OESA Barometer points to optimism

By: 
January 28, 2010

The Original Equipment Suppliers Assn. (OESA) just released its latest survey, the OESA Supplier Barometer, and it indicates that supplier sentiment is “solidly optimistic about the next 12 months.”

With the OESA Supplier Sentiment Index coming in at 73.1, 75% of the respondents noted they were “somewhat more” optimistic than they were two months ago, an optimism that is being driven in three specific areas:

1) Automotive revenue growth: “There has been a marked increase in demand for current products and we have seen positive new business wins during the period,” said one respondent.
2) Diverse market revenue growth: “We landed non-automotive and automotive work that will make 2010 positive regardless of car build levels,” said another.
3) Competitive cost structures: “We have dramatically lowered our breakeven point and expect the next 12 months to continue above this level,” said a third.
    
Other results of the January 2010 Barometer showed that the financial health of the suppliers appears to have stabilized—at least in the short term. Only 10% of the respondents reported that they are in violation of their loan covenants, quite a change from the 25%-30% that reported being in violation of their loan covenants in the second quarter of 2009. Still, there are about 5% who report that they may be in violation in 2010.
   
The cost and availability of credit remains a huge concern for suppliers. While the majority of respondents state their banking terms have remained unchanged over the past three months, more than 20% of respondents note tightening terms in their maximum size of credit lines, the cost of credit lines, commercial loan interest rates and commercial loan collateralization requirements.
   
The concept of running assembly plants around the clock on three shifts is being explored, said OESA, and it is here that suppliers have the greatest concerns around workforce staffing (40% expect skilled labor shortages), production schedule stability (40% expect finished component shortages), raw material availability (56% expect raw material shortages), and supply chain capabilities.
   
Capacity rationalization continues to be a critical issue. Overall, for their primary product, the respondents estimate that 15% of capacity was rationalized in 2009. To reach full capacity in a 15-million-unit production [automotive] market, the respondents estimate another 18% needs to be taken out.

The big uncertainty lies in healthcare reform that continues to linger in Washington, but 35% of the respondents believe they will need to change their benefit packages to reflect the healthcare reforms being proposed. “Our coverage is way too rich for what will be required,” said one respondent. Another respondent that was forced to reduce its benefits to cut costs replied, “We will be very slow to restore the benefits and will closely look at government sponsored actions/plans that might reduce our cost structure.”

With so much uncertainty as to where healthcare reform will end up, and just what will be affected, many of the respondents indicate they will do whatever it takes to avoid government-imposed taxes and fees. One respondent noted that the company would look at its benefit contents, which would probably change and result in “higher costs for less benefits” because of “punitive fees/taxes imposed by the Feds.”

Another responded, “We are concerned that any plan that is fair to employees will be deemed a ‘Cadillac’ plan and invoke the new tax. We are exploring modified health and wellness plans for our employees so as to maintain benefits while avoiding the tax.” —Clare Goldsberry

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