Here's one figure for you: there is a $6 billion difference from where mold makers are today and where they need to be in terms of tooling capacity. Toolmakers will have to produce $15.2 billion in tooling each year compared to the current capacity of about $9.3 billion to meet demand, Harbour said.

I've written recently on the concerns of OEMs regarding tooling capacity of suppliers, and it seems those concerns are well founded. Yet, when I talk to mold makers about the markets they serve, many of them either choose not to serve the automotive industry or only do a small amount of work for that market. Some have dropped automotive, and say they did so because working with automotive is so difficult and the rewards—mostly monetary—aren't there.

According to Harbour's estimates, there are only about 750 mold makers in North America serving the automotive industry. Given the shortage of skilled workers coming into the trade and the graying of the experienced mold makers (average age is estimated to be about 52), closing the gap between current and projected capacity might be a difficult task.

Is there something that automotive OEMs and Tier 1 molding suppliers can do to help ameliorate this situation? I believe there is. First of all, one of the biggest pain points for mold makers is the fact that they have to wait anywhere from a year to 18 months (after PPAP) to get paid. Given that many mold companies tend to be smaller, privately held companies, investing several hundred thousand dollars in buying the materials (steel, mold components, hot runner systems, etc.) and spending several hundred man and machine hours in designing and building the mold, is beyond reach for them.

With banks being more tight-fisted over the past few years, it's not as easy to get or even extend a small company's line of credit. One mold maker told me recently that his banker looked at how much of his business was automotive, and declined a line extension based on that fact alone.

Harbour said in the interview that payment terms continue to be a problem for mold companies. Payment at PPAP means companies have to fund the tool by financing the costs involved for as long as 18 months, then "roll that cost into the price of the tool." With interest rates ranging from 6% to 8% on borrowed money, Harbour noted that OEMs could lower the overall price of the tool by adhering to progress payment terms during the build.

"Progress payments will be used as a lever [by mold companies] in the future," Harbour added.

An IHS SupplierBusiness editorial in December noted that automotive suppliers are "enjoying unprecedented pricing power and standing their ground on prices." The IHS editorial stated that gone is the "practice of filling an automaker's order even it if meant losing money on the contract." Driving this "power shift" in the relationship, said IHS, is "strong demand and limited capacity." Some major Tier 1 suppliers have even been known to tell an automaker to "take a hike" if they can't get the pricing terms they need, noted the IHS editorial.

If tooling capacity shortfall is a problem, then perhaps the automotive OEMs and Tier 1 suppliers that purchase the molds can improve the situation by making it more profitable for the mold supplier. Pay the mold manufacturer progress payments, or at least let them know when PPAP is scheduled and pay them promptly. Tier 1 suppliers have been known to get paid for the mold, then withhold payment to the mold manufacturer just because they can. That's not a way to create suppliers that actually want to do business with you.