The Importance of Last Time Buys in a Transitioning Auto Industry Supply Chain

It is difficult to read anything about today’s auto industry without diving headfirst into the discussion about the impending electric revolution. Some automakers, such as Volvo, have been extremely enthusiastic about the transition, while others like Ford have been slightly more deliberate in their offerings, careful to keep one eye on the future while keeping current consumer bases satisfied. While the degree of adoption may be varied, the creep toward an electric marketplace for the next decade and beyond is clear — and industry analysts are paying close attention to how established supply chains are planning to adapt.

What many of these discussions miss, however, is the lingering consumer base for internal combustion vehicles. While shrinking yearly, Bloomberg reports that currently only 10 percent of those considering an electric vehicle actually purchase one. This indicates that, despite inflating projections regarding electric vehicle production, the auto industry still has a long way to go overcoming consumer reservations regarding battery power (limited charge distance, rapidly diminishing resale value compared to gasoline-powered counterparts, etc.).

Going even further, the internal combustion market hasn’t seen any signs of slowing down; in fact, it’s booming. “Almost 34 million vehicles have been sold over the past two years in the US alone — and nearly all them run on gas,” says Business Insider. Considering that recent figures indicate that the average length of vehicle ownership has increased to nearly seven years, all signs point to gas-powered vehicles not ready to give up their market share quite yet.

This puts auto supply chains into quite a jam. How can you continue to support the life cycles of products in the current market, while investing working capital to prepare for a radical transition everyone says is coming? Are the advantages of being one of the first to embrace the future worth losing a current, profitable, and (for now) stable status quo? A commitment to ramping up electric vehicle output —or the production of critical components designed for the electric vehicle market — means sacrificing factory space and equipment that could be dedicated to a market much better suited for short-term profitability. A movement toward one cannot be made without moving away from the other.

The longer the industry lingers in the middle, the greater the inevitable challenges loom. Whether it’s today, tomorrow, or 2030, the day that the scales tip exclusively toward electric production will provide a host of growing pains for those that choose to stay the current course.

The fewer suppliers there are supporting the products of OEMs still committing portions of their line to the gas-powered market, the more likely OEMs are to experience longer lead times for critical components. Even worse, as more suppliers prepare their infrastructure for the electric market, more and more critical components will transition into obsolescence.

To avoid significant disruptions in production, these manufacturers will have to take radical measures to ensure their current product lines are supported for as long as consumers expect them to be.

The most common solution to this inevitable issue will be, undoubtedly, last time buys — and Partstat is perfectly positioned to provide a Last Time Buy Solution that allows auto OEMs to invest working capital into their future without risking losing consumers who choose not to adopt electric vehicles right away.

Each and every drawback traditionally associated with last time buys — additional carrying costs as high as 25 percent, tied-up working capital — is rendered moot by our unique solution. And with our industry-leading ability to fulfill last time buy inventory for up to 10 years, auto OEMs can rest assured that their transition into the wide-open electric frontier will be seamless.

Since its introduction, we have preserved over $100 million in working capital for OEMs in dozens of industries. And by taking advantage of Partstat’s ISO:9001-certified storage facilities, we have saved our last time buy customers over 42 percent in annual carrying costs.
Regardless of how and when the scales tip in the auto industry, Partstat is here to offer an obsolescence management strategy that will always tip the scales in the OEM’s favor.