Rising auto sales put suppliers into overdrive

• As carmakers ramp up%2C it%27s up to the suppliers to not let a missing part delay or stop production
• Industry will launch 41 new vehicles in the U.S next year
• About 75%25-80%25 of suppliers have invested in people and plants to keep up with demand

DETROIT -- New car and truck sales are approaching an annual pace of 16 million, the highest since the financial crisis, and automakers next year will launch a huge wave of new vehicles.

These are positive trends worth celebrating. But some parts suppliers are battling with the faster pace that can be overwhelming.

The good news is most are finding a way.

The bad news is it only takes one missing part to delay or stop production.

Suppliers and automakers alike are scrambling. Ford Motor Co. says it could sell more Escapes and Fusions if it could make more. The automaker is squeezing extra production from every North American plant by investing in people, equipment and processes, said Jim Tetreault, Ford vice president of North American manufacturing.

"We have increased the line rate at almost every plant this year," he said, even after Ford increased capacity 3% last year.

Federal Reserve Board data for June shows auto suppliers are operating at 79% capacity, so there is some room to further ramp up.

A May survey by Original Equipment Suppliers Association of its members found the median capacity use was 75%, said Dave Andrea, senior vice president for the supplier advocacy group. That means, in theory, the typical supplier could increase production by one-third without building a new factory.

The problem is that about 25% of suppliers are running close to 100% capacity, leaving no room for hiccups or error. They are the ones who need to expand, Andrea said.

"The cardinal sin is you never shut an assembly plant down," said Andrea.

Sectors experiencing the most shortages are powertrain and electronics, especially highly machined components.

Staci Kroon, president of Eaton Automotive, said some suppliers can tap underused plants in one region — for example, Europe — to meet demand in a growing region such as North America.

But that raises transportation costs and adds time that can disrupt automakers' rigid just-in-time delivery requirements.

There's more than higher sales straining suppliers. The industry is about to introduce a bigger wave of new cars and trucks than the market has seen in about a decade. Anthony Pratt, director of forecasting for Polk, said car makers will launch 41 new vehicles in the U.S. next year, up from 17 this year.

About 75%-80% of suppliers have made significant investments in people and plants and there is a lot of overtime in the industry, said Neil DeKoker, CEO of Original Equipment Suppliers Association.

Those who haven't invested know they risk losing business to a competitor, DeKoker said. "The vast majority are in solid shape."

This trend didn't just begin. In the last 15 months Ford has added 600,000 units of capacity including the addition of seven shifts and 8,000 employees.

"We're still looking at how we get more out of every plant, and that'll be a focus for as long as the demand is as strong as it is," said Tetreault. "We teach them (plant managers) to identify the slowest gazelle in the herd."

Adding workers has been part of the solution.

"We've been on a hiring spree like I've never seen," Tetreault said. Ford now has 58,000 hourly and 24,300 salaried workers in North America.

While that is still significantly below levels before the 2008 financial crisis, the automakers are getting first shot at the most qualified applicants and once they hire new people, their first priority is to train them. Ford, General Motors and Chrysler don't recruit and hire for their suppliers.

GM announced plans Tuesday to invest in its Spring Hill, Tenn., plant, retaining or creating 1,800 jobs to produce two future models.

Chrysler announced plans to add capacity and almost 300 jobs at a pair of Michigan engine plants.

Honda announced the investment of $215 million in Ohio for engine production and training. Honda also has a plant under construction in Celaya, Mexico, that will build small cars next year and is preparing to make the NSX sports car in Ohio in a few years.

The automaker has increased capacity in Indiana and Alabama by as much as 100 vehicles a day, said Rick Schostek, a senior vice president of Honda North America.

Nissan also is expanding in Mexico and running its Tennessee and Mississippi plants flat out.

"We need suppliers to cooperate to maximize production opportunity," said Bill Krueger, who oversees purchasing and manufacturing for Nissan Americas.

GM has hired 200 quality engineers to work in the field to help mitigate stress on the supply chain, said Grace Lieblein, vice president of global purchasing and supply chain.

Ford also has added about 200 engineers in the field to prevent bottlenecks and quality issues.

Tetreault said he meets twice a week with suppliers and purchasing executives about constraints in the system. Sometimes Ford will shift the mix of vehicles and equipment packages if they are short of radios or some other part.

"It's something we do really well," he said. "We are all world-class scramblers."

Honda's Schostek said some suppliers were initially reluctant to increase capacity, but most reacted when they saw sales rise last year. So far, Honda has not experienced shortages or delays, he said.

Andrea sums it up:

The supply base, he said, "needs constant attention and care and feeding to meet production numbers going forward."