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Auto suppliers hope capacity gap will close

Keywords: Tags  metal foundries, forgers, die casters, supply constraint, Original Equipment Supplier Association, OECD, Dave Andrea, automotive industry recovery Corinna Petry

CHICAGO — Supply constraints in metal foundry, forging and casting capacity servicing the auto industry have caused headaches for some members of the Original Equipment Suppliers Association (OESA).

Several member companies claimed in a recent survey that there is "limited" or "tightened" capacity of certain metal parts and machining in North America.

"It can be difficult to find competent suppliers of machined components," one OESA member said.

"(We are short) simple iron castings, there are machining constraints and a lack of basic capability," another said.

Others complained that local sourcing of products was constrained due to specification gaps between Japan and North America, which has lengthened lead times.

Dave Andrea, OESA senior vice president of industry analysis and economics, said that before the recession the entire automotive supply base was operating at roughly 75 percent of capacity. But after the auto industry restructured and rationalized production, suppliers have been running at 80 to 81 percent of capacity.

"We are entering a period where the challenge is how to manage constraints in the system. It’s a different animal now," he said. The biggest constraints relate to powertrain and chassis components, the most capital-intensive operations leading to vehicle assembly.

"During 2008 and 2009, (those suppliers) had the highest leverage in terms of operating costs, so when (the) market dropped out there were a number of bankruptcies," especially among casting, forging and precision machining operations, Andrea said.

The industry restructured and modernized but, haunted by the "memories of business losses," suppliers are cautious about ramping up capacity again. "They don’t want to get ahead of the demand curve," he said.

To build a new production line, a supplier might want a contract "for 400,000 to 500,000 units to make the business case. Suppliers will line up to judge (each new) program as to whether they can make a return on the investment for the required capital," he said. They will first attempt to "squeeze out every ounce of production" on existing equipment with their current labor force.

But Andrea said the North American supply base "is gaining confidence in a sustained trend of growth. They know that to support an additional 800,000 units of production for 2014 and 2015, they do need to invest in capital equipment and hiring."

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