185 219 -15.53% 311 Food manufacturing
180 207 -13.04% 325 Chemical manufacturing
171 150 14.00% 541 Professional, scientific, & technical services
152 218 -30.28% 326 Plastics & rubber products manufacturing
133 177 -24.86% 332 Fabricated metal product manufacturing
116 176 -34.09% 333 Machinery manufacturing
107 162 -33.95% 421 Wholesale trade, durable goods
89 129 -31.01% 331 Primary metal manufacturing
80 86 -6.98% 422 Wholesale trade, nondurable goods
79 12 558.33% 233 Building, developing, & general contracting
69 98 -29.59% 334 Computer & electronic product manufacturing
66 73 -9.59% 335 Electrical equipment, appliance & component mfg
64 59 8.47% 337 Furniture & related product manufacturing
58 73 -20.55% 321 Wood product manufacturing
53 73 -27.40% 327 Nonmetallic mineral product manufacturing
51 71 -28.17% 339 Miscellaneous manufacturing
50 77 -35.06% 323 Printing & related support activities
50 25 100.00% 484 Truck transportation

Source: Whittaker Associates, Inc. and Conway Data Scoreboard

Creative Farming

By Leigh Howe

If you haven’t looked closely at the farming industry lately you might be surprised.  Creativity is not only for the big city.  Creative farming is probably better known to many as value added agriculture.  According to Michigan State University, value added agriculture is a process of increasing the economic value and consumer appeal of an agricultural commodity.  It is an alternative production and marketing strategy that requires a better understanding of the rapidly changing food industry and food safety issues, consumer preferences, business savvy, and team work.  Adding features to a raw agricultural, marine, aqua cultural, or forestry material used to make a product is an example of a value added activity.

When people think “value-added agriculture,” genetically modified crops and engineered foods come to mind.  While those may be part of the picture that get the most media coverage, value added activities may be more basic such as new processing techniques and creating greater consumer appeal for commodity products.  Organic growing methods foods are an example of creative agriculture.  But it is nothing new!  It is actually growing food without the help of chemicals or other artificial components – the old fashioned way.  Traditional farms are focusing more on organic growing as the demand for such products is growing at a healthy 20% per year.

Organics are just the tip of the iceberg.  Farmers and food specialists are tasked to reduce trans fatty acid, reduce saturated fats, increase fiber intakes and innovate new flavors, just to name a few.  As the population in the United States becomes wealthier, older, more education, and more ethnically diverse, the demands for foods will continue change.  Consumers are demanding more new food products, new packaging, more convenience, new delivery systems, and safer and more nutritious foods.  These trends will all drive the farming and food industry to meet this needs with creativity in flavors, packaging, and healthy foods.

For further investigation on the subject, check out the following sites: