News from the auto industry could be better

Possibly, the auto industry as we know it may have a very different character this time next year

Possibly, the auto industry as we know it may have a very different character this time next year

Well, we are half way through a year that many in the manufacturing sector will want to forget. As this is being written the economic news in the United States (and to some extent globally), although less intense, remains dreary. Moments of pleasure, as expressed in the Slivers of Light featured on the ILS Website, are still vastly outweighed by depressing statistics that show unemployment numbers still too high.

For example the planned nine-week shutdown of all General Motors assembly plants in North America this summer will likely produce havoc among the company’s suppliers. It’s going to be a tough period for these companies, many of them in the “small” category, who are used to the ups and downs of the auto industry if they have been serving that industry for years.

Over the past several decades it has always been feast or famine for suppliers to the Big Three. I can recall chatting with the owner of a small company that supplied the insulating backing for dashboards to one of the Detroit Three. He was on his way to negotiate a contract cancellation and in a surprising acquiescence to the situation shrugged saying, “When you sell to Detroit you knowingly take the good with the bad. When it is good it is very good. When bad it can be awful.”

This attitude and company philosophy may be alien to business consultants, who typically caution not to put all your eggs in one basket. But, for the small contractors having auto as your main customer was always a good gamble. Why, because auto always came back, bigger and better.

Not so this time. Possibly, the auto industry as we know it may have a very different character this time next year. One blogger suggests that China may be the next giant in the U.S. market. If the current administration in Washington has its way the Big Three may end up as the Big Three and ½ with Toyota replacing Chrysler, which becomes the ½. And surely the number of assembly plants and perhaps even badges for survivors will be reduced and along with that numerous subcontractors.

I have concern for all the companies affected, but more so for those Tier 1, 2, and 3 companies who are customers for laser and laser-related products. These are the main users for lasers as they supply the components for the OEMs who get all the headlines. ILS has tracked lasers in the automotive sector for 25 years, and it is interesting to note that the headline installations (for example, the massive use of solid-state lasers to weld Volkswagen products) represent only a small number of the total units sold in any production year. The real number of lasers sold into companies that supply goods to the auto industry is a much larger number.

It is harder to pin down this number because many of these small to medium privately held companies are also suppliers of products to other industries or, if focused on the auto OEMs, are invisible to non-auto observers. How many? If there are a baker’s dozen of OEMs there are, unofficially, several hundred times the number of component suppliers with laser capability. So you can see the concern ILS has for these suppliers, and customers for more lasers, as the majors announce more slowdowns, production cutbacks, and temporary closures.

Dedicated suppliers will no doubt feel the effects immediately, and already have. For them the question is one of survival. Those diversified into other industries will weather this latest in the boom or bust cycles of the auto industry and continue on at some reduced levels. Either way it is not a pretty picture for the next few months.

David A. Belforte
belforte@pennwell.com

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