WWW.IBISWORLD.COM Armored Vehicle Manufacturing December 2018 1

Defense mechanism: Rising defense spending and geopolitical tensions will boost industry demand

IBISWorld Industry Report OD5855 Armored Vehicle Manufacturing December 2018 Maksim Soshkin

2 About this Industry 15 International Trade 31 Technology & Systems 2 Industry Definition 18 Business Locations 32 Revenue Volatility 2 Main Activities 32 Regulation & Policy 2 Similar Industries 20 Competitive Landscape 33 Industry Assistance 2 Additional Resources 20 Market Share Concentration 20 Key Success Factors 34 Key Statistics 3 Industry at a Glance 21 Cost Structure Benchmarks 34 Industry Data 22 Basis of Competition 34 Annual Change 4 Industry Performance 23 Barriers to Entry 34 Key Ratios 4 Executive Summary 24 Industry Globalization 4 Key External Drivers 35 Jargon & Glossary 6 Current Performance 25 Major Companies 8 Industry Outlook 25 BAE Systems PLC 10 Industry Life Cycle 26 General Dynamics Corporation 27 Oshkosh Corporation 12 Products & Markets 28 Navistar International Corporation 12 Supply Chain 29 Textron Inc. 12 Products & Services 14 Demand Determinants 30 Operating Conditions 14 Major Markets 30 Capital Intensity www.ibisworld.com | 1-800-330-3772 | [email protected] WWW.IBISWORLD.COM Armored Vehicle Manufacturing December 2018 2 About this Industry

Industry Definition This industry includes establishments used in combat to transport infantry engaged in manufacturing, modifying, and munitions or to provide combat repairing and servicing military support. Tanks are not included in armored vehicles. These vehicles are this industry.

Main Activities The primary activities of this industry are Manufacturing armored vehicles and parts Manufacturing self-propelled weapons Modification of armored vehicles Repair of armored vehicles

The major products and services in this industry are Mobile artillery vehicles Tracked armored vehicles Wheeled armored vehicles

Similar Industries 33611b SUV & Light Truck Manufacturing in the US This industry manufactures unarmored military universal carriers.

33641a Aircraft, Engine & Parts Manufacturing in the US This industry manufactures complete military aircraft, auxiliary equipment and parts.

33641b Space Vehicle & Missile Manufacturing in the US This industry manufactures complete missiles, military space vehicles, auxiliary equipment and parts.

33699b Tank & Armored Vehicle Manufacturing in the US This industry manufactures armored vehicles as well as tanks.

Additional Resources For additional information on this industry www.loc.gov Library of Congress comptroller.defense.gov Under Secretary of Defense www.usitc.gov US International Trade Commission WWW.IBISWORLD.COM Armored Vehicle Manufacturing December 2018 3 Industry at a Glance Armored Vehicle Manufacturing in 2018

Key Statistics Revenue Annual Growth 13–18 Annual Growth 18–23 Snapshot $2.8bn -4.5% 6.6% Profit Exports Businesses $336.9m $1.3bn 58

Revenue vs. employment growth Federal funding for defense Market Share BAE Systems PLC 50 10 27.9% 25 5 General Dynamics

Corporation 0 0 23.6% % change % change Oshkosh -25 -5 Corporation -50 -10 19.8% Year 10 12 14 16 18 20 22 24 Year 11 13 15 17 19 21 23 Navistar Revenue Employment International SOURCE: WWW.IBISWORLD.COM Corporation  Products and services segmentation (2018) 5.0%

p. 25 22.4% Mobile artillery vehicles 45.8% Key External Drivers Tracked armored vehicles Federal funding for defense Non-NATO defense spending Price of steel Trade-weighted index

31.8% p. 4 Wheeled armored vehicles

SOURCE: WWW.IBISWORLD.COM

Industry Structure Life Cycle Stage Mature Regulation Level Heavy Revenue Volatility Very High Technology Change High Capital Intensity Medium Barriers to Entry High Industry Assistance Medium Industry Globalization Medium Concentration Level High Competition Level Medium

FOR ADDITIONAL STATISTICS AND TIME SERIES SEE THE APPENDIX ON PAGE 34 WWW.IBISWORLD.COM Armored Vehicle Manufacturing December 2018 4 Industry Performance Executive Summary | Key External Drivers | Current Performance Industry Outlook | Life Cycle Stage

Executive The Armored Vehicle Manufacturing pick-up in defense spending and the Summary industry experienced significant declines development and production of over the five years to 2018. Industry programs such as the Armored Multi- operators research, develop, Purpose Vehicle (AMPV) and the Joint manufacture, modify and repair military Light Tactical Vehicle (JLTV) have led armored vehicles, including infantry to an increase in US spending on fighting vehicles, armored personnel armored vehicles. Moreover, surging carriers, mine-resistant ambush international demand for US armored protected (MRAP) vehicles, self- vehicles driven by increased global propelled artillery and armored utility defense spending, tensions and vehicles. Prior to the five-year period, US conflict has helped offset weaker combat operations in the Middle East demand at home. Nevertheless, after and a climbing defense budget created a years of abnormal growth, exports are expected to fall in 2018. Consequently, industry revenue is expected to decline Surging international demand for US 7.3% in 2018, despite growing armored vehicles has helped offset weaker domestic demand. Over the five years to 2023, industry demand at home revenue is forecast to climb at an annualized rate of 6.6% to $3.9 billion. boom in demand for armored vehicles. The defense budget is anticipated to However, this trend reversed just before grow, and the development and the current five-year period. The United production of programs such as the States began to wind down combat AMPV and the JLTV should increase operations in the Middle East, the demand for industry products. defense budget was cut and sequestration Moreover, rising geopolitical tensions eventually kicked in. Consequently, the are anticipated to help operators industry is expected to decline at an maintain relatively high export orders annualized rate of 4.5% to $2.8 billion as more nations demand armored over the five years to 2018. vehicles to stay ahead of their rivals. However, much of this decline Operators will also benefit from occurred during the first half of the continued modification programs for five-year period. In more recent years, a the existing armored vehicle fleet.

Key External Drivers Federal funding for defense Non-NATO defense spending The industry is highly sensitive to defense Non-NATO defense spending includes all spending. More specifically, the amount global defense spending, excluding the set aside solely for the procurement and members of the North Atlantic Treaty maintenance of armored vehicles is the Organization. As global defense spending most important driver of industry increases, many foreign governments revenue. When the procurement purchase US armored vehicles. In 2018, allocation falls, fewer contracts with non-NATO defense spending is expected manufacturers are signed and industry to increase. revenue declines. Federal funding for defense is expected to increase in 2018, Price of steel representing a potential opportunity for Steel is one of the primary inputs in the the industry. production of armored vehicles. When WWW.IBISWORLD.COM Armored Vehicle Manufacturing December 2018 5

Industry Performance

Key External Drivers steel prices increase, operators can try to largest trading partners. A decreasing continued transfer the cost to customers. However, TWI leads to relatively less expensive if competition is strong and demand is exports and more expensive imports. weak, operators may have to absorb the Therefore, industry operators benefit increased costs, reducing profit. The price from a weak US dollar through of steel is expected to increase in 2018. increased demand for exports as well as weaker import competition for the Trade-weighted index same goods. The trade-weighted index The trade-weighted index (TWI) is expected to decrease in 2018, but it measures the value of the US dollar remains at an elevated level that poses relative to the currencies of the country’s a threat to the industry.

Federal funding for defense Non-NATO defense spending

10 1.2

1.1 5 1.0

0 0.9 $ trillion % change 0.8 -5 0.7

-10 0.6 Year 11 13 15 17 19 21 23 Year 9 11 13 15 17 19 21 23

SOURCE: WWW.IBISWORLD.COM WWW.IBISWORLD.COM Armored Vehicle Manufacturing December 2018 6

Industry Performance

The Armored Vehicle Manufacturing Current industry began to drive out of a ditch Industry revenue over the past five years. Industry players Performance 50 research, develop, manufacture, modify and repair military armored vehicles including infantry fighting vehicles, 25 armored personnel carriers, mine- resistant ambush protected (MRAP) 0

vehicles, self-propelled artillery and % change armored utility vehicles. During the first -25 half of the five-year period, industry revenue plunged as US military spending -50 on industry products dropped from a Year 10 12 14 16 18 20 22 24 boom prior to the period. In more recent years, a pick-up in US defense spending, SOURCE: WWW.IBISWORLD.COM a ramp-up of key industry programs and an overall rise in exports helped industry to 2018, industry revenue is expected to revenue to partially recover from earlier fall at an annualized rate of 4.5% to declines. Nevertheless, over the five years $2.8 billion.

