The outlook for tier suppliers in North America has improved significantly in 2010 with higher vehicle sales coming atop aggressive moves to cut costs. The recent “Automotive Supplier Barometer”, released in May by the Original Equipment Suppliers Association (OESA), a North American supplier group, reveals significant improvements in production capacity use, and lower breakeven points for light vehicle production. However, questions remain over material and logistics constraints that could limit suppliers’ ability to ramp up production and lead to higher costs for premium or air freight.
The OESA barometer showed dramatic improvements in capacity use among its 124 respondents. More than 60% reported capacity use greater than 70%–the level generally considered to be breakeven–with around a third at 80% or better.
The industry’s overall numbers may not be quite as rosy, however. Dave Andrea, senior vice president, industry analysis and economics for OESA, told Automotive Logistics that the latest US Federal Reserve figure puts average capacity use among automotive suppliers in the US around 55%–still an unhealthy number but an improvement from 2009, when many suppliers fell as low as 30%.
The reported increase in capacity use nevertheless reflects the downsizing suppliers have made in the last 18 months; the survey showed that 25% still plan to make plant cuts in 2010. The survey also revealed that the median volume of yearly North American light vehicle production at which suppliers believe they can breakeven is now 10m units, which is at or even below current forecasts.
But Andrea warned that suppliers were facing capacity constraints from low material inventories as well as a reluctance to increase production. He gave examples of suppliers importing steel coils and stamped components from Europe.
“This is swing capacity, as these are not the kind of imports that make economic sense to do for too long,” he said. He also noted that with the increase in global platforms, more suppliers are certified to produce parts in regions outside the US, such as South Korea, Europe or China.
“This allows suppliers to bring in material from outside to support the ramp up,” he said. “But on the negative side, it often means more air freight and higher logistics costs.”
Andrea also said that members had been reporting recent container shortages following announcements of impending price rises by container lines, which led to a run on the market. Tom Jones, senior vice president for US Supply Chain Solutions at Ryder, said that capacity had been tight on the container market since the start of the year. Trucking capacity for material, on the other hand, is still in excess, although he does anticipate a future shortage.
One logistics executive at a US-based tier supplier, who asked to remain anonymous, said containers were particularly hard to get for smaller suppliers who did not purchase in the volume of OEMs or the largest tier ones.
Susanna Webber, executive director of global logistics for General Motors, suggested that it was not easy to secure capacity even for big players in container shipping considering the amount of tonnage that had been removed from the market.
“Luckily we are working very closely with our providers to find the right balance,”she told Automotive Logistics.
She added that the container shortage would not disappear quickly. “It will be an issue the industry needs to manage through for awhile,” she said.