Greater optimism among automotive suppliers; capacity tightens and OEMs are getting nervous

While automotive suppliers are more optimistic about increased business from the OEMs in 2013, OEMs continue to be concerned about tightening capacity and suppliers’ ability to meet launch schedules. Those are the latest findings from the Automotive Supplier Barometer released this week by the Original Equipment Suppliers Association in partnership with Deloitte LLP.
The OESA Automotive Supplier Barometer Sentiment Index increased to 66, an increase of seven points from March. Only 4% of respondents indicated any pessimism compared to 12% two months ago. Of the 97 respondents, 47% indicated they are “somewhat more optimistic” with an additional 3% indicating they are “significantly” more optimistic. “The optimism comes from stabilizing North American sales and production levels,” said the report’s summary. “Some suppliers indicate a significant increase in business. The European economic outlook continues to be the major headwind.”
As suppliers continue to “squeeze more production out of existing facilities and shifts,” capacity utilization rates have increased significantly, with the median current running rate of 89%, a lower quartile rate of 80%, and an upper quartile rate of 95%, according to the survey.
This high rate of utilization may be causing some glitches in new vehicle roll-outs. An editorial in IHS Supplier Business’s report for the week of May 13 noted that “parts manufacturers have taken some heat for less-than-smooth vehicle roll-outs in recent months.” Not a good thing given that Supplier Business said that the number of “Detroit 3 debuts [is] set to hit an all-time record in the next year or so.”
To help mitigate any risks involved with suppliers that may be over-capacitated, Supplier Business said that the Detroit 3 are “going to extraordinary lengths with their supply chains to root out quality and productivity problems before they occur” by dispatching “special teams” to work closely with suppliers to “safeguard key launches.”
One respondent to the OESA’s latest survey who indicated that manufacturing issues were a “significant” concern, said, “With more and more launches, the pressure to execute flawlessly, maximizing margins, and minimizing customer impact is more and more difficult.”
Yet some suppliers blame the glitches in launching new programs on the OEMs. “Customer engineering changed make the launch prior to SOP (start of production) very chaotic,” a “Design and Engineering” respondent wrote.
Another said, “Delays upfront in engineering cause overall program delays in the back end and set programs up for lateness. The upfront issues are often not the focus until it is too late.”
Still another supplier noted frankly, “Poor customer designs are major problems.” And another design/engineering respondent said, “Late engineering changes result in continued prototype and validation requirements. These result in late opportunities to provide out manufacturing before SOP.”
Of course, a huge issue as business increases for suppliers is finding skilled, competent employees. Several noted that finding design, project management and tool making personnel is difficult, and there is a competitive battle for these talented employees, particularly in the Detroit area.
The Supplier Business editorial confirmed the huge challenges that face automotive suppliers. “The entire North American industry is going at a breakneck pace,” it noted. “Automakers are in the process of introducing 61 new models in the United States in 2013, 50% more than any year since 2006. Adding to the pressure, new models introductions may rise to 74 next year, compared with 40 in a typical year. It is a risky period: accelerating production and a record number of vehicle launches is a breeding ground for defects and parts shortages.”
This situation might bring about an increase number of suppliers in the supply chain, as the OESA asked suppliers what their plans are to increase the depth of their sourcing to ease capacity constraints. Responses included: “develop new sources and work long-term supply agreements with our best suppliers”; “purchase components locally;” “opening NAFTA manufacturing locations” and “Mexico as a low-cost country”; and “continue to try and localize.”
Yet some suppliers are reluctant to source locally in North America because of the capacity constraints. “We need to see more capability before sourcing more in North America,” said one respondent.
What does this mean for Tier 2 molders and moldmakers? You’d better be prepared to do what it takes to maintain launch schedules by adding capacity, hiring skilled technicians, mold makers, project managers, and engineers who can help you meet the increasing demands of this fast-paced industry.

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