Start of a recovery The primary driver of industry in Afghanistan created a surge in performance is demand from the US demand for frontline armored vehicles. military. The industry’s recent increase in In particular, the heavy use of revenue is largely due to a pick-up in improvised explosive devices (IEDs) by overall defense spending. The enemy forces exposed the shortcomings Department of Defense (DoD) not only of lightly armored Humvees as US purchases a majority of industry casualties rose. In response, the military products, but also establishes and funds began procuring MRAP vehicles. MRAPs the development of many new vehicles. are heavily armored vehicles specially Specifically, the DoD has invested billions designed to withstand IEDs and mines. into modernizing and upgrading its The MRAP program easily became one Bradley and Stryker armored vehicles. of the Pentagon’s largest acquisition Moreover, the production of the new projects. According to the Congressional Armored Multi-Purpose Vehicle (AMPV) Research Services, between fiscal years and the Joint Light Tactical Vehicle 2006 and 2010, the MRAP program (JLTV) has created new industry revenue totaled $34.9 billion in funding and streams for years to come. The AMPV is consisted of more than 20,000 vehicles. being produced to replace the M113 The short time span during which these personnel carrier, while the JLTV is vehicles were purchased rapidly spiked replacing the Humvee and promises to be industry revenue, which increased more the industry’s largest program for years. than 500.0% in 2007 and another 59.6% Nevertheless, despite the recent in 2008. increase in US military spending, the However, by 2012, the MRAP industry is only now starting to recover procurement program had run its course, from years of plunging DoD demand. as the military had established a massive During the previous decade, US vehicle fleet. Consequently, demand for involvement in the Iraq War and the War the industry’s best-selling product WWW.IBISWORLD.COM Armored Vehicle Manufacturing December 2018 7

Industry Performance

Start of a recovery plunged. Moreover, the US withdrawal to 2018. Budget cuts also ended some of continued from Iraq, the winding down of the industry’s top research and operations in Afghanistan and recent development programs. For instance, in budget cuts (including sequestration) 2014, the Pentagon ended the Ground have all caused overall federal funding Combat Vehicle program that was for defense to fall at an annualized rate of supposed to develop a replacement for 1.3% to $556.0 billion over the five years the Bradley armored fighting vehicle.

Trade While industry revenue has fallen overall since 2013, exports are expected to climb While industry revenue has an annualized 5.7% to $1.3 billion during the period. In 2016 alone, export values fallen overall, exports are jumped 61.1%, contributing to the recent expected to climb during pick-up in industry revenue. Increasing the period geopolitical tension in the Middle East and Asia, combined with rapidly growing emerging market economies, has expected to fall 7.3% in 2018, despite primarily driven demand for industry increasing DoD demand. exports. Amid rising instability in the Over the five years to 2018, the value Middle East and ongoing regional tension of industry imports is expected to with Iran, many US regional allies have plunge at an annualized rate of 17.0% to rapidly expanded their procurement $250.0 million. Since most US military programs, including spending on US- armored vehicles are manufactured in made armored vehicles. During the the United States, imports mostly five-year period, oil-rich Saudi Arabia consist of parts and components. alone is expected to more than triple its Consequently, when domestic demand imports of industry products. In East for industry products falls as it has over Asia, increased territorial disputes and the past five years, so does demand for tensions with China and North Korea imports. Major exporters to the United have forced many US allies in the region States include Canada, Israel and the to increase their defense budgets, a move United Kingdom. Canada accounts the facilitated by the region’s rapidly growing largest share of imports, with major economy. However, exports are expected player General Dynamics operating a to fall in 2018 after years of abnormal significant portion of its armored growth. Therefore, industry revenue is vehicle businesses there.

Other trends While the overall fall in revenue and operators to increase utilization. Steel demand since 2013 has kept industry prices have also fallen since 2013, profit from hitting levels seen in the past reducing costs. Moreover, industry decade, margins have improved during operators had to adjust to the massive the period. Industry profit is expected to reduction in demand for their products rise from 9.8% of revenue in 2013 to early in the period through large 11.9% in 2018. Increasing profitability is restructuring programs. Many operators partly driven by the recent increase in closed production lines and laid off staff, DoD funding, which has enabled with MRAP-related facilities particularly WWW.IBISWORLD.COM Armored Vehicle Manufacturing December 2018 8

Industry Performance

Other trends affected. Therefore, over the five years to the same period. However, this minimal continued 2018, industry employment is expected growth is mostly related to operators to fall at an annualized rate of 2.0% to preparing for the recent influx of new 7,355 people. The number of industry programs and the entry of some establishments is expected to increase an companies that are competing for annualized 0.6% to 66 locations during future contracts.

Over the next five years, the Armored However, defense spending may once Industry Vehicle Manufacturing industry will again come under pressure if Outlook expand as defense spending rises and sequestration kicks back in and concerns new industry programs ramp up. In over the growing US budget deficit addition, industry exports are increase. Nevertheless, over the five years projected to remain positive as to 2023, industry revenue is forecast to geopolitical tensions continue to climb at an annualized rate of 6.6% to generate foreign demand for US arms. $3.9 billion.

Growth Although the United States agreed to maintain forces in Afghanistan beyond Industry exports are 2018, the scale of US combat operations in the region is expected to continue projected to remain diminishing (especially since anti-ISIL positive as geopolitical operations are primarily conducted by tensions continue air). In addition, the defense budget will continue to come under fire as Congress seeks to address the ballooning national Purpose Vehicle (AMPV) program is a debt. Nonetheless, over the five years to plan to replace the M113 armored 2023, federal funding for defense is personnel carrier. In January 2014, BAE forecast to grow at an annualized rate of Systems won the engineering and 3.7% to $666.3 billion as the United manufacturing development (EMD) States modernizes in the face of phase of the program, with an option for strengthening competitors like Russia low-rate initial production. The Marines and China. are also expected to increase funding for The Pentagon expects to ramp up the Amphibious Combat Vehicle (ACV). spending on armored vehicles. According The largest program is the Joint Light to the most recent budget material, the Tactical Vehicle (JLTV). The JLTV seeks DoD’s forecast outlays on weapons and to replace the military’s Humvee fleet tracked combat vehicles (a budget item with a more heavily armored and flexible that mostly consists of spending on family of vehicles that will be able to tanks, armored vehicles and self- better withstand explosives. Over the propelled artillery) will rise an next five years, the program is expected annualized 15.4% over the five years to to ramp up production. In 2015, Oshkosh 2023. The military is currently investing won the JLTV contract, which will likely in three major programs that will help boost the company’s market share over increase industry revenue during the the next five years. Industry players will five-year period. The Armored Multi- also continue to generate revenue from WWW.IBISWORLD.COM Armored Vehicle Manufacturing December 2018 9

Industry Performance

Growth modification and maintenance work on foreign demand for US armored continued the military’s current fleet of Bradley, vehicles amid persistent geopolitical Stryker and Paladin armored vehicles. tensions in the Middle East and Asia. For instance, General Dynamics is Therefore, the value of industry contracted to replace the Stryker’s exports is forecast to rise at an flat-bottom configurations with double annualized rate of 2.8% to $1.5 billion v-hulls, while BAE Systems continues to over the five years to 2023. The value modify the Paladin’s self-propelled of industry imports is also projected to howitzer under the Paladin Integrated rise amid the increase in domestic Management program. demand. Over the five years to 2023, The industry is also anticipated to industry imports are forecast to climb continue benefiting from strong an annualized 5.5% to $326.4 million.

Other trends The anticipated increase in demand for industry products will encourage The anticipated increase operators to slightly expand operations. Over the five years to in demand will encourage 2023, the number of industry locations operators to slightly is forecast to grow at an annualized expand operations rate of 1.8% to 72 establishments. Moreover, industry employment is anticipated to rise at an annualized operators’ utilization of production rate of 4.3% to 9,100 people during the capacity, reducing costs. Industry same period. Increased production of profit is forecast to climb to 14.1% of armored vehicles will also improve revenue in 2023. WWW.IBISWORLD.COM Armored Vehicle Manufacturing December 2018 10

Industry Performance Life Cycle Stage The industry is protected by the US government The industry serves the world’s largest defense market Industry revenue is returning to historically normal levels WWW.IBISWORLD.COM Armored Vehicle Manufacturing December 2018 11

Industry Performance

Industry Life Cycle The industry is in the mature stage of its needed, and once the military began to life cycle. Over the 10 years to 2023, withdraw forces from the Middle East industry value added (IVA), which and sequestration kicked in, spending on  This industry measures the industry’s contribution to industry products plummeted. In 2014 is Mature  GDP, is forecast to increase at an alone, industry revenue plunged 35.8%. annualized rate of 2.3%, while GDP is set Nonetheless, increased exports, new to climb an annualized 2.2%. In general, development projects and an end to IVA performance so close to GDP budget cuts are forecast to boost industry indicates a mature industry. However, revenue and IVA in the coming years. the 10-year IVA growth rate masks the In general, since armored vehicles volatile nature of the industry. Before comprise an essential component of 2010, US combat operations in Iraq and modern armies, demand for industry Afghanistan created huge demand for products will always exist at some industry products and the industry level. The US military has by far the multiplied in size. In particular, the US largest budget in the world, creating a military ramped up production of mine- huge market for operators. Moreover, resistant ambush protected (MRAP) to maintain military-industrial vehicles to reinforce troop protection capacity and preserve a technological amid increased enemy use of improvised edge over rivals, the US government explosives. However, the US military typically buys domestically produced eventually procured all the MRAPs it armored vehicles. WWW.IBISWORLD.COM Armored Vehicle Manufacturing December 2018 12 Products & Markets Supply Chain | Products & Services | Demand Determinants Major Markets | International Trade | Business Locations

Supply Chain KEY BUYING INDUSTRIES 92 Public Administration in the US Federal government entities, armed forces and police departments purchase armored vehicles for defense purposes.

