Could automotive supply chain snap?

Posted by tmshippings

DETROIT — A combination of rebounding sales and an unprecedented number of new models in the works has stretched the auto parts supply chain so taut that the entire industry is holding its collective breath that it does not snap and jeopardize the recovery.

New car sales are on pace to exceed 15 million in the U.S. this year and as many as 85 million globally. A record 500 vehicle launches are expected by 2016.

“Everyone has parts shortages,” said Carla Bailo, who heads Nissan Americas’ research and development in Farmington Hills. “The supply chain is one of our biggest threats. Everyone cut back and is now ramping up. We can’t get up to speed as quickly as in the past.”

During the downturn, suppliers consolidated operations — closing plants, laying off workers and reducing capacity by as much as 30%, said Kim Korth, president of IRN, a consulting firm that works with suppliers. Now a smaller number of suppliers with fewer facilities and bodies is struggling to handle a 22% rebound in the auto industry.

“We’re not seeing lines shut down, but programs are being delayed,” Korth said. “We anticipate periodic disruptions due to material shortages, quality issues and troubled suppliers.”

Suppliers have always been cautious about increasing capacity in the boom-and-bust auto industry. This time, however, there’s reluctance from companies to reinvest that have achieved a lower break-even and are now enjoying profits.

“It’s tough to increase bottom lines,” said Roland Zitt, president of Mahle Industries in Novi, which closed powertrain components plants during the recession and reduced costs. “We won’t be a bottleneck but also don’t have to be at the leading edge increasing capacity.”

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