Automotive Manufacturing

Surplus Asset Market Trends

By Nusa Tukic, PhD 

Surplus Automotive Industry Market Overview

Market Overview, Drivers, and Challenges  

Market Overview

• In 2023 and early 2024 the automotive supplier market has seen a significant rebound from the effects of the COVID-19 pandemic.

• Valued at between USD 651.9 and 662.5 Billion in 2022, it is projected to reach USD 1.1 Trillion between 2023 and 2030, growing at a CAGR of 6 – 6.8%.

Key Drivers for Automotive Parts Manufacturing Growth

• The increasing number of electric cars (particularly in the European Union) is driving demand for specialized components like sensors, radar, and lidar.

• The shift towards light commercial, sports, and alternative fuel vehicles spurs innovation in transmission, drivetrain, brake, and steering parts.

• Traditional parts such as engine, electrical, drive, transmission, suspension, and braking components still dominate the market.

• Technological advancements, 3D printing, and e-Commerce platforms are the main trends expected to continue to fuel market growth (Technavio, 2024).

Key Challenges Facing the Automotive Industry*

• Brain Drain: The automotive industry faces a 40% job turnover rate, largely due to poor compensation.

• Aging Workforce: Nearly 25% of manufacturing workers are over 55 and the industry’s struggle to retain quality talent is exacerbated by the retirement of baby boomers.

• Skill Redundancy: Industry 4.0 and electrification have made many labor-intensive workflows obsolete.

• Product Innovation and Compliance: OEMs and suppliers must balance innovation with compliance.

• Customer Preferences: 60% of car buyers are under 45 and expect data-rich, contactless experiences. Manufacturers must reorient their strategies.

• Resource Availability: Manufacturers need to track their resource requirements, manage supply chain risks, and explore circular economy models.

• New Product Demand and Jobs: The shift to electric vehicles will create new jobs, but the U.S. must invest in local production of batteries and drivetrains.

• Agile Operations: OEMs should adopt agile methods to introduce new products and respond to supply chain disruptions.

• Unlocking Data Potential: Accurate data and analytics are crucial for competitive advantage. Automotive ERP software can centralize processes and improve customer engagement and product personalization.

• Building Risk Resilience: The industry must adopt risk management strategies.

*Including Automotive Parts Manufacturing

Source: Technavio. 2024; Cox-Little & Company. 2024

Surplus Automotive Industry Market Position

Compliance and Regulations and Market Position  

Compliance and Regulations

The once-in-a-generation shift the automotive industry faces is also driven by government bodies (national and international) implementing stringent regulations for vehicle emissions, driving manufacturers to continuously develop more sustainable automotive parts. Internationally, a coalition of 23 governments have created the International Zero-Emission Vehicle Alliance (IZEVA), to expand the global ZEV market.

The map below indicates which countries have set targets for phasing out of combustion vehicles and by which year, compared to the overall agreed IZEVA target of 2050.

Countries and Their Target Years for the Phase-out of Combustion Vehicle Sales

Howarth, J. 2024. 10 Important Auto Industry Trends (2024-2026)

Market Position

Considering how capital-intensive the global automotive industry is, it is no surprise that OEMs need to invest in new machines to keep up with innovation trends and remain competitive.

In 2024, US assembly plants are expected to spend $6.18 billion on new equipment, a 3% increase from 2023’s $5.98 billion. The average expenditure on assembly technology will rise to $1,970,582, the highest ever recorded, up from $1,905,175 in 2023, according to the 2023 Capital Equipment Spending Survey. Spending growth is evident, with 38% of surveyed plants having capital budgets of at least $500,000 for 2024, maintaining a trend above 30% for the past six years.

Source: Sprovieri, 2023; American Automotive Policy Council, 2022

Strategies for Surplus Asset Management

Capital Spending and Surplus Assets  

Typically, when OEMs invest in capital equipment, auto parts suppliers must also retool and upgrade their machinery. For instance, in 2022, Ford, Stellantis, and GM announced several investments in their existing plants in Missouri and Michigan, prompting their suppliers to follow suit soon after.

According to a 2020 European Commission study that examined the capital spending of 2,500 of the world’s top companies, the automotive industry spent more on capital investment than any other manufacturing industry. The only industry that spent more was oil and gas.