KEY SELLING INDUSTRIES 32551 Paint Manufacturing in the US Vehicle manufacturers purchase paint and matte coating to finish and cover metal parts. 32621 Tire Manufacturing in the US The industry purchases natural and synthetic rubber tires and inner tubes from tire manufacturers. 33152 Nonferrous Metal Foundry Products Manufacturing in the US The industry requires aluminum base alloy castings for various vehicle components. 33231 Structural Metal Product Manufacturing in the US The industry uses a range of fabricated metal products to be used as vehicle chassis and steering columns. 33272 Screw, Nut & Bolt Manufacturing in the US The industry purchases a large quantity of metal bolts, nuts, screws, washers and rivets during the manufacturing of armored vehicles. 33361a Engine & Turbine Manufacturing in the US The industry’s armored vehicles require large combustion engines and are a significant cost for industry operators.

Products & Services Products and services segmentation (2018)

22.4% Mobile artillery vehicles 45.8% Tracked armored vehicles

31.8% Wheeled armored vehicles

Total $2.8bn SOURCE: WWW.IBISWORLD.COM

The US government purchases the vast for the armed forces in accordance with majority of the industry’s armored the military and national security vehicles and also carefully monitors objectives laid out by the Department international sales to allied nations. of Defense. The manufacturer typically Armored vehicle manufacturers are provides specialized training, support awarded contracts to produce vehicles and modifications to government WWW.IBISWORLD.COM Armored Vehicle Manufacturing December 2018 13

Products & Markets

Products & Services clients over the life of the vehicle to Wheeled armored vehicles continued ensure that the vehicles are properly Wheeled armored vehicles represent an maintained and perform up to the estimated 31.8% of industry manufacturing government’s specific standards. revenue. Known for their speed and Armored vehicles serve various relative lightness compared with tracked transportation and tactical functions that vehicles, wheeled armored vehicles can support military activities, such as provide very quick armored transport of transporting infantry, supplies and soldiers over large distances at a far lower communications and disarming enemy cost than tracked vehicles. Wheeled land mines. These vehicles include vehicles also use less fuel, can negotiate combat engineering vehicles, armored most open terrain and are less recovery vehicles and armored vehicle- cumbersome to steer at a moment’s notice. launched bridges. For example, armored However, wheeled armored vehicles often personnel carriers are light armored lack both the impenetrability of tracked vehicles not designed to take part in vehicles as well as the ability to traverse all direct-fire battle. types of rugged terrain. Historically, the Stryker was the primary wheeled armored Tracked armored vehicles vehicle being manufactured and upgraded Tracked armored vehicles are expected for the Army. However, the Joint Light to represent an estimated 45.8% of Tactical Vehicle (a replacement for the industry revenue in 2018. As their name Humvee) and the Marine Core’s implies, tracked armored vehicles are Amphibious Combat Vehicle programs combat vehicles that are propelled using now account for most of this product a continuous track of steel plates. category. Over the next five years, the Tracked vehicles, such as the Bradley product category is expected to increase Fighting Vehicle and the M113, are market share as Joint Light Tactical Vehicle designed to traverse rugged terrain and production and Stryker upgrades ramp up. soft ground with less likelihood of becoming stuck or stalling. Although Mobile artillery vehicles these vehicles are commonly purchased Vehicles in this category are typically for their superior mobility, tracked tracked armored vehicles equipped with vehicles often struggle to achieve the artillery, also referred to as self-propelled same top speeds or have the same artillery. These vehicles are usually operational life as wheeled vehicles. equipped with either tube artillery, which Tracked vehicles are also typically more includes howitzers and motors, or missile armored than their wheeled launches. The main objective of these counterparts. Over the past five years, vehicles is to provide users with mobile this product category has slightly long-range firepower that can also keep increased market share due to increased up with the rest of the mechanized force. funding for Bradley modernization (the Currently, this category almost largest tracked vehicle program) and the exclusively consists of work based around introduction of the Armored Multi- the M109 155mm self-propelled howitzer, Purpose Vehicle (AMPV). The AMPV is particularly the Paladin upgrade designed as an armored personnel program. In 2018, this product segment carrier and support vehicle that is is expected to account for 22.4% of replacing the M113. industry revenue. WWW.IBISWORLD.COM Armored Vehicle Manufacturing December 2018 14

Products & Markets

Demand US defense spending Moreover, due to the nature of industry Determinants The leading demand determinant for the products, US regulations and foreign industry is US defense spending. The policy influence the potential demand for industry receives most of its revenue industry goods. For instance, US from Department of Defense (DoD) contractors are typically only permitted contracts. In turn, the US defense budget to sell to nations with friendly is determined by several factors including relationships with the United States, with geopolitical tensions, engagement in importing countries subject to review conflict and the fiscal condition of the factors such as their human right records. government. War and geopolitical tensions typically increase US defense Technological and environmental change spending and funding for industry As with all military products, projects as the US deploys more vehicles. technological change plays a vital role in In particular, combat operations can lead demand for armored vehicles. to lost, destroyed, damaged or worn out Governments are constantly looking to vehicles. Therefore, demand for gain an advantage over possible replacement vehicles, as well as adversaries by developing superior maintenance, repair and support weapon systems. Moreover, if rivals services, climbs. develop weapons that can more easily defeat or are superior to current US Foreign demand armored vehicles, the US government Exports typically account for a large and would be more willing to fund the growing portion of industry revenue and development and procurement of next- as a result, foreign demand for US generation industry products. armored vehicles plays an import role in Changing combat environments and the industry. As with the US, foreign tactics may also determine demand for defense budgets are the prime factor industry products. For instance, when it comes to demand. Increasing increasing use of improvised explosive defense spending abroad increases devices (IEDs) by enemy combatants in demand for industry products. Like in Iraq and Afghanistan forced the US the United States, foreign defense military to drastically increase spending budgets reflect geopolitical tensions, wars on mine resistant ambush protected and economic performance. However, (MRAP) armored vehicles. Moreover, the unlike in the United States, international mountainous and rough terrain further contracts are open to far more foreign encouraged the development and competition, with some countries procurement of Oshkosh’s MRAP all- developing their own armored vehicles. terrain vehicle (M-ATV).

Major Markets US government Defense for the majority of their orders. The US government accounts for an In particular, the Army accounts for the estimated 54.2% of industry revenue. The majority of this market. This service United States has the largest defense branch is by far the largest user of budget in the world and has a very large armored vehicles generating the most armored vehicle fleet. As a result, demand for MRAPs, the large Stryker industry operators have a large domestic and Bradly vehicle programs, the market to operate in, with most Armored Multi-Purpose Vehicle and the contractors relying on the Department of Joint Light Tactical Vehicle. The Marine WWW.IBISWORLD.COM Armored Vehicle Manufacturing December 2018 15

Products & Markets

Major Markets Major market segmentation (2018) continued

54.2% 45.8% US government Exports

Total $2.8bn SOURCE: WWW.IBISWORLD.COM

Corps account for most of the remaining Exports revenue in this market. This service branch Exports account for 45.8% of industry is a large buyer of amphibious armored revenue. The United States is one of vehicles and is the second-largest buyer of the leading arms exporters in the the Joint Light Tactical Vehicle. Over the world and sells industry products to a past five years, the wind-down of combat wide variety of allies and foreign operations in the Middle East, the end of governments. Over the past five years, major armored vehicle acquisition programs exports share of industry revenue has and overall defense spending cuts have increased, as domestic spending on caused US government spending on industry products declined, while industry products to decline. Consequently, foreign demand climbed. For more this market’s share of industry revenue has detail, please see the international declined over the past five years. trade section.

