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OESA Automotive Supplier Barometer falls

The Supplier Sentiment Index for March 2011 fell slightly to 66 from 71 in January, as more suppliers are feeling “somewhat more pessimistic.” That is according to the latest survey results from the Original Equipment Suppliers Association (OESA), released March 16. While suppliers are more comfortable with production releases from the automotive OEMs and sales levels, the changing sentiment is in response to the increasing oil prices and conflict in the Middle East, the report noted.

Clare Goldsberry

March 23, 2011

3 Min Read
OESA Automotive Supplier Barometer falls

“Concern over oil prices have tempered optimism,” stated one respondent. Another respondent said, “Optimistic, however very concerned that the events in the Middle East and rising gas prices may impact recovery.” These were two of many comments expressing these same concerns and putting a damper on optimism.
Some 26% of production releases were inflated in the March 2011 survey, up from 25% of those that said they inflate production releases in March 2010.  While confidence levels that these production releases match current sales and inventory levels remain high (63% of suppliers responding to the survey said they are either “somewhat confident” or “very confident”), there remains “concern over whether inventory levels are being managed and reflected appropriately in volumes.”
With respect to supplier sales mix, compared with this time last year, there is a “small shift” in the overall customer base with increasing focus on the Detroit 3 from foreign-parented OEMs, said the report. This indicates that suppliers have become more confident in the Detroit automakers' production and sales. However: Suppliers aren’t so confident in automotive that they have given up trying to diversify their businesses. “Suppliers continue to pursue non-automotive (primarily heavy-duty and industrial) application for their products,” said the report.
Most suppliers have a moderate level of confidence (rating 3 or 4 out of 5) that their company’s preventive strategies will mitigate supply chain shortages in 2011. “Two areas where there is a lower level of confidence (rating of 2) is identified as sub-tier capabilities, capacities and financial viability,” the OESA survey revealed. (Sub-tier would be the tier two and below suppliers, such as many mold manufacturers and custom molders.)
More suppliers are experiencing increased operational costs in this year across all costs polled (production labor premiums paid, material cost premiums, set-up and change over costs, expedited freight, inventory carrying costs). Material cost premiums is the predominant concern for suppliers as 93% have seen increases. Of particular concern is the rising cost of resin.
The OESA re-printed an article from WardsAuto.com by Tom Murphy on its site that noted, “The issue of raw-material prices has been a political powder keg and has been responsible for years of losses piling up on supplier balance sheets. “Hard-nosed OEM purchasing agents, especially those representing Detroit auto makers, generally have insisted suppliers swallow wildly fluctuating price increases for materials such as steel and plastic resin.”
However, Murphy revealed in his article that “the tide is turning, and auto makers understand that business model cannot sustain a viable supply chain, says Bill Kozyra, chairman, CEO and president of TI Automotive, a $2.5 billion supplier of fluid-carrying systems, powertrain components and blow-molded plastic fuel tanks. ‘OEMs recognize that the suppliers cannot absorb raw-material costs that are coming in because they won’t survive if the suppliers foot the entire bill,’ he says. ‘The OEMs have to pay most of the cost increases associated with raw materials. Many OEMs recognize this is a serious industry issue.’” Kozyra spoke to a group of the Automotive Press Association which Murphy attended.
That said, many suppliers are putting their direct material suppliers on a “watch list.” Out of 103 responses to the OESA survey, 5% responded that “more than 20%” of their suppliers are on the “watch list.” 28% responded that 6%-10% of their direct material suppliers are on a “watch list;” 39% said they have 1%-5% of their direct material suppliers on the “watch list.”
The primary reasons companies are being added or continuing to be on a supplier “watch list” include Quality (26%); Capacity Analysis (19%); Delivery Performance (21%); Financial Metrics (22%); Other (includes discontinuing products, price and resin shortages) 10%; and Management Related 2%.
It would appear that there is still a long road ahead for the auto industry and its suppliers, and one in which there are some definite bumps and boulders. —Clare Goldsberry

About the Author(s)

Clare Goldsberry

Until she retired in September 2021, Clare Goldsberry reported on the plastics industry for more than 30 years. In addition to the 10,000+ articles she has written, by her own estimation, she is the author of several books, including The Business of Injection Molding: How to succeed as a custom molder and Purchasing Injection Molds: A buyers guide. Goldsberry is a member of the Plastics Pioneers Association. She reflected on her long career in "Time to Say Good-Bye."

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