American Automotive Policy Council. 2022. INVESTING FOR THE FUTURE LEADING IN CAPITAL INVESTMENTS AND RESEARCH & DEVELOPMENT

Surplus Asset Management

Asset management protocols are a catalyst for benefitting all industries, including OEMs and automotive parts manufacturers, by reducing acquisition costs. Implementing preventive maintenance and asset life cycle management decreases the need for new equipment and opens avenues for cost savings. In the UK alone, over 40% of capital expenditure for motor vehicle manufacturers between 2014 and 2018 was attributed to new equipment, a figure that can be reduced with effective asset management.

Effective asset management is crucial for monitoring and tracking manufacturing assets. Implementing a robust asset management solution helps businesses efficiently handle asset acquisition, maintenance, operation, renewal, and disposal. This detailed approach enables informed decision-making and enhances financial and operational performance. By implementing asset management, and particularly asset life cycle management protocols, manufacturers can better understand when their machines need to be replaced or disposed of.

Source: Comparesoft, 2021

Liquidity Services has the expertise and tools (AssetZone®) and the platform (AllSurplus) to benefit any manufacturing company as they unlock value in idle and unused machinery, opening the way for capital to be available for future investments. With significant expertise in over 600+ asset categories, Liquidity Services can help OEMs and auto parts manufacturers achieve maximum value from their surplus by facilitating asset redeployment or selling for high recovery.

We Offer Consultative Surplus Asset Management, Valuation, and Sales Solutions

Ready to Power the Circular Economy? Contact Us Today!

Top 10 Reasons to Start Selling Your Surplus Equipment Now

Start the new year strong by managing your surplus assets today

1. Boost Your Cash Flow

Selling surplus resources brings an immediate influx of capital. Whether you’re expanding operations, funding R&D, or tackling unexpected expenses, the proceeds from selling surplus assets can be reinvested into your business for maximum impact. In today’s unpredictable market, extra cash can be a game-changer.

2. Cut Storage Costs

Idle equipment sitting in storage is a financial drain. Beyond taking up valuable space, it incurs ongoing storage, insurance, and maintenance expenses. By selling surplus items, you can eliminate these costs and repurpose the freed-up space for more immediate needs.

3. Optimize Warehouse Space

Unused and unnecessary assets clutter your warehouse, occupying space that could be put to better use. Selling surplus equipment allows your organization to better organize its storage, potentially avoiding the need for costly warehouse expansions or even allowing for a downsize in space.

4. Take Advantage of Tax Benefits

Selling surplus assets before year-end can offer tax advantages. By recognizing the loss or gain in the current tax year, you might offset profits and reduce your tax liability. Consult with a tax professional to understand how this strategy could benefit your situation, but know that the end of the fiscal year is often the perfect time to secure these advantages.

5. Support Sustainability Initiatives

Embracing a circular economy ethos ensures that your organization’s equipment is used to its fullest potential. Selling surplus rather than disposing of it reduces waste and aligns with sustainability initiatives, offering both financial gain and a positive environmental impact.

6. Preserve Asset Value

The longer an asset sits idle, the more its value depreciates due to technological obsolescence and market fluctuations. By selling before year-end, your business could secure a better price and protect the asset’s residual value.

7. Maximize Opportunity Costs

Every surplus item represents an opportunity cost—the difference between the value of the existing asset and the return that could have been earned from an alternative investment. Holding onto surplus assets might mean missing out on opportunities that offer higher returns.

8. Reduce Maintenance Costs

Surplus resources require periodic maintenance, even when not in active use. This can lead to unnecessary expenses in parts, labor, and time. Selling surplus items eliminates these costs, freeing up capital and resources for more critical needs.

9. Streamline Operations

Surplus equipment can be a distraction, cluttering facilities and diverting attention from core operations. By periodically selling surplus, companies can maintain a lean operational profile, ensuring smoother day-to-day operations and improved worker productivity.

10. Mitigate Risks

Surplus assets, especially aging ones, can become liabilities. If they degrade, they may lose value, become obsolete, or even pose safety risks. Selling these items before they become a problem can help mitigate these risks.

Managing surplus assets is more than just decluttering—it’s a strategic imperative with tangible financial and operational benefits. By efficiently managing and proactively selling surplus equipment now, you will begin the new year with a stronger, more agile business.

If you would like to explore these strategies, let’s talk. Contact us today!

Chocolate manufacturers may have reason to celebrate even as the current US administration calls for negative interest rates. Chocolates and other confections are considered “recession proof” industries. But are they really?

We think so. Here’s three reasons why the chocolate industry should do well in the next recession – and how manufacturers should prepare for the pending rush of orders.