International Trade Historically, trade has played an import role in the Armored Vehicle Industry trade balance Manufacturing industry, with the United 2 Level & Trend States supplying allies around the world Exports in the with armored vehicles. In general, industry are High  industry trade figures are extremely 1 and Increasing  volatile due to the nature of industry contracts. A major procurement contract 0

Imports in the with a foreign government can cause $ billion industry are industry exports to skyrocket, but its -1 Medium and completion may cause exports to plunge. Decreasing  -2 Exports Year 10 12 14 16 18 20 22 24 Industry exports account for an Exports Imports Balance estimated 45% of industry revenue, up SOURCE: WWW.IBISWORLD.COM from 27.7% in 2013. Much of this growth WWW.IBISWORLD.COM Armored Vehicle Manufacturing December 2018 16

Products & Markets

International Trade is due to a shrinking domestic market. the Middle East has led to an uptick in continued Just before and during the early five-year demand for US armored vehicles from period, industry operators were still the United States’ regional allies. For fulfilling major US military procurement much of the past five years, Saudi Arabia contracts for mine-resistant ambush accounted for a large portion of industry protected (MRAP) vehicles and other exports. The country is a US ally in the industry goods. As a result, even though region and receives significant military industry exports grew, they were aid and subsidies from the United States. overshadowed by the domestic market. Consequently, the country has a long However, the wind-down of combat history of weapon procurement and operations in the Middle East, a well- military cooperation with the United established armored vehicle fleet and States, with many of its domestically sequestration have resulted in significant made vehicles using US components. US military spending cuts, reducing the Other key Middle East imports include size of the domestic market. While the the United Arab Emirates, Egypt and domestic market shrunk, exports expanded. Israel. In 2018, the largest industry Fortunately for this industry, export market is expected to be increasing geopolitical tensions and Afghanistan, accounting for 35.5% of rapidly growing emerging markets has exports. The country has a large fleet of led to boom in non-NATO military US-made armored vehicle fleet and spending, including spending on US receives US military aid. South Korea, armored vehicles. Therefore, over the five Canada and Brazil are the next three years to 2018, exports are expected to largest export markets and are expected climb an annualized 5.7% to $1.3 billion. to account for 12.2%, 9.9% and 8.3% of In particular, tensions and instability in exports, respectively.

Exports To ... Imports From ... 8.3% Brazil 9.9% Canada 35.5% Afghanistan 5.5% 6.1% South Africa South Korea 56.5% 11.5% Canada 12.2% Switzerland South Korea

20.4% All others

34.1% All others

Year: 2018 Total $1.3bn Total $250.0m SIZE OF CHARTS DOES NOT REPRESENT ACTUAL DATA SOURCE: USITC WWW.IBISWORLD.COM Armored Vehicle Manufacturing December 2018 17

Products & Markets

International Trade Imports military’s premier wheeled armored continued Industry imports account for 14.0% of vehicle, the Stryker, as well as the domestic demand. Typically, the United LAV-25. As a result, Canada is home to States limits the import military a large portion of the Stryker’s equipment to maintain a technological production, providing both complete lead and domestic production capacity. vehicles, as well as part and However, close US allies can supply the components. Switzerland, South Korea domestic market, explaining why they and South Africa are expected to account for most imports. Over the five account for 11.5%, 6.1% and 5.5% of years to 2018, industry imports are imports in 2018. These countries have expected to decrease at an annualized close defense ties to the US. For rate of 17.0% to $250.0 million as the US instance, South Africa is a major global military reduces spending on industry supplier of MRAPs. The United products and certain procurement Kingdom (UK) and Germany have programs come to an end. Canada historically also been a major source of accounts for an estimated 56.5% of industry imports. In particular, the UK industry imports. The country is a close is one of the United States’ closest US military ally and its location on the military allies and UK-based BAE US border reduces transportation costs. Systems is the primary manufacturer of In particular, the country is home to the Bradley armored fighting vehicle, General Dynamics Land Systems Canada, the Armored Multi-Purpose Vehicle and a subsidiary of major player General the M109 self-propelled howitzer, all of Dynamics and the origin of the US which are major industry products. WWW.IBISWORLD.COM Armored Vehicle Manufacturing December 2018 18

Products & Markets

Business Locations 2018

est AK 0.0 e ad

ME reat Md 0.0 akes tatc 1 2 NY 3 WA ND 1.3 4 MT 1.3 5 0.0 0.0 MN 1.3 WI ock 3.8 MI PA 6 SDPas 22.6 6.3 OR 0.0 7 1.3 Moutas ID IA OH 9 8 0.0 WY 0.0 6.3 0.0 IN VA NE IL 2.5 WV 1.3 2.5 0.0 1.3 KY est NV 0.0 0.0 NC UT MO 2.5 0.0 CO KS 0.0 0.0 0.0 TN 0.0 SC CA 8.9 5.1 OK AR outeast 0.0 0.0 GA AL 2.5 AZ MS 2.5 3.8 NM 0.0 0.0 outest LA TX 0.0 FL 8.9 2.5

est Establishments (%) HI Less than 3% 0.0 Additional States (as marked on map) 3% to less than 10% 1 VT 2 NH 3 MA 4 RI 10% to less than 20% 3.8 0.0 3.8 0.0 20% or more 5 CT 6 NJ 7 DE 8 MD 9 DC 1.3 1.3 0.0 1.3 0.0

SOURCE: WWW.IBISWORLD.COM WWW.IBISWORLD.COM Armored Vehicle Manufacturing December 2018 19

Products & Markets

The Armored Vehicle Manufacturing Business Locations Distribution of establishments vs. population industry has very few establishments, and the industry’s geographic spread 40 has not substantially changed over the past five years. The Great Lakes region hosts the highest percentage of 30 industry establishments, estimated to

be 37.7%. The Great Lakes is home to % 20 General Dynamic Land Systems, the subsidiary of General Dynamics that 10 manufacturers armored vehicles for both US armed forces and 0 international allies. The concentration West of establishments in this region Plains Southeast (particularly in Michigan, which hosts Southwest Great Lakes Mid-Atlantic 22.6% of industry establishments New England

despite having only 3.2% of the US Establishments Rocky Mountains population) can also be attributed to Population subcontractors that partner with major SOURCE: WWW.IBISWORLD.COM players to produce constantly evolving subsystem equipment in the Armored Holdings, a BAE Systems company. The Vehicle Manufacturing industry. Southwest is expected to be the third- Business partnerships between the two largest region in terms of number of parties require that both operate establishments, accounting for an nearby to streamline efficient estimated 12.7% in 2017. Companies manufacturing practices. such as DRS Technologies and The Southeast region is estimated to Lockheed Martin, both of which hold contain the second-highest percentage of substantial contracts with the US industry establishments with 20.2%. government, are located in the Mid- Companies in this region include Stewart Atlantic, which represents 10.2% of & Stevenson Services, now part of Armor industry establishments. WWW.IBISWORLD.COM Armored Vehicle Manufacturing December 2018 20 Competitive Landscape Market Share Concentration | Key Success Factors | Cost Structure Benchmarks Basis of Competition | Barriers to Entry | Industry Globalization

Market Share The Armored Vehicle Manufacturing industry’s largest companies have Concentration industry has a very high level of shuffled positions following steady concentration, with the top four players defense budget cuts. In particular, estimated to hold a combined market major MRAP producers such as Level share of 76.3% in 2018. General Navistar lost significant market share Concentration in Dynamics and BAE Systems are the as MRAP procurement plunged. The this industry is High  primary recipients of government industry’s largest manufacturers must contracts for armored vehicle production, now generate the bulk of their industry- although production contracts have relevant income through aftermarket declined precipitously for all industry parts sales, vehicle servicing activities manufacturers over the past five years. or modifications. The ramp of When a major player receives a contract production and modernization from the US Army, some components, programs such as the Joint Light such as weapons systems, vehicle armor, Tactical Vehicle (Oshkosh) the Armored communications and electronics are Multi-Purpose Vehicle (BAE Systems) typically contracted out to subcontractors and Stryker vehicle (General Dynamics) that also form part of the industry. will likely mean that the owners of Industry market share has remained these programs will dominate the high over the past five years, although the industry in the coming years.

Key Success Factors Financial structure of the company Access to the latest available The massive production volume and and most efficient technology raw materials purchases within this and techniques IBISWorld identifies industry require that manufacturers have Manufacturers must be aware of 250 Key Success strong financial structures and reliable changing products, performance Factors for a accounting practices. characteristics and various specifications business. The most of the downstream materials used to important for this Establishment of export markets build armored vehicles. Most of the industry’s largest operators wish industry are: to expand their product offerings to overseas Provision of superior markets. This process often requires after sales service approval from the federal government. The operator’s ability to provide service and enhancements on equipment after Undertaking technical research the initial sale will greatly improve and development relationships with clients. Research and development for armored vehicles is constantly evolving, and Experienced work force successful operators must continually Due to the technical complexity improve upon vehicle features, involved in manufacturing specifications, safety requirements and armored vehicles, highly skilled and other regulations mandated by the US specialized labor is necessary to armed forces. remain competitive. WWW.IBISWORLD.COM Armored Vehicle Manufacturing December 2018 21

Competitive Landscape

Cost Structure Profit services offered, the value of contracts Benchmarks Industry profit, defined as earnings gained and the technology employed. In before interest and taxes, accounts for general, the largest cost for all industry an estimated 11.9% of industry revenue. establishments is purchases (39.7%). The more specialized nature of industry These purchases mainly consist of products and lower competition means materials such as steel, ceramic, plastic, that industry players typically resins and welding materials. Another experience higher profit margins than major component of purchases comes commercial car, SUV and truck from electronic systems. Many military manufacturers. Over the past five years, vehicles are equipped with technology profitability has increased. Much of this systems such as GPS, guidance systems, increase is due to low 2013 levels that ammunitions systems and propulsion were caused by low US military demand and self-protection systems, which added and industry overcapacity. Margins have to the cost of product manufacturing. also been bolstered by falling steel prices (until recently). Nevertheless, profit Wages remains below levels seen in during the Wages are expected to account for 17.7% previous decade. of industry revenue in 2018. Workers are required to help assemble vehicles, Purchases operate heavy machinery and provide The Armored Vehicle Manufacturing services and repairs for vehicles. industry’s cost structure varies depending Typically, wages fluctuate from year to on the company’s size, the breadth of year, especially during periods in which

