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Saturday, July 13, 2013

Suppliers Constrain Output

By Alisa Priddle, Detroit Free Press Business Writer excerpted by David Ruggles from Could automotive supply chain snap?, June 16, 2013

A combination of rebounding sales and an unprecedented number of new models in the works has stretched the auto parts supply chain so taut that the entire industry is holding its collective breath that it does not snap and jeopardize the recovery. .... “Everyone has parts shortages,” said Carla Bailo, who heads Nissan Americas’ research and development in Farmington Hills. “The supply chain is one of our biggest threats. Everyone cut back and is now ramping up. We can’t get up to speed as quickly as in the past.”

During the downturn, suppliers consolidated operations — closing plants, laying off workers and reducing capacity by as much as 30%, said Kim Korth, president of IRN, a Grand Rapids consulting firm that works with suppliers. Now a smaller number of suppliers with fewer facilities and bodies is struggling to handle a 22% rebound in the auto industry. … “We’re not seeing lines shut down, but programs are being delayed,” Korth said. “We anticipate periodic disruptions due to material shortages, quality issues and troubled suppliers.”

Suppliers have always been cautious about increasing capacity in the boom-and-bust auto industry. This time, however, there’s reluctance from companies to reinvest that have achieved a lower break-even and are now enjoying profits. .... “It’s tough to increase bottom lines,” said Roland Zitt, president of Mahle Industries in Novi, which closed powertrain components plants during the recession and reduced costs. “We won’t be a bottleneck but also don’t have to be at the leading edge increasing capacity.” ….

“We’re meeting weekly,” Joe Hinrichs, Ford president of the Americas, said of his purchasing staff that works with suppliers. Ford has been adding shifts at plants, increasing capacity by 400,000 vehicles last year and preparing to add another 200,000 this year because sales are hot.

…. The annual “Car Wars” report by Bank of America Merrill Lynch says automakers are launching new models faster. After a decade of averaging 37 vehicle launches a year in the U.S., the rate is forecast to accelerate to 44 a year for the next four model years.
Globally, Michael Robinet, managing director for IHS Automotive Consulting, forecasts 500 vehicle launches from 2012 to 2016, or about 135 a year compared with 100 a year in the past and only 85 a year in 2010 and 2011.

.… With 40% of vehicles in North America being built in plants running with three crews or shifts, there are limited options if there is a problem, Robinet said. “There is not a lot of slack in the system.” … Jeena Patel, a lawyer with Warner, Norcross & Judd of Southfield, said suppliers are trying to meet contracts with minimum volumes at a time when no one thought to negotiate maximum volumes or other terms to protect them against the demands they now face. ... Korth knows of suppliers being asked to increase volume by 20,000 units a month, and they are unable to do it….