1. Chocolate as an “Affordable Luxury” – Even During a Recession

Back in 2001, then-Chairmen Estée Lauder Leonard Lauder observed a consumer trend he coined “the lipstick effect.” Basically, while consumer spending may fall in other sectors, they’ll treat themselves with small “affordable luxury” purchases.

During the 2008-2009 Great Recession, cheaper and more disposable items like lipstick, pet care, and whiskey – that is, those products in the affordable luxury segment – experienced high industry growth, while more expensive and permanent items like furniture and appliances fell:

(Credit to Euromonitor International/Passport Industries)

Chocolate, too, performed well during the Great Recession. For example, Euromonitor International researcher Andre Biciunaite found that German boxed chocolates grew 12% in 2009, apparently driven by demand for “instant indulgence” to relieve stress.

As one chocolatier summed up, “People are not giving up all their pleasures. Maybe they’ll miss a holiday or a weekend away, but they are not going to sit home eating bread and drinking water. Chocolate is an affordable luxury.”

2. Chocolate as a Mood Booster

Chocolate’s hard to beat as a treat when people are feeling down. As one European chocolate manufacturer observed: “People eat chocolate in good times to celebrate – and in hard times to feel better.”

They were right. As it turns out, there’s chemical evidence for chocolate’s status as a blue’s buster.

Researchers found that consuming chocolate helped boost serotonin production – the “happy chemical” – in the brain. Drugs used to treat depression like selective serotonin reuptake inhibitors, or SSRI, also raise serotonin levels.

Chocolate also helps raise the body’s endorphin levels. Endorphins are the same hormones released during exercise to help relieve pain and create a euphoric feeling.

Finally, according to Oxford Brookes University research fellow Henk Smit, chocolate fulfills two innate preferences by snacking humans: A sweet taste and creamy texture. He told one media outlet, “We all know that chocolate does improve moods. It’s something that provides comfort at a time when people need comfort.”

And, if there’s ever a time when people seek out comfort, it’s during a recession when financial foundations and home stability are threatened.

3. The Chocolate Industry’s Growth in Eastern Markets

Even if growth in the Western market stagnates, chocolate manufacturers can always go east into emerging markets like China and India. In fact, market researchers forecast the Asia-Pacific region as the fastest growing of any chocolate market for the next five years.

Several factors fuel this growth:

• Growing net income and rise of the middle class in developing countries. People with rising incomes can afford to purchase consumable luxury goods like chocolate.
• Increased integration of chocolate into local foods. While chocolate ice cream is incredibly popular – contributing to a compound annual rate growth of 5% over five years – it’s increasingly included in local foods outside of sweets. Barry Callebaut’s China Managing Director George Zhang believes this integration is the “key to achieving market success” in eastern markets.
• “Flavor migration” of popular western snacks to eastern markets. As Mintel’s Food and Drink Direct of Insight Marcia Mogelonsky observed, “A flavor with universal appeal, chocolate has lent itself well to the ‘sweet and salty’ taste that is becoming popular across the world, and more recently in Asia.

How Chocolate Manufacturers Can Recession Proof Their Lines

From previous performance and future forecasting, then, it’s safe to say that chocolate sales may get a boost in the next recession. And, that recession may be closer than we all hope, considering the recent contraction in the manufacturing index and September 2019’s falling retail sales.

Smart chocolate manufacturers should begin updating their factory lines now to prepare for future demand. Preparations should entail eliminating idle equipment while finding funds for upgrades, retooling lines to supply potentially popular products – like the sweet-salty snacks in Asian markets – and redeploying assets to more strategic locations within your company.

We’ve got experience strategically managing the surplus assets and equipment from some of the world’s biggest snack brands to recover millions from otherwise useless assets. If you have idle equipment or extra inventory, then reach out: We can help.

When it comes to budgeting your expenses for the next year, many operations managers start with the direct labor and material costs. That is, how much it costs to purchase product supplies, as well as how long and how much it costs to pay people to make them. But, what about factory overhead costs – all the incidental expenses that surround production?

This article, then, will be a down-and-dirty quick reference cheat sheet for manufacturing operations to get a ballpark figure of their factory costs. But first: What do we mean when we say “factory overhead”?

What Is Factory Overhead?

“Factory overhead” is how much it costs to produce a company’s products, not the labor and materials it takes to directly create the widget.

It’s also called manufacturing overhead, factory burden, and production overhead.

What Do Factory Overhead Costs Include?

By our definition, factory overhead for, say, a plant making highway signs would include the salary of the engineer who maintains factory lines, the cost of electricity to power the plant, and replacement part expenses.