Sector vs. Industry Costs

Average Costs of all Industries in Industry Costs sector (2018) (2018) 100 n 7.3 P r o fi t 11.9 n Wages 12.1 n Purchases n 80 17.7 Depreciation n Marketing n Rent & Utilities n Other 60 54.5 39.7

40 Percentage of revenue Percentage 5.6 2.4 0.4 1.2 1.0 20 1.9 21.0 22.9

0 SOURCE: WWW.IBISWORLD.COM WWW.IBISWORLD.COM Armored Vehicle Manufacturing December 2018 22

Competitive Landscape

Cost Structure contracts are completed or in between capital costs within the industry. Benchmarks major contracts when companies do not Depreciation costs account for continued need to work at full capacity. Over the manufacturing equipment, past five years, overall wages declined as communication equipment, office reduced demand for industry products equipment, technology and software. forced operators to reduce production. The US industry uses cutting-edge Nevertheless, wages’ share of revenue has technology and equipment in its increased since 2013. One reason is that manufacturing process, making operators need to retain parts of the depreciation fairly significant at 5.6% of workforce, despite initially falling revenue. Other expenses include legal, demand, to retain long-term capacity and accounting, marketing, insurance, expertise. In more recent years, the security, cleaning, repairs and site introduction and ramp-up of new long- maintenance costs as well as research term defense contracts has encouraged and development (R&D). In particular, operators to hire more staff. R&D accounts for a large portion of industry revenue, as operators have to Depreciation and other costs invest into new technology to stay ahead The proportion of revenue allocated to of the competition and attract depreciation illustrates the high level of government contracts.

Basis of Competition The Armored Vehicle Manufacturing intense. The majority of industry revenue industry has a medium level of is derived from contracts awarded by the competition. The industry has high initial Department of Defense. Level & Trend investment costs, since it requires Companies that invest in new Competition in extensive familiarity with military equipment, research and development this industry is programs and a working relationship and provide state-of-the-art technology Medium and the with the Department of Defense before it in military armored vehicles will gain a trend is Increasing  can become a contractor to the military. competitive advantage. Industry While competition from new entrants is manufacturers must present a constant low, internal competition can often be stream of innovations and product intense. Armored vehicle production is improvements to maintain a consistent one of the most competitive segments foothold in the industry. Businesses within the entire defense sector since that establish brand recognition due to many companies offer highly past success in delivering contracts sophisticated technologies and constantly with the Department of Defense will evolving vehicle specifications. The find it easier to negotiate for new industry also experiences external projects in the future. competition from international markets Most manufacturers outsource some and, to a lesser extent, substitutes. components of their processes to third- party providers that have greater Internal competition expertise in that area (e.g. matte coating Defense contracts are negotiated and or installation of telecommunications awarded through a tender process, with systems) to ensure that the end product the price being a major factor. While meets the required standards. Companies there are only a small number of that can partner with other providers will participants in this industry, the bidding gain an edge over others in meeting all process among potential contractors is the US military’s requirements. WWW.IBISWORLD.COM Armored Vehicle Manufacturing December 2018 23

Competitive Landscape

Basis of Competition External competition nevertheless procure military vehicles continued External demand also affects the from other producers such as Russia, industry. The federal government’s Turkey or Sweden. Furthermore, demand for military armored vehicles defense-related substitutes are also a plays a significant role in determining the major industry factor. For example, if frequency and size of vehicle orders. the military decides to upgrade its Periods of general peace will likely lead to helicopter fleet, it will be less likely to a reduction in military spending, thereby upgrade its vehicle fleet due to budget reducing the number of contracted orders constraints. The federal government from foreign and domestic indirectly serves as both a substantial manufacturers. Countries without strong asset and a potential inhibitor of ties with the United States may industry growth.

Barriers to Entry It is very difficult for new manufacturers to enter this industry; the success of Barriers to Entry checklist Level & Trend armored vehicle manufacturers depends Competition Medium almost entirely on Department of Barriers to Entry Concentration High Defense contracts to thrive. Virtually all in this industry are Life Cycle Stage Mature participants fight for a share of the Capital Intensity Medium High and Steady  federal government’s allocated defense Technology Change High budget, so establishments need to Regulation and Policy Heavy possess the expertise, labor power, Industry Assistance Medium

productive capacity and reputation to undertake major contracting projects. SOURCE: WWW.IBISWORLD.COM Proven experience and the ability to provide constant product improvement is typically qualified engineers with vital due to the high expectations of the relatively high average wages. Since the US military. Therefore, it is not industry has close ties with the US army, surprising that the industry is dominated companies often hire former or retired by a small number of extremely powerful army personnel to maintain strong manufacturers possessing highly skilled business relationships and to help secure teams and vast economies of scale. contracts that benefit both the federal The initial setup cost associated with government and the manufacturer. this industry is tremendous. As a result, The industry’s competitive nature companies wishing to enter the Armored requires significant investment in R&D Vehicle Manufacturing industry incur and leveraging the expertise of highly high capital investment costs to first gain skilled employees. Companies hoping to access to large amounts of land and enter the industry must overcome property. Besides manufacturing plants, existing R&D and offer their own many establishments also have testing patented product to compete. In facilities to assess the product prior to addition, it is very rare that an industry mandatory testing at US military player (unless it is a major player) facilities. In addition, many organizations undertakes more than one area of incur high R&D costs associated with the development because of the high costs development process due to labor and expertise required; therefore, a huge expenses. Industry employees are amount of subcontracted work occurs. WWW.IBISWORLD.COM Armored Vehicle Manufacturing December 2018 24

Competitive Landscape

Industry The Armored Vehicle Manufacturing subjected to thorough documentation Globalization industry is characterized by medium prior to sale and be traded only to trusted globalization and is dominated by global allies. The US military only works with a corporations such as General Dynamics small list of highly esteemed industry Level & Trend and BAE Systems. Industry globalization manufacturers to ensure that ownership Globalization in has increased over the past five years, of sensitive materials, equipment and this industry is although it remains a daunting process intellectual property remains in the Medium and the for US vehicle manufacturers to contract hands of the US and its legitimate trading trend is Increasing  their services abroad. Various regulations partners. As a result, industry such as the United States Munitions List globalization is generally moderate, but and the Arms Export Control Act require has increased in recent years because of that the import and export of highly merger and acquisition activity from BAE sensitive military goods and services be Systems and General Dynamics.

International trade is a Trade Globalization Going Global: Armored Vehicle Manufacturing major determinant of 2005–2018 an industry’s level of 200 Export Global 200 Export Global globalization. Exports offer growth opportunities for fi rms. 150 150 However there are legal, economic and political risks 100 100 associated with dealing in foreign countries. 2005 Exports/Revenue Import competition can Exports/Revenue 50 Armored Vehicle 50 2018 bring a greater risk for Manufacturing companies as foreign 0 Local Import 0 Local Import producers satisfy domestic 0 40 80 120 160 0 40 80 120 160 demand that local fi rms Imports/Domestic Demand Imports/Domestic Demand would otherwise supply. SOURCE: WWW.IBISWORLD.COM WWW.IBISWORLD.COM Armored Vehicle Manufacturing December 2018 25 Major Companies BAE Systems PLC | General Dynamics Corporation Oshkosh Corporation | Navistar International Corporation | Other Companies

Major Players Navistar International Corporation 5.0% (Market Share) General Dynamics Corporation 23.6% 23.7% Other

Oshkosh Corporation 19.8% BAE Systems PLC 27.9% SOURCE: WWW.IBISWORLD.COM

Player Performance BAE Systems (BAE) is a British The company’s land and armaments multinational aerospace, defense and segment continues to provide information security company with manufacturing service and support for BAE Systems PLC offices and production facilities across the US Army’s fleet of Bradley armored Market Share: 27.9% the globe. It is the largest armored vehicles, and the company continues to vehicle contractor in the industry and expand its presence internationally. manufactures a wide range of military BAE’s Bradley is one of the most crucial vehicles, aircraft, naval ships and vehicles for the US Army, serving roles as armaments. The company’s land and an infantry fighting vehicle, cavalry armaments operating group, fighting vehicle, fire support vehicle, headquartered in the United States, command vehicle and engineer squad oversees all design, development, vehicle for the US Army’s heavy brigade production and aftermarket support of combat team. In late 2014, BAE won the armored combat vehicles, as well as contract to develop and build the support for major and minor caliber Armored Multi-Purpose Vehicle (AMPV), naval guns, missile launchers, which is intended to replace the M113 canisters, artillery systems and armored personnel carrier. Additionally, intelligent munitions. BAE has in late 2015, the company was one of the continually acquired other winners for the engineering and manufacturing companies over the manufacturing development phase of the years, including US-based companies Amphibious Combat Vehicle (ACV) United Defense in 2005 and Armor program. The company’s other work Holdings in 2007. includes modernization and conversion

