Auto OEMs ask suppliers to increase capacity

A huge jump in retain vehicle sales in February is a good news/bad news scenario. The good news is that OEMs are revising their forecasts, predicting that the market will hit the high 12 million range and perhaps even break 13 million, according to a report from Supplier-Business, an IHS Global Insight Company. That raises the specter of a parts shortage, and fears that suppliers, many who cut back by reducing capacity and labor, won’t be able to keep up. “These fears have been accentuated recently, with parts orders from automakers surpassing production forecasts, leading to shortages that have hamstrung output of popular models,” said SupplierBusiness. 

Coming off a big sales month, capacity issues of their suppliers continues to be worrisome to automotive OEMs and Tier Ones. SupplierBusiness said that automakers are looking for ways to encourage suppliers to boost capacity. While U.S. retail sales are “soaring” many suppliers are being cautious, and smaller parts makers are “hanging back,” the report noted.
   
This reluctance has basis in past experience and few suppliers are willing to increase capacity in terms of equipment, technology and people given the lingering uncertainty in the overall economy, particularly with respect to oil prices, as noted in the OESA report above.
   
While the SupplierBusiness report noted that so far, capacity hasn’t become a “serious problem” as yet, “a few OEMs have already begun to offer financial assistance to suppliers to help convince them to make the necessary investments,” said the report.
   
Among some of the offers being considered are low-interest loans and flexible repayment schedules to help its parts makers get back on their feet, and quickly,” to respond to a big sales uptick such as was seen in February. “So auto company purchasing officials last week were looking for ways to get more suppliers to invest in their operations, especially at the lower Tier levels,” said the report. “There is a fear of widespread parts shortages, not the random plant closures that have occurred so far.”
   
This could be why automakers and Tier One suppliers are inflating their production releases, as noted by the OESA report. Many in this group “have already taken steps to expand production of components given to spot shortages, especially connectors and other electronics commodities,” said SupplierBusiness.
   
For example, Nissan in North America is helping parts makers that are overly cautious. Catherine Perez, until recently vice president of the Renault-Nissan Purchasing Organization at Nissan North America, told Automotive News: “We’ve changed the way we support them, including financially. Right now, we’re providing them with access to bank rates, which we get for them,” reported SupplierBusiness.
   
But Perez, who has been named vice president for corporate planning and Program Management Office, said suppliers are extremely cautious about whether to bring permanent employees back. In fact, said SupplierBusiness, the attention has shifted from “obsessively monitoring the financial health of Tier-Twos and Tier-Two suppliers to worrying about their ability to bring capacity up as quickly as possible,” said the report.
   
Almost all carmakers are taking a more proactive role in helping suppliers get going. Some are taking other measures to improve productivity within their supply bases, sending efficiency experts and other specialists to find ways to speed up tooling. “Chrysler has accelerated tooling payments by speeding up the process of certifying quality control of components,” said SupplierBusiness. —Clare Goldsberry