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it expectations, capacity impact on pricing, lack of visibility in long-range planning, program delays, feasibility and development, and inability to get paid on time, just to name a few. Most OEMs and Tier 1 suppliers do not realize that the amount of quote activity at a tool supplier and the subsequent hit rate for those quotes also have a huge effect on capacity, but this is the nature of the tool supplier's daily life. The study revealed that a typical tool supplier has a hit rate of between 4 and 5 percent on all business it quotes, although HRI believes many shops would tell you that this number is actually high and could be more like 2 to 3 percent. As a result of this poor hit rate, suppliers must quote in excess of their annualized sales each month just to maintain current revenue levels. A key reason tooling suppliers have to quote so often is that they have virtually no insight into the business opportunities prior to the request for quotation. Figures courtesy of Harbour Results Inc. Opportunities The 2013 study does present opportunities for the vendor tooling industry in North America over the next 5 to 7 years. Growth in total OEM tool spending in North America is forecasted to be $15.2 billion by 2018. This is a 64 percent increase over current spending. Figure 1 validates this growth expectation by analyzing the anticipated growth of foreign OEMs in North America. This chart shows the number of expected product launches each year out to 2018 (provided by LMC Automotive) and then plots the percentage of available tooling for sourcing locally by OEMs. Substantial growth is expected in particular for European OEMs who are relatively new to the North American market and have been getting the majority of their critical tooling primarily from Germany. FIGURE 2 Key fnding: OEM/Tier 1/tool supplier alignment. Additionally, there are some years that Asian OEMs are expected to have more demand than the Detroit Three. The main reason for this shift in mindset for tooling sourcing is the tremendous complexity and number of automotive models these foreign companies are now producing. HRI estimates that OEMs in North America spend an average of approximately $9.25 billion on vendor tooling, based on 2012 information. At 2012 vehicle volume levels and North American tool spending levels, the average North American vendor tooling content per vehicle was $550. HRI believes that there are several factors that will make LCCS and China, in particular, less of an option to meet this growing tooling demand in North America and around the globe. The Chinese are working on improving labor productivity and have made this a new focus over the last couple of years as labor rates have risen. Yet studies show that, even with labor efficiency, labor rate increases are outpacing this productivity and will not reduce the gap. Many other costs in China are rising as well. The price of energy is up 15 percent; fuel cost also is up, making transportation more expensive; there are restraints on the number of new ships being built, and a container shortage is expected by 2015, making it more difficult to ship tools to North America. Additionally, the cost of land in China is almost double the global average. Another reason for the anticipated growth in the North American vendor tooling industry is the trend of European companies moving their tool sourcing to the region in which they are building vehicles. The economy is still not good in Europe, and it remains a highcost area in which to manufacture tools. Many European companies have said that North America is becoming a low-cost country to them. There are other regions of the world that could help moldmakingtechnology.com 37