BAE Systems (industry-specifi c segments) - fi nancial performance* Revenue Operating Income Year ($ million) (% change) ($ million) (% change) 2013 830.4 N/C 52.4 N/C 2014 737.1 -11.2 31.0 -40.8 2015 635.5 -13.8 41.8 34.8 2016 908.4 42.9 66.7 59.6 2017 584.3 -35.7 48.3 -27.6 2018 788.9 35.0 78.9 63.4

*Estimates, British Pound converted to US Dollar SOURCE: ANNUAL REPORT AND IBISWORLD WWW.IBISWORLD.COM Armored Vehicle Manufacturing December 2018 26

Major Companies

Player Performance contracts for M88A1 recovery vehicles products. Moreover, the cancellation of continued and M109A7 self-propelled howitzers. the Ground Combat Vehicle (GCV) in 2014 further dimmed the company’s Financial performance prospects. However, BAE benefited from Over the five years to 2018, BAE’s service and modernization contracts for industry-specific revenue is expected to its Bradley and M109A7 vehicles. decline an annualized 1.0% to $788.9 Moreover, AMPV and ACV contracts will million. Declining defense spending has boost the company’s business moving greatly reduced demand for armored forward. Consequently, BAE’s revenue vehicles, particularly for BAE’s mine- has declined at a far slower pace than resistant ambush protected (MRAP) that of the overall industry.

Player Performance General Dynamics Corporation (General and designs, manufactures and supports Dynamics), headquartered in Falls military vehicles, weapon systems and General Dynamics Church, VA, was formed in 1952 as a munitions. The division’s General successor to the Electric Boat Company. Dynamics Land Systems (GDLS) Corporation Today, it is one of the world’s largest business unit is responsible for industry- Market Share: 23.6% aerospace and defense companies in the specific products. The unit’s products world, with facilities all over the globe. include the Stryker and LAV family of The company operates through four wheeled armored vehicles and various business groups: aerospace, marine mine-resistant ambush protected systems, information systems and (MRAP) vehicles, such as the Cougar. technology and combat systems. While GDLS primarily operates in the However, only the combat systems United States, it has significant foreign segment is relevant to this industry. In operations that are not part of this 2017, the company employed over industry. Out of GDLS’s 14 facilities, four 98,000 people and generated $31.8 are located in Canada, Australia and billion in worldwide revenue. Kuwait. In particular, GDLS-Canada The combat systems division accounts accounts for a significant portion of the for 18.7% of the company’s total revenue, unit’s manufacturing, including a share

General Dynamics Corporation (US industry-specifi c segment) - fi nancial performance* Revenue Operating Income Year ($ million) (% change) ($ million) (% change) 2013 605.8 N/C 94.3 N/C 2014 676.4 11.7 101.7 7.8 2015 639.7 -5.4 100.0 -1.7 2016 771.9 20.7 127.6 27.6 2017 659.7 -14.5 103.9 -18.6 2018 669.4 1.5 100.4 -3.4

*Estimates SOURCE: ANNUAL REPORT AND IBISWORLD WWW.IBISWORLD.COM Armored Vehicle Manufacturing December 2018 27

Major Companies

Player Performance of the production of the Stryker and LAV expected to increase an annualized 2.0% to continued vehicles. GDLS gained most of its MRAP $669.4 million. The company’s product lines in 2011, when it acquired performance has been volatile. Like the rest major industry player Force Protection Inc. of the industry, it experienced plunging In 2014, following major declines in demand demand following the wind-down of US for its products, the combat systems division combat operations in the Middle East, the decided to sell its axle business. end of major MRAP procurement and defense budget cuts, including Financial performance sequestration. However, the company has Over the five years to 2018, General benefited from its Stryker program and Dynamics’ industry-specific revenue is export sales.

Player Performance Oshkosh Corporation is a US automotive The defense division consists of four manufacturer with more about 14,000 facilities located in Oshkosh, WI and Oshkosh employees, specializing in designing, accounted for 27.0% of the company’s building and marketing access total revenue in fiscal 2017. The division Corporation equipment, specialty trucks, commercial designs, manufactures and supports Market Share: 19.8% vehicles, vehicle bodies and military military tactical and armored vehicles, trucks. Founded in 1917, Oshkosh has but only its armored military products expanded its operations across the globe are relevant to the industry. In the past, to Australia, Belgium, Canada, China, the company’s primary armored vehicle France, Romania, Mexico and eight US products were mine-resistant ambush states. The company consists of four protected (MRAP) vehicles, more segments: access equipment; fire and specifically its MRAP all-terrain vehicle emergency; commercial; and defense. (M-ATV) family. M-ATVs were developed However, only the last of these is relevant to provide MRAP-level protection in to the Armored Vehicle Manufacturing more difficult terrain such as the industry. In the fiscal year 2017, the mountain regions of Afghanistan, where company generated $6.8 billion in standard MRAP vehicles are too worldwide revenue. cumbersome to operate. Aside from the

Oshkosh Corporation (industry-specifi c segments) - fi nancial performance** Revenue Operating Income Year ($ million) (% change) ($ million) (% change) 2012-2013 176.9 N/C 13.0 N/C 2013-2014 132.7 -25.0 5.9 -54.6 2014-2015 162.8 22.7 1.6 -72.9 2015-2016 263.3 61.7 23.9 1,393.7 2016-2017 495.9 88.3 56.6 136.8 2017-2018 560.6 13.0 60.3 6.5

*Estimates; *Year-end September SOURCE: ANNUAL REPORT AND IBISWORLD WWW.IBISWORLD.COM Armored Vehicle Manufacturing December 2018 28

Major Companies

Player Performance US military, Oshkosh has sold M-ATVs Financial performance continued to foreign governments, including Over the five years to fiscal 2018, Saudi Arabia and the United Arab Oshkosh’s industry-specific revenue is Emirates. In 2015, the company won expected to increase an annualized the US military’s Joint Light Tactical 26.0% to $560.6 million. Early in the Vehicle (JLTV) contract. The JLTV period, the company’s revenue was hit seeks to replace the Humvee with a hard by the wind-down of the more heavily armored MRAP-like Pentagon’s MRAP acquisitions. vehicle. This contract is the largest in However, the combination of JLTV the industry and has drastically production and MRAP modification increased the company’s industry- work bumped revenue up at a double- specific revenue. digit rate each year following 2014.

Player Performance Navistar International Corporation Navistar has experienced significant hits to (Navistar) is an Illinois-based holding its industry-relevant manufacturing company that oversees the manufacture revenue due to postwar military budget Navistar of commercial trucks, diesel engines, reductions. The US army procured about International school buses, commercial buses, motor 9,000 MaxxPro model vehicles from Corporation home chassis and military armored Navistar during the Iraq War troop surge, Market Share: 5.0% vehicles. In fiscal 2017, the company but according to online defense and employed about 12,000 people and acquisitions journal DoDBuzz.com, current generated $8.6 billion in worldwide wind-downs in Iraq and Afghanistan only revenue. The company’s defense business call for the use of 3,000 vehicles over the primarily comprises the manufacture and next several years. support of mine-resistant ambush protected (MRAP) vehicles such as the Financial performance MaxxPro. Navistar has operations in the Over the five years to 2018, Navistar’s United States, Canada, the United industry-specific revenue is expected to Kingdom and the United Arab Emirates. plunge at an annualized rate of 15.3% to Like most armored vehicle manufacturers, $140.4 million. The end of MRAP

Navistar International (industry-specifi c segments) - fi nancial performance** Revenue Operating Income Year ($ million) (% change) ($ million) (% change) 2012-2013 322.3 N/C 14.9 N/C 2013-2014 124.2 -61.5 5.9 -60.4 2014-2015 117.0 -5.8 6.1 3.4 2015-2016 89.0 -23.9 7.5 23.0 2016-2017 153.1 72.0 14.3 90.7 2017-2018 140.4 -8.3 18.1 26.6

*Estimates; *Year-end October SOURCE: ANNUAL REPORT AND IBISWORLD WWW.IBISWORLD.COM Armored Vehicle Manufacturing December 2018 29

Major Companies

Player Performance procurement has devastated the previous years) and they have since fallen continued company’s military sales. In 2013, to a mere 2.6%. Nonetheless, MRAP service military sales accounted for 5.0% of contracts have enabled the company to revenue (already a drastic drop from maintain some of its military business.

