Most analysts have predicted that auto industry sales will reach 15 million units next year.  With that prediction in mind, some auto manufacturing executives are beginning to see fault lines develop and are expressing doubts about the capacity of the Tier 2 North American supply chain.

We all know that many smaller suppliers failed during the Great Recession.  Some visited bankruptcy court, some closed plants, or sold unprofitable divisions.   Many of those who weathered the recession sought out new markets and diversified their businesses and/or  eliminated 20-30% of their production capacity.  Those who eliminated capacity have been slow about bringing it back - with good cause.

OEMs know that meeting the demands of the 13+ million units expected this year already has some Tier 1 and Tier 2 suppliers running two or three shifts - six or seven days a week.  Demand outpaces supply.  So, what's the result?   A little clout for suppliers.

Before the recession, automakers often had the upper hand in price negotiations.  Suppliers were plagued with over-capacity and operations that were not lean.   The recession forced suppliers to take action, make tough decisions, and change course.  Navigating through the difficulties of the past 5 years have made suppliers smarter, leaner, and more productive. 

Now that we are in a period of stabilization, suppliers are beginning to able to pick and choose their customers and along with that command higher prices and better contracts.  Industry analysts have noted that contract guarantees for raw material increases are being approved, quicker compensation for tooling is occurring, and over all margins are up.

The news has been good lately for automotive suppliers.  Although, we have not forgotten the lessons learned about how tenuous our global economy really is.  If anything is certain, it is that 2013 will bring new challenges.