By Dustin Walsh, Crain's Detroit Business
Detroit, Michigan -- Surging North American auto sales are prompting large and small suppliers to make contingency plans to cope with pressure on production capacity.
Three years ago, the automotive industry contracted and hundreds of plants were idled. Today, rising auto sales and production mean an increasing number of suppliers are running their plants ragged, said Bill Diehl, president and ceo of Southfield, Michigan-based advisory firm BBK Ltd.
In Southeast Michigan, some small suppliers are facing big decisions-spend capital or ditch contracts-and midsize and large suppliers are in a calculated planning mode.
Industry watchers say suppliers have become more sophisticated coming out of the most recent downturn, but the rapid rise in demand is still a challenge.
According to June reports, US auto sales rose 20 percent, reaching an estimate of 14.1 million for the year, up from 12.8 million in 2011.
"There are suppliers out there running plants 24/7," Diehl said. "The supply base isn't shutting down (auto maker) plants yet. But as volumes continue to grow, the constraints are worrying. Suppliers have been running on the ceiling too long, so the question is: What's going to break and when?"
North American automotive plants are running at 88-percent capacity, estimates Northville, Michigan-based IHS Automotive Inc. Germany-based KPMG AG estimates that plant capacity in the United States alone will reach 94 percent by 2018.
A May survey of suppliers by the Troy Michigan-based Original Equipment Suppliers Association found that plant capacity use was 85 percent across the supply base, up from 80 percent in September.
Crunch time is coming for many suppliers, and that has domino effects, Diehl said.
See more of this story at www.crainsdetroit.com