Other Company Providence, RI-based Textron Inc. systems, marine and land systems, Performance (Textron) is a major US conglomerate weapons, sensors and aviation mission operating in the aerospace, defense, support products and services. In industrial and finance industries. The particular, the division’s marine and Textron Inc. company’s segments include Textron land systems unit produces armored Market Share: 4.1% Aviation, Bell Helicopters, industrials, vehicles such as the Commando series finance and Textron systems. of protected armored transport However, its only industry-relevant vehicles. IBISWorld projects Textron’s segment is Textron Systems, which industry-relevant revenue to reach manufactures unmanned aircraft $115.9 million in 2018. WWW.IBISWORLD.COM Armored Vehicle Manufacturing December 2018 30 Operating Conditions Capital Intensity | Technology & Systems | Revenue Volatility Regulation & Policy | Industry Assistance

Capital Intensity The Armored Vehicle Manufacturing industry has a moderate to high level of Capital Intensity capital intensity. In 2018, for every dollar Capital units per labor unit Level that industry players invest in labor, 0.5 The level of capital $0.32 is expected to be allocated toward intensity is Medium  capital. Manufacturing armored vehicles 0.4 requires substantial investment into 0.3 heavy equipment and large facilities. Establishments manufacture 0.2 unconventional vehicles that require a 0.1 vast infrastructure to produce. 0.0 Computer-controlled machine tools are Economy Manufacturing Armored Vehicle standard fixtures in machining Manufacturing

operations and include systems used to Dotted line shows a high level of capital intensity coat metals, computer-aided applications SOURCE: WWW.IBISWORLD.COM used for forging and electron beam welding used to produce vehicles. operate machinery, perform assembly Conversely, the industry also heavily and service vehicles. Moreover, many relies on labor, with workers needed to workers are unionized and have WWW.IBISWORLD.COM Armored Vehicle Manufacturing December 2018 31

Operating Conditions

Capital Intensity certification, thereby increasing response, industry operators restructured continued average wages. their operations and shut down Over the past five years, industry production lines. Some facilities were capital intensity has declined as military also converted from production to less spending on industry products fell. In capital-intensive servicing.

Technology & Systems The industry’s manufactured products equipment used by operators is involve highly sophisticated technologies important to meet customers’ needs. Level and systems. Armored vehicles have However, costs across the industry evolved and have become integrated with remain relatively high as The level of a range of features, electronics, manufacturers’ activities and technology communications and enhancements to technologies are often redesigned in change is High  durability that have contributed to the response to changes in inputs and overall capability and safety of the outputs. The occasional reconfiguration vehicle. In addition to research facilities of manufacturing systems and methods that test the vehicles before going into the is necessary for companies to adapt to battlefield, the US military constantly new technologies and comply with provides feedback and suggests potential changing military requirements. improvements. Recent technological Major industry manufacturers now advancements involve computer-aided employ computer-aided automation in design, computer-aided manufacturing their lines, which has significantly and numerically controlled machine improved the production process. tools. New computer-based technologies Operators are now focusing on are much more accurate than manually improving the capability of the vehicles controlled techniques and often less through combat and safety systems. For expensive than traditional labor. example, manufacturers have Most companies have introduced these increasingly expanded the technologies industrial robot systems at their of the standard Mine-Resistant Ambush manufacturing plants. These systems Protected (MRAP) armored vehicle. delegate basic welding, painting, First developed in the 1970s, the assembly and testing performances to standard MRAP program was launched controlled robots, while traditional labor by the US armed forces in over a five- assists in the more nuanced aspects of year period ending in 2012. During that the vehicle’s construction. This enables time, MRAP production ramped up management and staff to perform tremendously in response to an detailed tasks and operations with accelerating number of deaths in the precision, while investments in capital Iraq War. Although MRAP vehicles are handle the initial construction of the very costly, technological improvements vehicle. Continuous updating of since its introduction have been computing systems has also helped substantial. All terrain MRAP models, operators improve customer service. second generation MRAPs offering a Production facilities must accommodate high level of protection from explosively rapid changes in production schedules formed penetrators and other and produce profitable yields on a improvements to vehicle weight have consistent basis. Therefore, the been steadily rolled out. WWW.IBISWORLD.COM Armored Vehicle Manufacturing December 2018 32

Operating Conditions

Revenue Volatility The Armored Vehicle Manufacturing vehicles to increase troop protection. industry has a very high level of volatility. However, once production plunges so Right before the past five-year period, the did revenue. More recently, volatility Level US military procured a large number of climbed as steep declines were offset The level of volatility armored vehicles for combat operations by a pickup in growth caused by is Very High in Iraq and Afghanistan. In particular, exports and stabilized military the heavy use of improvised explosives by spending. In general, volatility is enemy combatants forced the military to reduced by long-term contracts, heavily ramp up procurement of mine- including aftermarket support, as well resistant ambush protected (MRAP) as research and development.

Regulation & Policy Three different federal government goods and technology that have civilian departments oversee regulations and military strategic use. Lastly, the US concerning the sale of manufactured Department of Treasury oversees US Level & Trend military products. The US Department of trade embargoes under the Office of The level of State (via the Office of Defense Trade Assets Control and enforces all three Regulation is Controls) regulates defense articles, export-licensing programs at US borders Heavy and the services and related technical data, through the customs service. trend is Steady  including most space-related articles. It Manufacturers of military vehicles, is also the regulator of the Arms Export which sell most of their products to the Control Act, the International Traffic in US government, are subject to Arms Regulations (ITAR) and the US regulations concerning these contractual Munitions List. These regulations classify arrangements. These regulations include industry vehicles as highly sensitive government contracts that are subject to goods that require export licensing and oversight audits by government thorough documentation prior to its sale representatives. They also contain to foreign allies. Through the Export provisions that permit termination, in Administration Act, the Bureau of whole or in part, at the government’s Industry and Security (via the US convenience or for default. If a contract is Department of Commerce) controls terminated at the convenience of the US WWW.IBISWORLD.COM Armored Vehicle Manufacturing December 2018 33

Operating Conditions

Regulation & Policy government, a contractor can receive the emission of pollutants. The act continued payments for its allowable costs and the establishes acceptable maximum output proportionate share of fees or earnings for sulfur and nitrogen oxides and strict for services that have already been requirements that apply to ozone rendered. Contracts that are terminated emissions and other toxic materials. The due to default generally come with a Clean Water Act regulates the discharge provision stating that the government of pollutants into nearby surface water. only pays for the work it has accepted. The act establishes a system of minimum Therefore, contractors may be legally national efficiency standards that vary required to pay other costs and damages. per industry, as well as various water Other industry regulations may quality standards and discharge permit include extensive environmental programs. Operators are also subject to a legislation and regulations affecting the variety of non-environmental matters in discharge of effluent at manufacturing accordance with the National Labor plants. Industry companies must comply Relations Act and the Occupational with environmental laws and regulations Safety and Health Administration concerning safe levels of gas, liquid and (OSHA). These factors include solid waste discharge. The Clean Air Act employment matters such as requires industry compliance with federal occupational health and safety, employee air quality standards and empowers the wages and overtime and dealings with EPA to establish and enforce limits on state and federal government agencies.

Industry Assistance Despite receiving its revenue via industry manufacturers with an incentive contracts with the US government, the to manufacture more vehicles than the industry only receives a moderate level of US Armed Forces need, as a means of Level & Trend industry assistance. There is no tapping into additional markets abroad. The level of Industry government assistance in the form of In addition, the FMF benefits industry Assistance is tariffs or subsidies for manufactured manufacturers whose contracts with the Medium and the armored vehicles. The US government US government may have been disturbed trend is Steady  provides loans to specific countries that by changing political landscapes. wish to procure military armored vehicles Following the withdrawal of US troops and tanks at prevailing or predetermined from Afghanistan and Iraq, industry interest rates through its Foreign Military MRAP manufacturers had a large existing Financing (FMF) program. Countries supply of vehicle stock that was left wishing to purchase the industry’s entirely unused. The FMF provides an defense equipment can use the program outlet through which manufacturers can as a middleman through which sales of still generate revenue on otherwise armored vehicles are performed through unwanted vehicles. US military aid to the FMF and then channeled to the other countries often bolsters demand for manufacturer. This often provides these defense purchases. WWW.IBISWORLD.COM Armored Vehicle Manufacturing December 2018 34 Key Statistics

