Quality: A Recession Shield for Automotive Manufacturers

Rising interest rates are sending shock waves through the economy, impacting many industries including the automotive sector. With the future of the economy still uncertain and talks of the US potentially entering into a recession in 2023, companies should be prepared, and manufacturers need to understand the risk to sales and take action to maintain a competitive advantage.

While cars are a necessity for those who do not live in a public transportation-friendly city, they are considered a luxury investment and sales can be impacted in volatile economies. In times of economic turbulence, many households modify their spending habits to help reduce expenses. This leads to many individuals delaying the purchase of a new car and instead making do with what they have. Automotive sales experts have seen this consumer trend play outfirst-hand, and state that sales during a recession tend to decrease to 10-12 million. If the potential recession mirrors those of the past, we could see new vehicle sales fall around 40%.

A drop in sales leads to Original Equipment Manufacturers (OEMs) buying less materials, causing a drop in supply chain profits. Automotive manufacturers must work to eliminate waste caused by insufficient product quality and process issues before those challenges occur.

When consumer sales drop during economic hardship, recessions naturally increase market competition. To remain competitive, automotive manufacturers need to keep direct and indirect costs down for all parties by improving the quality of their products and processes. Manufacturers can achieve this by creating a culture of excellence from the top down. There must be organizational knowledge about the importance of quality and clear communication of quality goals and expectations from top management. Transparent and clear communication from leaders of the organization reduce confusion about company expectations and pave the way for continuous improvement.

When the requirements of IATF 16949 are implemented in ways that add value to a manufacturing organization, the result is a highly effective and efficient quality management system. The standard is written to align with ISO 9001: 2015 and provides additional structure and guidance. When the standard is effectively applied, it helps drive the success of an automotive manufacturing organization. When IATF requirements are institutionalized as an added value to an organization, they become more effective at planning, leading, operating and monitoring their automotive manufacturing sites. When the QMS (quality management system) and business operating systems join, the resulting synergy drives efficiency, customer satisfaction and a desirable bottom line.

Conversely, organizations that implement IATF requirements simply to “check the box” or “meet the IATF requirement” so they can gain automotive business will miss out on all the value that effective implementation brings. When planning, improving, or correcting an organization’s QMS it is imperative to ensure that the processes are designed to meet IATF and customer requirements and drive effectiveness and efficiency in the processes of the organization. When automotive business slows, organizations cannot afford to lose the value gained by effectively implementing the standard required by the automotive industry.

Automotive suppliers can avoid diminishing profits by leveraging sound, continual improvement and problem-solving processes to reduce the cost of poor quality. When organizations control the effectiveness and efficiency of their processes, they improve first-time quality and eliminate unnecessary cost. It is imperative companies work efficiently to produce quality products and reduce waste, shipping costs, labor costs, sorting costs and other tangible and intangible costs that result from customer dissatisfaction. An IATF certified quality management system can aid your organization in reducing waste, resulting in a positive impact to your bottom line.

Third-party certifications like IATF 16949 not only help increase competitive advantage, but also give manufacturers a return on investment even in a time of recession. Data collected by IATF subscribing OEMs suggests that 90% of companies who have certification to IATF 16949 meet automotive quality performance targets vs. 73% of companies who are ISO 90001 certified. This data is published in the Value Add of Successful IATF 16949 Implementation Brochure on the IATF website.

NSF-ISR certifies clients to the automotive industry standard, IATF 16949, and has been named IAOB Certification Body of the Year 2022. Our expert auditors carry out the IATF goals of promoting continual improvement and reduction of waste in the automotive supply chain (IATF 16949 1st edition, Goal, page 7).

Achieving IATF 16949 certification allows for additional business opportunities for NSF-ISR clients, especially considering that most automotive OEMs require certification to this standard for their direct suppliers and all tier suppliers in their respective supply chains. Third-party certification helps manufacturers gain supplier of choice status with the world’s largest automotive manufacturers, which is critical at a time of intense competition. This status allows suppliers to prove through certification that they maintain a stable quality management system capable of achieving customer satisfaction.

Certification to IATF 16949 requires a process approach and drives organizations to improve effectiveness and efficiency. This improvement helps IATF certified clients keep costs down and maintain a competitive edge. In times of economic uncertainty or in seasons of economic growth, companies should operate as efficiently as possible to maximize profits and gain market share. IATF certification is an investment in your organization that will drive improvement, reduce waste and sustain your business in any economic climate.