When your friendly neighborhood car dealer begins offering the latest sales incentive out of Detroit, chances are the molder or mold maker will end up picking up part of the price.
Health-care costs? Safety recalls? Foreign competition? It all trickles down.
In an auto industry that is increasingly competitive on a global basis, and with profit margins sliced thinner and thinner, small and midsize molders two and three steps down the tier structure are seeing an impact on their bottom line from automaker activities that prompt headlines.
``If our customers are cutting back on production, then we're cutting back on production,'' said Bob Rossiter, chairman and chief executive officer for Lear Corp. ``If we're cutting back on production, then our suppliers are cutting back on production. It all flows downhill.''
Those ebbs and flows involve more than the traditional concerns of price cuts and increases in raw material costs.
``If you look at the last few months - at the downgraded debt ratings for GM and Ford, at the union issues, at the health-care issues - they're all under a lot of pressure to help sell vehicles,'' said Bob Josifovski, a director of auto consulting group Beringea LLC of Farmington Hills, Mich.
``They're going to sell more vehicles how? By lowering the price. Now obviously, they're going to be going into the supply base to then try to make up that cost.''
Suppliers increasingly are taking the heat.
``When we hear about the incentives, what we say to ourselves is, `Are they going to give these things away?' '' said Tim Scollin, vice president of sales for injection molder Injectronics Inc. ``That all comes down to us eventually, in terms of pressure in reducing the price of our product.''
Such moves are affecting more than the businesses that have sought bankruptcy protection, such as heavy hitters Collins & Aikman Corp. and Meridian Automotive Systems this year. Southfield, Mich.-based Lear estimates it will shell out $50 million to $80 million in cash alone this year to support its own stressed suppliers and ensure it gets tools and components on time.
Healthy and growing midlevel suppliers are being forced to move faster than their own customers just so they will not be caught unprepared.
Injectronics, based in Clinton, Mass., has been expanding its automotive emphasis from its regional office in Farmington Hills. Last year, it bought competitor Gilreath Manufacturing Inc. Industry watchers have praised the company, calling it respected and well-situated for future growth.
But even as it targets expanding to $100 million in annual sales to the auto industry from its existing $20.5 million, Scollin noted it has had to change the way it operates.
``We've had to become more proactive than reactive,'' he said. ``If a vehicle we're supplying parts on isn't moving, we have to say to ourselves that they may still be ordering those parts, but we have to be keenly aware that may change.
``In years back, we'd keep making parts and then store them, but now, there's no way we can afford that kind of inefficiency. There's no fat in the system. We're operating on razor-thin margins and we can't afford to be loosey-goosey with the operations,'' Scollin said.
Vehicle production has always been fluid. While the industry may churn away at a relatively steady pace of 15 million to 16 million cars and trucks annually in North America, specific models are harder to predict, said Jason Brewer, consulting manager in the strategy and global services consulting group at Plante & Moran PLLC.
An automaker may expect to make 100,000 units of a sedan, but if it does well it will want to boost production quickly to keep up with demand. If it gets a poor consumer response, it could halt production of the model for days or weeks.
Suppliers, however, have to gear up their factories based on the best estimates they get well in advance of the vehicle's public debut. Sudden changes in either direction leave them trying to cope with either overtime or machine underutilization.
Despite that, the auto industry historically has lacked a free flow of exactly that type of information that can help suppliers prepare, Brewer said. Top-performing firms instead have turned to outside consultants for a better long-term forecast.
``They've learned to be very cautious of the difference between the marketing volume and what they're going to actually build,'' he said. ``Suppliers are proactively trying to get the information from the customer, trying to find out what their next month is going to look like.''
Even those molders with solid forecasts must find the right product niche.
Competition from low-cost manufacturers in China and elsewhere is not going to disappear. The question is whether molders can find products their customers want to buy locally.
Blackhawk Automotive Plastics Inc. of Salem, Ohio, makes interior and exterior components that are harder to ship long distances, and that require close contact with the customer for just-in-time vehicle production. Despite that, President and Chief Executive Officer Cliff Croley said the firm has invested in automation that helps reduce overall production cost - allowing it to compete as a low-cost provider.
Blackhawk also adjusted its bottom line earlier this year when it opted to sell its 18-month-old plant in Mississauga, Ontario. It simply made more sense to pay down debts now so it will have more cash available to compete in the future, Croley said.
``There was stuff coming down the line that caused us to re-evaluate whether expanding made sense now,'' he said. ``We wanted to make sure we weren't caught exposed as the economy went the way it has gone.''
Injectronics spent the past 10 years adjusting its portfolio from only producing hard plastic exterior trim to also making fuel components, under-the-hood parts, and heating and cooling systems so it could compete.
``Instead of sitting around bemoaning what's happened, what we've done is consciously adjust our product offerings not only in size, but also in complexity,'' Scollin said. ``We think of ourselves as having all the offerings of a luxury yacht, but the nimbleness of a speed boat.''
And now the auto industry may just be turning in the favor of strong midsize firms.
Despite all the talk in past years about the need for supersized suppliers, carmakers now are turning away from massive interior integrators in favor of component specialists.
``This is an opportunity for us,'' Croley said, noting that Blackhawk remains ``bullish'' on traditional North American automakers. ``Where they may have bundled things together and gone to larger integrators, now they're unbundling and opening things up.''
Solid operators that retained their focus on core specialties are now in the best position, Josifovski said.
``Those companies that are the best with their technology, best with costs, who have anything that can differentiate them from a large Tier 1 are going to be desired,'' he said.
The auto supply industry may even find itself at an unexpected juxtaposition in which a handful of strong firms struggle to keep up with new business, even while their competitors go broke.
``As the number of smaller suppliers go out of business, more work is going to the healthier companies,'' Brewer said. ``Now those companies are having growing pains trying to take on all the extra work that is coming their way.
``There isn't overcapacity in the industry, but an undercapacity of the right companies. For the people with the organization and innovation and business process skills, there simply aren't enough to digest all of the work their customers want them to do.''
Which just raises one more issue for innovative small and midsize molders - deciding how far they are willing to go now.
``When push comes to shove, there are guys who want you to go out of your pocket and do a lot of things for them,'' Croley said. ``You have to choose wisely whether to do that for them.''
Scollin estimates Injectronics could have another $5 million to $7 million in annual sales if it accepted all the business it has turned down the past few years.
``In the past, there was always the mentality that we'd staff up and do whatever it takes to meet our customers' demands,'' he said. ``With the economic climate we've had, we've had to be very selective in what we do, what we offer and how we can support our customers.
``There's no room in the business model for extra operations.''