Industry Data Industry Federal funding Revenue Value Added Establish- Exports Imports Wages Domestic for defense ($m) ($m) ments Enterprises Employment ($m) ($m) ($m) Demand ($b) 2010 12,238.5 3,590.7 68 56 16,334 1,136.5 1,464.8 1,213.1 12,566.8 685.1 2011 7,099.2 2,142.0 71 61 13,084 1,035.5 1,029.1 941.2 7,092.8 683.0 2012 5,769.0 1,420.8 64 54 9,934 899.5 845.0 742.7 5,714.5 644.3 2013 3,556.6 1,126.4 64 54 8,132 984.9 635.3 575.3 3,207.0 592.5 2014 2,284.3 818.4 61 52 6,572 719.2 272.1 497.6 1,837.2 554.5 2015 2,159.7 744.0 57 50 5,466 1,045.3 229.5 453.1 1,343.9 536.0 2016 2,933.5 976.3 66 57 6,102 1,684.4 282.5 449.7 1,531.6 532.6 2017 3,053.8 1,071.7 64 56 6,996 1,794.6 264.5 510.7 1,523.7 527.9 2018 2,831.4 998.0 66 58 7,355 1,297.4 250.0 502.0 1,784.0 556.0 2019 3,311.9 1,213.7 68 59 8,185 1,327.5 299.8 572.9 2,284.2 595.2 2020 3,645.1 1,343.9 71 62 8,856 1,365.5 317.8 627.7 2,597.4 633.1 2021 3,887.4 1,434.4 71 62 9,234 1,405.7 330.5 661.6 2,812.2 641.3 2022 3,869.3 1,418.5 72 63 9,147 1,446.8 327.2 655.8 2,749.7 653.0 2023 3,892.2 1,418.7 72 63 9,100 1,487.8 326.4 654.3 2,730.8 666.3 2024 3,887.8 1,410.7 73 64 9,063 1,528.4 323.9 651.9 2,683.3 675.7

Annual Change Industry Establish- Employ- Domestic Revenue Value Added ments Enterprises ment Exports Imports Wages Demand Federal funding for defense (%) (%) (%) (%) (%) (%) (%) (%) (%) (%) 2011 -42.0 -40.3 4.4 8.9 -19.9 -8.9 -29.7 -22.4 -43.6 -0.3 2012 -18.7 -33.7 -9.9 -11.5 -24.1 -13.1 -17.9 -21.1 -19.4 -5.7 2013 -38.3 -20.7 0.0 0.0 -18.1 9.5 -24.8 -22.5 -43.9 -8.0 2014 -35.8 -27.3 -4.7 -3.7 -19.2 -27.0 -57.2 -13.5 -42.7 -6.4 2015 -5.5 -9.1 -6.6 -3.8 -16.8 45.3 -15.7 -8.9 -26.9 -3.3 2016 35.8 31.2 15.8 14.0 11.6 61.1 23.1 -0.8 14.0 -0.6 2017 4.1 9.8 -3.0 -1.8 14.7 6.5 -6.4 13.6 -0.5 -0.9 2018 -7.3 -6.9 3.1 3.6 5.1 -27.7 -5.5 -1.7 17.1 5.3 2019 17.0 21.6 3.0 1.7 11.3 2.3 19.9 14.1 28.0 7.1 2020 10.1 10.7 4.4 5.1 8.2 2.9 6.0 9.6 13.7 6.4 2021 6.6 6.7 0.0 0.0 4.3 2.9 4.0 5.4 8.3 1.3 2022 -0.5 -1.1 1.4 1.6 -0.9 2.9 -1.0 -0.9 -2.2 1.8 2023 0.6 0.0 0.0 0.0 -0.5 2.8 -0.2 -0.2 -0.7 2.0 2024 -0.1 -0.6 1.4 1.6 -0.4 2.7 -0.8 -0.4 -1.7 1.4

Key Ratios Imports/ Exports/ Revenue per Share of the IVA/Revenue Demand Revenue Employee Wages/Revenue Employees Average Wage Economy (%) (%) (%) ($’000) (%) per Est. ($) (%) 2010 29.34 11.66 9.29 749.27 9.91 240.21 74,268.40 0.02 2011 30.17 14.51 14.59 542.59 13.26 184.28 71,935.19 0.01 2012 24.63 14.79 15.59 580.73 12.87 155.22 74,763.44 0.01 2013 31.67 19.81 27.69 437.36 16.18 127.06 70,745.20 0.01 2014 35.83 14.81 31.48 347.58 21.78 107.74 75,715.16 0.00 2015 34.45 17.08 48.40 395.12 20.98 95.89 82,894.26 0.00 2016 33.28 18.44 57.42 480.74 15.33 92.45 73,697.15 0.01 2017 35.09 17.36 58.77 436.51 16.72 109.31 72,998.86 0.01 2018 35.25 14.01 45.82 384.96 17.73 111.44 68,252.89 0.01 2019 36.65 13.12 40.08 404.63 17.30 120.37 69,993.89 0.01 2020 36.87 12.24 37.46 411.60 17.22 124.73 70,878.50 0.01 2021 36.90 11.75 36.16 420.99 17.02 130.06 71,648.26 0.01 2022 36.66 11.90 37.39 423.01 16.95 127.04 71,695.64 0.01 2023 36.45 11.95 38.23 427.71 16.81 126.39 71,901.10 0.01 2024 36.29 12.07 39.31 428.97 16.77 124.15 71,929.82 0.01

Figures are in inflation-adjusted 2018 dollars. SOURCE: WWW.IBISWORLD.COM WWW.IBISWORLD.COM Armored Vehicle Manufacturing December 2018 35

Jargon & Glossary

Industry Jargon BRADLEY FIGHTING VEHICLE (BFV) A fully armored, STRYKER An eight-wheeled armored personal carrier fully tracked tank produced by BAE Systems that is produced by General Dynamics. designed to carry mechanized infantry into close contact with the enemy. MINE RESISTANT AMBUSH PROTECTED (MRAP)  Vehicles designed to survive improvised explosive device (IED) attacks and ambushes.

IBISWorld Glossary BARRIERS TO ENTRY High barriers to entry mean that INDUSTRY CONCENTRATION An indicator of the new companies struggle to enter an industry, while low dominance of the top four players in an industry. barriers mean it is easy for new companies to enter an Concentration is considered high if the top players industry. account for more than 70% of industry revenue. CAPITAL INTENSITY Compares the amount of money Medium is 40% to 70% of industry revenue. Low is less spent on capital (plant, machinery and equipment) with than 40%. that spent on labor. IBISWorld uses the ratio of INDUSTRY REVENUE The total sales of industry goods depreciation to wages as a proxy for capital intensity. and services (exclusive of excise and sales tax); subsidies High capital intensity is more than $0.333 of capital to on production; all other operating income from outside $1 of labor; medium is $0.125 to $0.333 of capital to $1 the firm (such as commission income, repair and service of labor; low is less than $0.125 of capital for every $1 of income, and rent, leasing and hiring income); and labor. capital work done by rental or lease. Receipts from CONSTANT PRICES The dollar figures in the Key interest royalties, dividends and the sale of fixed Statistics table, including forecasts, are adjusted for tangible assets are excluded. inflation using the current year (i.e. year published) as INDUSTRY VALUE ADDED (IVA) The market value of the base year. This removes the impact of changes in goods and services produced by the industry minus the the purchasing power of the dollar, leaving only the cost of goods and services used in production. IVA is “real” growth or decline in industry metrics. The inflation also described as the industry’s contribution to GDP, or adjustments in IBISWorld’s reports are made using the profit plus wages and depreciation. US Bureau of Economic Analysis’ implicit GDP price INTERNATIONAL TRADE The level of international deflator. trade is determined by ratios of exports to revenue and DOMESTIC DEMAND Spending on industry goods and imports to domestic demand. For exports/revenue: low is services within the United States, regardless of their less than 5%, medium is 5% to 20%, and high is more country of origin. It is derived by adding imports to than 20%. Imports/domestic demand: low is less than industry revenue, and then subtracting exports. 5%, medium is 5% to 35%, and high is more than EMPLOYMENT The number of permanent, part-time, 35%. temporary and seasonal employees, working proprietors, LIFE CYCLE All industries go through periods of growth, partners, managers and executives within the industry. maturity and decline. IBISWorld determines an ENTERPRISE A division that is separately managed and industry’s life cycle by considering its growth rate keeps management accounts. Each enterprise consists (measured by IVA) compared with GDP; the growth rate of one or more establishments that are under common of the number of establishments; the amount of change ownership or control. the industry’s products are undergoing; the rate of technological change; and the level of customer ESTABLISHMENT The smallest type of accounting unit acceptance of industry products and services. within an enterprise, an establishment is a single physical location where business is conducted or where NONEMPLOYING ESTABLISHMENT Businesses with services or industrial operations are performed. Multiple no paid employment or payroll, also known as establishments under common control make up an nonemployers. These are mostly set up by self-employed enterprise. individuals. EXPORTS Total value of industry goods and services sold PROFIT IBISWorld uses earnings before interest and tax by US companies to customers abroad. (EBIT) as an indicator of a company’s profitability. It is calculated as revenue minus expenses, excluding IMPORTS Total value of industry goods and services interest and tax. brought in from foreign countries to be sold in the United States. WWW.IBISWORLD.COM Armored Vehicle Manufacturing December 2018 36

Jargon & Glossary

IBISWorld Glossary VOLATILITY The level of volatility is determined by WAGES The gross total wages and salaries of all averaging the absolute change in revenue in each of the employees in the industry. The cost of benefits is also continued past five years. Volatility levels: very high is more than included in this figure. ±20%; high volatility is ±10% to ±20%; moderate volatility is ±3% to ±10%; and low volatility is less than ±3%. www.ibisworld.com | 1-800-330-3772 | [email protected]

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