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Stark Contrasts Across Global Automotive Supply Chains

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European automotive supply chain teams, stressed by the effects of nearly two years of severe economic recession, are now pondering the latest industry forecasts that deliver rather mixed news for this geographic market sector.

Business media cites a report by the European Automobile Manufacturers Association (ACEA) that indicates that overall auto sales have fallen approximately 22 percent since the European recession began. A new report published by industry consulting firm AlixPartners predicts a bottoming this year, with prospects for any recovery not evident any time soon, at least through 2014.  Once more, automotive assembly plant capacity utilization levels have slipped to 71 percent across Europe with wide disparities.  While German and UK plants are at roughly 80 percent capacity, plants in Italy and France are barely 50 percent.  That is obviously not a healthy situation for manufacturers and their respective suppliers.

Business media has also contrasted the current industry situation in Europe to that which U.S. based automotive manufacturers faced in 2008-2009.  During that time, as both Chrysler and General Motors faced the threat of possible bankruptcy with the U.S. automotive supply chain teetering on near destruction. The U.S. government stepped-in to takeover both companies and force necessary decisions to consolidate final assembly and supplier based capacity along with an excess dealer distribution network. The result has been a far more vibrant U.S. industry.  Across Europe, local governments continue to subsidize major country-based manufacturers, prolonging the industry’s erosion in overall cost efficiencies and perhaps elongating industry recovery.  European brands continue to focus on other markets such as China and the U.S. for to sustain growth, but are chronically anchored down by burdensome cost structures in their home markets.

China’s automotive market shows current signs of contraction as the proliferation of China-based manufacturers compete with European, Korean, Japanese and U.S. brands in a currently tepid market. Chinese consumers have discovered that while owning a car is sign of success, it is rather expensive, not to mention that roads are continually clogged.

The other contrasting picture is the current U.S. market.  An article published in the Detroit Free Press (sign-up required to access) observes that a combination of rebounding sales and unprecedented numbers of new models has stretched the U.S. automotive supply chain so taunt, that the entire community is holding its collective breadth that it does not snap and jeopardize momentum.

Previous efforts directed at consolidating operations have led to smaller numbers of suppliers and current spot shortages. While Europe suffers from excess capacity, the U.S. automotive supply chain is approaching full capacity. U.S, OEM’s have augmented their product lines with smaller, more fuel efficient models while at the same time maintaining market attraction to SUV’s and pick-up trucks. Suppliers remain cautious to invest in any new capacity given previous history with OEM’s in 2008-2009, while the pipelines for new model introductions accelerates further.

Thus, there are stark, difficult yet highly contrasting challenges across each of the major global automotive markets and their associated supply chains. OEM’s such as Ford, General Motors and Volkswagen continue to rollout global-based, common vehicle platform and associated supply strategies yet each geographic market presents a different need and challenge.

Now, more than perhaps any time in automotive industry history, the ability to dynamically plan and respond to constantly changing and different market scenarios is stark. An industry that traditionally does not have tendencies to invest in more sophisticated business planning, end-to-end supply chain visibility and supply chain intelligence  has the most to benefit from these capabilities.

Bob Ferrari

 

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