Keeping up with automakers a challenge for suppliers

DETROIT – Good times are not easy in the auto industry.

They are most welcome, but strong car sales put pressure on the supply base to provide the volume of parts needed to keep assembly plants working around the clock. So far the chain is holding strong in the face of the challenge to be more global, develop more technology, keep costs in line and work ever more seamlessly with automakers.

U.S. auto sales are on pace to exceed 17 million sales this year and could break the record of 17.4 million sold in 2000. The seasonally adjusted selling rate in August was 17.8 million, according to Autodata Corp. At a recent industry conference in Traverse City, Mich., General Motors' chief economist, Mustafa Mohatarem, said the record could fall as early as this year and GM has increased its sales forecast for the year for the industry by 500,000 units to a new range of 17 million to 17.5 million.

Many automakers are running their U.S. plants with three crews of workers and scheduling overtime, especially factories that make pickup trucks, SUVs and crossovers. And automakers continue to invest in new plants in growing markets like Mexico, China and India.

"We need to offer stable, consistent product around the world," said Matt Simoncini, CEO of Lear, a seating and electrical supplier.

Equally important: "We need to make a return on our investments," Simoncini said in discussions during the conference.

But stating the obvious does not make it any easier.

Michael Robinet, managing director of IHS Automotive Consulting, cautioned that in addition to increasing volume, today's competitive market is forcing automakers to reinvent their vehicles more frequently and launch them into the marketplace faster. That means parts must be redesigned, engineered and produced faster — which requires more investment in tooling.

And when a vehicle's life cycle is reduced from seven years to five, often with a major refresh after only three years, there is less time to recover the costs, which eats into profits. Rushing product to market runs the risk of having quality suffer, which can lead to expensive recalls.

One solution is consolidation. Suppliers spent $28 billion in the first half of 2015 on mergers and acquisitions, already exceeding the $20 billion in deals in 2014, according to a study by AlixPartners.

Partnerships help suppliers bid on huge contracts for automakers who are building more vehicles on fewer global platforms. Volkswagen, for example, gets 5 million vehicles from a single platform. GM has 10 million global sales and is moving to four global platforms to leverage scale.

Mergers and acquisitions also help companies become the largest supplier in a given sector and spread out the cost of developing increasingly complicated technology.

Overall, the industry can do a better job of using its capital and infrastructure, Simoncini said. "It should be the industry focus."

Suppliers also need accurate sales projections to determine their own capacity and production schedules.

Toyota purchasing chief Robert Young said his company provides three-year forecasts to suppliers twice a year and every month provides a five-month snapshot.

Fiat Chrysler's Tom Finelli, head of purchasing and supplier quality, now has weekly calls with Tier 1 suppliers to go through production plans plant by plant.

Steven Kiefer, head of GM's global purchasing and supply chain, said a new demand-supply organization was put in place last year to better gauge sales at the dealer level to keep the supply base apprised of shifts in buying patterns.

The other challenge is keeping up with technology, much of it related to safety as cars become semiautonomous in their ability to recognize and warn consumers of a potential crash and then steer, accelerate, brake or even come to a full stop if the driver does not.

Advanced driver-assist systems are the fastest-growing piece of the market, said Praveen Chandrasekar, consulting director with Frost & Sullivan, which forecasts 25 percent growth annually for the next five years for that segment as governments continue to mandate the use of collision-avoidance systems. Automakers also have embraced systems that are key to autonomous driving, which the industry expects to be reality within 10 years.

Simoncini said suppliers must know that if they give an automaker their innovation, that their intellectual property is protected and it will be used long-term to capitalize the cost. "It comes down to trust and transparency without fear we will be de-sourced."