More specifically, factory overhead includes:

• Depreciation of equipment and factory facilities
• Rent, property taxes, insurance, and utilities
• Employment costs for supervisors, maintenance and quality control staff, and any other on-site employees who aren’t physically making signs
• “Indirect” supplies that keep the factory humming, from lightbulbs to toilet paper

Basically, anything or anyone inside the manufacturing facility that’s not directly making products should be calculated as part of overhead.

What Do Factory Overhead Costs Not Include?

Factory overhead excludes:

• Product materials
• Employee costs of those actively manufacturing the product
• External administrative overhead, such as an outside headquarters or human resources
• C-suite employee costs
• Sales and marketing expenses – including salaries, travel costs, and advertising

By this reasoning, the sign manufacturing facility in our earlier example would not include aluminum or steel cost in its overhead calculation. It also excludes employment costs of the skilled worker who cuts the metal into signs.

Calculating Annual Factory Overhead Costs

Total factory overhead is generally calculated on an annual basis to predict costs of production. Remember that more conservative estimates mean you’ll either reserve enough cash for high bills, or be pleasantly surprised with a surplus.

• For utilities and commercial property insurance, use your previous year’s total annual bill for water, electricity, and gas, then increase by at least 3% to account for inflation. If your factory plans to increase its production, bump up your planned bills.
• For maintenance, estimate that you’ll spend 9-12% of your equipment’s market value for repairs and parts.
• For depreciation, you’ll need how long you think you’ll use the asset – either equipment or facility – as well as the current salvage value and how much the asset itself cost to purchase, set-up, and train for use. That’s territory for accountants, though, as depreciation has tax implications. For now, eyeball your assets. Will you need to replace anything soon? Is the building deteriorating faster than you can fix it? These questions will help you figure out if you’ll need to raise or lower your budget this year.
• For employee costs, start with what you spent last year, and then look at your company’s plans. Will you need to hire more maintenance engineers, for example, or are you downsizing?
• For general supplies, again estimate using your previous year’s expenses, then increase by at least 3% for inflation.

As a ballpark figure, then, we can take last year’s overhead costs and increase anywhere from 3-5% to get this year’s factory overhead projection.

For example, let’s say last year’s sign factory overhead – between incidental employment costs and other expenses – cost $1,500,000. We expect the factory to be as productive as last year, with no extra labor costs or contract changes.

So, an adjusted projection for this year’s factory overhead would be $1,545,000 – or 3% more than last year’s.

Calculating Factory Cost Per Unit

But what does this mean in context of your factory’s actual production?

Once you have your projection, you can then divide overhead by the number of products to get a factory cost per unit. This metric tells you how much you’re spending per widget in production, which influences your company’s profit margin.

Our hypothetical sign factory expects to produce the same number of signs as last year: 20,000. So, we divide $1,545,000 – our expected factory overhead – by 20,000 to get $77.25 in factory cost per sign.

That means our factory can expect to spend almost $80 for every sign it makes.

3 Ways to Reduce Overhead Costs

By looking at all the pieces that make up factory costs, we can start to understand ways to decrease overhead.

• Increase efficiency through equipment upgrades and trained employees. By upgrading older equipment to better new ones, you can produce more for the same amount of resources. Training your employees can also increase their efficiency, giving you better results per person instead of simply hiring more.
• Decrease excess inventory and idle equipment. Storing extra products or mothballed equipment “just in case” costs tens of thousands in factory overhead. Consolidate those areas to both decrease overhead and increase alternative revenue streams.
• Reuse equipment and supplies from other factories. Ask other facilities if they have extra equipment or materials that they’re not using – and if it could be “redeployed” to your factory. Redeployment would save time and money in searching for and installing brand-new equipment while decreasing your overhead costs.

Calculating factory overhead comes down to looking at what you’ve done, what you’re planning to do in the next year, and how you can use current resources in clever ways. Good luck, and remember: If you need help figuring out how you can leverage current assets for your manufacturing plant or business, we can give you a hand.

Maybe you’re waiting out the U.S. trade war with China, or you’ve got an eye on the hard Brexit date. Or, maybe you’re just in the middle of some expected seasonal downtime. Whatever the reason, you have mothballed equipment not being used, stockpiled supplies, and excess inventory that’s overflowing your warehouses. Every day you’re storing idle equipment and inventory, though, is a day you’re wasting thousands in overhead costs that could’ve been better spent elsewhere.

$32,000+ of Wasted Space in Your Warehouses and Factory Floors

Don’t believe it? Let’s do some quick math.

