US auto suppliers dealing with high demand

Dustin Walsh

Published: July 16, 2012 6:00 am ET

Related to this story

Topics Automotive, Injection Molding

DETROIT (July 16, 11:45 a.m. ET) — Surging North American auto sales are prompting large and small suppliers to make contingency plans to cope with pressure on production capacity.

Three years ago, the automotive industry contracted and hundreds of plants were idled. Today, rising auto sales and production mean an increasing number of suppliers are running their plants ragged, said Bill Diehl, president and CEO of the Southfield, Mich.-based advisory firm BBK Ltd.

In Southeast Michigan, some small suppliers are facing big decisions — spend capital or ditch contracts — and midsize and large suppliers are in a calculated planning mode.

Industry watchers say suppliers have become more sophisticated coming out of the most recent downturn, but the rapid rise in demand is still a challenge.

According to June reports, U.S. auto sales rose 20 percent, reaching an estimate of 14.1 million for the year, up from 12.8 million in 2011.

“There are suppliers out there running plants 24/7,” Diehl said. “The supply base isn’t shutting down [automaker] plants yet. But as volumes continue to grow, the constraints are worrying. Suppliers have been running on the ceiling too long, so the question is: What’s going to break and when?”

North American automotive plants are running at 88 percent capacity, estimates Northville, Mich.-based IHS Automotive Inc. Germany-based KPMG AG estimates that plant capacity in the United States alone will reach 94 percent by 2018.

A May survey of suppliers by the Troy Mich.-based Original Equipment Suppliers Association found that plant capacity use was 85 percent across the supply base, up from 80 percent in September.

Crunch time is coming for many suppliers, and that has domino effects, Diehl said.

“It is a tricky issue to call as impacting any one particular component category or another,” he said, “but supplier capacity constraints can impact nearly everyone to the extent that the lack of a single component can derail production of the overall vehicle.”

Contingency plans

Northville, Mich.-based Key Plastics LLC is closely watching its North American suppliers, said Claire Walia, senior vice president of global purchasing.

“I’m not concerned about my bigger suppliers like BASF,” she said. “It’s the smaller component suppliers with added volume requirements, more cash outlay and more financial burden and risk. That’s where we are looking at more risk assessment.”

Walia said many suppliers are getting pressured by last-minute spot orders from customers needing more components than contracted to keep up with demand.

These spot orders likely stemmed from the lack of automakers performing the typical summer shutdown of plants, said Dan Sharkey, a partner at Birmingham, Mich.-based Brooks Wilkins Sharkey & Turco PLLC.

Ford Motor Co., Chrysler Group LLC and General Motors Co. skipped two-week summer shutdowns around the Fourth of July holiday at several plants. Without the shutdown, Ford said it boosted production by 40,000 vehicles — which need millions of parts from many suppliers.

“Half of what I work on is capacity issues for suppliers,” Sharkey said. “Without the summer shutdowns, many are maxed out on capacity, running three shifts.”

Walia said establishing successful long-term relationships with suppliers is helping Key Plastics and automakers keep components in supply as capacity gets tighter.

“We operate in a different environment today, where companies don’t carry inventory and there’s more due diligence,” she said. “People that play games with suppliers on pricing may find they can’t get material. You must have good long-term relationships and more transparency these days.”

Key Plastics projects sales of $400 million in 2012.

Mike Wall, director of automotive analysis for IHS Automotive, said capacity is a lingering issue in North America. Suppliers need new equipment — and must hire — to take advantage of increasing volumes.

A complete version of this story is available at www.crainsdetroit.com.


Comments

US auto suppliers dealing with high demand

Dustin Walsh

Published: July 16, 2012 6:00 am ET

Post Your Comments


Back to story


More stories

Image

Increased capacity in the US helps Zeon Chemical supply seals globally

September 16, 2014 9:46 am ET

The automotive industry continues to be one of the driving forces of Zeon Chemicals LP., which specializes in heat-resistant and oil-resistant...    More

Image

ZF finalizes deal to buy TRW, creating another global auto supply giant

September 15, 2014 1:09 pm ET

TRW Automotive Holdings, in a supply chain megadeal that has been in the works since mid-July, said Sept. 15 it has agreed to be acquired by German...    More

Image

Delphi CEO O'Neal stepping down

September 15, 2014 12:05 pm ET

Delphi Automotive plc announced that Rodney O'Neal will retire as CEO and president on March 1, 2015, ending his 43-year career at the global...    More

Image

Faurecia Seating grows in Kentucky

September 12, 2014 12:00 pm ET

Faurecia Seating LLC, a division of French-based Faurecia SA, will build a new manufacturing facility in Simpsonville, Ky.    More

Image

Behr-Hella set to open Bulgarian auto parts plant

September 12, 2014 10:20 am ET

German automotive components manufacturer Behr-Hella Thermocontrol (BHTC) is set to launch a new 22 million euro ($28.4 million) vehicle air condition...    More

Market Reports

Shale Gas Market - Analysis of North American Region

This report highlights the impact of shale-based natural gas on the North American plastics market and features an in-depth analysis of production trends in the United States during 2013 and a forecast for 2014 and beyond.

Learn more

Thermoformed Packaging 2014 Market Review & Outlook North America

This in-depth report analyzes economic and market trends, legislative/regulatory activity impacting supply and demand, business opportunities and threats, materials pricing, manufacturing technology, as well as growth strategies being implemented by thermoformed packaging companies.

Learn more

Pipe, Profile & Tubing Extrusion in North America 2014

U.S. demand for extruded plastics is expected to grow by 3 percent in 2014, with PVC remaining the largest segment.

Plastic pipe will post the strongest gains through 2018, continuing to take market share from competing materials in a range of markets.

Our latest market report provides in-depth analysis of current trends and their financial impact on the pipe, profile and tubing extrusion industry in North America.

Learn more

Upcoming Plastics News Events

January 14, 2015 - January 14, 2015Plastics in Automotive

February 4, 2015 - February 6, 2015Plastics News Executive Forum 2015

More Events