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Auto suppliers upbeat on near term

Keywords: Tags  Original Equipment Suppliers Association, OESA, 12-month outlook, capacity constraints, North American vehicle production, Dave Andrea, Corinna Petry

CHICAGO — Automotive suppliers remain optimistic about near-term business conditions in January, but expect to face capacity constraints as North American light vehicle production ramps up to 16.5 million units over the next two years, according to a recent market survey.

The Original Equipment Suppliers Association (OESA) auto supplier sentiment index remained at 60 in January, unchanged since November.

Suppliers’ median forecasts for North American light-duty vehicle production volumes are 16.5 million units for both 2014 and 2015 compared with last year’s median forecasts of 15.2 million units for 2013 and 15.5 million units for 2014, according to Dave Andrea, OESA’s senior vice president of industry analysis and economics.

Skilled labor shortages, production overtime premiums and internal manufacturing capacity constraints are major challenges facing suppliers as they work to meet increased production levels, OESA said.

"Companies are ... increasing capacity through added facilities, shifting production locations, adding capital, working flexible and alternate production schedules, adding additional suppliers and supply chain development and management," Andrea said.

Nearly one-fourth of respondents indicate they will add physical production capacity this year or at least review their asset base, shift production to a different facility, add production runs or expedite tooling and capital investments.

To boost productivity at existing operations, suppliers are studying options that include "careful capacity planning," improving throughput, adding overtime and weekend hours, moving all factories to 24/7 production, alternating schedules at some facilities and eliminating bottlenecks.

The 18 percent of respondents who said they experienced external supply chain constraints plan various fixes. Some component manufacturers said they expect to source from additional suppliers or develop stronger partnerships, while others will seek to vertically integrate with certain suppliers. One respondent expects to carry more inventory, while another will build supply ahead of production schedules. A third vowed to spend "extra time (guaranteeing) commodities are secured."

In terms of suppliers’ 12-month outlook, "the new investments in Mexico have had a very significant affect in our potential business," one supplier reported.

Another saw opportunity in spot production shortages, saying, "We can pick up some new business."

One upbeat OESA member noted that platform and new model launches are "proceeding effectively. (We are) experiencing fewer start-up issues than anticipated and new (requests for quotes) are increasing."

Another reported that although some product launches were delayed, "overall new business is coming in at a consistent and increased pace."

Clouds on the horizon consist of instability in the Middle East, sluggish European economic growth and slower Chinese growth, suppliers indicated.

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