A recent warehouse industry survey puts the average cost of warehouse space at $6.53 per square foot. And, 64% of U.S. warehouses are at least 25,000 square feet, according to the United States Energy Information Association.

So, if fifteen to twenty percent of your warehouse or factory floor is effectively an “extra equipment” museum, then you’re throwing away $32,000+ every year. And, that’s just a ballpark estimate! If you have entire warehouses dedicated to excess inventory or returned stock that sits for months at a time, that’s a real money sink on your hands.

9+% Maintenance Costs for Excess Inventory and Equipment

All equipment needs repairs – all inventory stay pristine – if it will ultimately be useful for the company. This includes labor costs to maintain equipment and warehouse space. Sometimes, this also includes environmental maintenance costs for sensitive materials, like temperature and humidity maintenance.

Maintenance budgets normally reserve about 5-6% of the machine or inventory’s market value for labor expenses with an additional 3-4% for needed supplies. Plus, there’s an extra 1-2% for building maintenance expenses.

In all, you can expect to spend anywhere from 9 to 12% of your idle equipment or inventory’s market value on maintenance alone – and it’s not making your company a dime.

Beyond Capital Asset Depreciation: Your Increased Real Estate and Employee Tax Burden

On top of the space and maintenance costs for idle equipment and extra inventory, there’s an increased tax burden to consider.

Sure, capital assets like equipment and materials may be tax-advantaged through depreciation. But, you still pay real estate taxes for your commercial properties, and taxes on your employees’ compensation.

Every day you’re storing equipment that’s not producing goods or excess inventory that’s not available for purchase, you spend thousands in taxes for the privilege of hoarding it.

Higher Insurance Service Costs for Equipment, Products, Supplies and Excess Inventory You’re Not Using

Overhead for businesses includes necessary insurance payments ranging from professional liability to workers’ compensation. Property insurance pays for repair or replacement of equipment, inventory, supplies – anything inside the insured commercial building – should something happen.

Let’s estimate that commercial property insurance costs between $1,000 and $3,000 for every million dollars of coverage. In addition to covering your active lines and current products before they’re shipped to customers or stores, your commercial property insurance also covers idle equipment, unneeded supplies, and returned inventory.

Between insurance, taxes, maintenance, and storage – that’s tens of thousands you’re spending to keep unused and unwanted property. What else could you have spent that money on? Employee retention through training and benefits? Upgrading equipment? Product development?

And imagine how much more you could invest if you go an extra step further and sellthose formerly worthless assets to other businesses. That idle equipment and extra inventory becomes a new revenue opportunity instead of an unavoidable sunk cost.

The biopharma industry is one in which successful companies, investors, drug developers, and scientists can manage – even celebrate – the inevitable failures of research and development. In a field where rare successes more than make up for the disappointment, failure is typically not a stigma.

But how can pharmaceutical companies continue to fund their R&D departments until they hit “the big one”?

“Only 13.8% of all drug development programs lead to drug approval.”

In 2018, a team from the Massachusetts Institute of Technology conducted the largest investigation of clinical trial success rates to date into probabilities of clinical success. They found only 13.8% of all drug development programs lead to an eventual drug approval.

In other words, 86.2% of pharmaceutical R&D products never reach market. Other comprehensive analyses report even lower success rates. In fact, for the industry’s most crowded therapeutic area – cancer drug development – the overall probability of success was only 3.4%.

So, R&D budgets are decimated by projects that ultimately will fail to reach final approval – and you can’t know which projects will be successful when you’re budgeting at the start of the fiscal year. How, then, can biopharma companies keep R&D funding above the red line until they hit the 13.8% product approval jackpot?

Help Fund Biopharma R&D by Lowering Overhead and Recovering Costs

The necessary costs of the R&D department can be partially compensated for by reducing waste in other areas while finding alternative revenue sources. This effort can include:

• Leveraging current asset value as collateral against loans and other fund-raising efforts.
• Recycling – or “redeploying” – idle but valuable equipment like mass spectrometers or lab balances to other facilities instead of buying new.
• Donating useful old inventory like sanitation supplies to non-profit organizations, possibly generating tax write-offs.
• Selling outdated assets on the open market, recovering previously sunk equipment costs.

Many of these have the secondary effect of clearing away facilities and the overhead associated with them – including taxes, insurance, and maintenance costs.

To do this, however, you’ll need an effective asset management and valuation program. To learn more about how these programs can help your biopharma company, see how we’ve helped other industry leaders fund R&D and other crucial operations through asset management and valuation.