As economy heats up, motor vehicle supply chain faces new challenges and opportunities

The Wall Steet Journal
recently reported that the surge in consumer borrowing is primarily due to auto and student loans—two factors that bode well for the auto industry (Consumers Ramped Up Borrowing in January, by Neil Shah, Wall Street Journal, March 7, 2012).

The average car on U.S. roads is now a record 10.8 years old. More people buying cars gives more solid evidence to a rebounding auto industry. More people returning to school, could lead to more skilled workers for advanced manufacturing positions that are going unfilled. Ohio is experiencing both of these phenomena even as the unemployment rate continues to go down.

The PNC National Economic Outlook for March reported “there was a big jump of 6.8 percent in output of motor vehicles and parts in January, consistent with stronger sales; this was on top of a 3.8 percent gain in December (revised up from 0.6 percent). Auto manufacturers have boosted production as demand has picked up. This is also spurring hiring in manufacturing, and broader economic recovery, especially in the Midwest.”

For the past several months, in Ohio, we’ve been seeing headlines that confirm what appears to be a recovery in the auto industry. Headlines like:

So it’s no surprise when you start to see headlines like:

On Thursday  Mar 1st, MSNBC auto news reported that Chrysler,  Ford, Nissan and Volkswagen all reported strong U.S. sales in February, kicking off what is expected to be another strong month for automakers.

General Motors says its U.S. sales rose 1 percent last month, led by its small cars.
Chrysler said its sales were up 40 percent from a year earlier as it sold nearly 134,000 new cars and trucks and all of its brands showed at least double-digit increases. Volkswagen sales rose 42 percent to nearly 31,000, led by the redesigned Passat midsize sedan. And Nissan sales were up 15.5 percent

So what does this mean for the Ohio economy? What are the opportunities for the auto parts suppliers?  It can only be good news—right?

Well, maybe.

During the economic downturn, some suppliers let their quality programs lapse or laid off so many workers that they can’t ramp up fast enough to take advantage of the recovery. They can’t find employees with the right skills.

Where did the skilled workers go? As the old line auto manufacturers in the mid-west were shrinking operations in Ohio, Indiana and Michigan, some were establishing new operations in the southern states. Many displaced workers, out of sheer frustration went looking for last chance job opportunities in the South in hopes of finding jobs at auto companies in South Carolina or Alabama. They became part of what’s being called the Great Migration to warmer climates and new opportunities.

The pace of out-migration from Michigan and Ohio really ramped up during the great recession leaving several ghost cities in Michigan and isolated neighborhoods in Cleveland and Youngstown’s urban areas—communities that were formerly populated by well-paid blue collar workers.

As the passenger vehicle manufacturing industry migrated to the southern states the skilled laborers went with it. As early as the mid 90’s community colleges and adult training centers in North Carolina, Georgia, and South Carolina began wooing domestic and foreign auto manufacturers by promising a skilled and willing (in many cases non-union) workforce.

In spite of the loss of skilled workers, the rebound in manufacturing that has led the national recovery has driven jobless rates down in heavily populated northeastern Ohio, home to some 10,000 factories. The jobless rate in Cuyahoga County has tumbled to 7.1 percent, down from 9.9 percent over the past two years. In Lorain County, the unemployment rate is 7.3 percent and in Lake County, joblessness has declined to 6.6 percent.  As the long-term unemployed start to re-enter the job market, consumer confidence is gaining and buyers are willing to take the leap and buy the big ticket items, like cars.

The economists at PNC bank report that pent up demand for autos is helping to fuel the growth in the domestic auto industry. In January, auto sales increased to 14.1 million at a seasonally-adjusted annualized rate, up from 13.5 million in December.  January was the best month for sales, excluding “Cash for Clunkers,” since May 2008.

Suppliers take heed! The PNC economist goes on to say that automakers plan to boost production by over 10 percent this quarter. Vehicle sales are at the fastest pace since before the recession. We have not reached the glory days of 17 – 20 million in annual auto sales, but we’re a far cry from the < 10 million at the nadir of the great recession.

All the indicators are pointing in the right direction for suppliers that can step up to meet the challenge. Fortunately, the labor issues have been resolved for Cooper Tire in Findlay and the GM Lordstown plant was only closed for a short time because of a problem with a supplier. The strength and stability of the recovery rests on the shoulders of the supply-chain.

Supply disruption is a real threat

Auto suppliers who were able to diversify to other industries during the worst of the downturn are better positioned to take advantage of the upswing in the auto industry. Those companies that maintained their quality systems and kept highly skilled workers during the rough times are doing well.

Just a few short years ago there was a hue and cry for access to capital. Now, even though access to capital is still a concern, there is an ever pressing need for skilled workers. Even as the unemployment rate continues to fall, advanced manufacturing firms need more skilled workers than the market is currently producing.  One example, recently reported in the Washington Post is from a northeast Ohio company.

At Astro Manufacturing & Design, a custom manufacturer that makes precision products from beds for CAT scanners to torpedo parts, business is booming. The company’s Eastlake plant now has 165 workers, 20 more than it did two years ago. Jobs are returning from China, and a sharp increase in aerospace and medical equipment work has transformed a company that once survived mainly by making parts for automobile assembly lines.

“We could grow by another 10 or 15 workers if we could find qualified workers,” said Rich Peterson, Astro’s spokesman. “When politicians talk about the bad economy around here, they are really talking about the past. Things are getting much better.”

Fatima Weathers is Executive Vice President of the Manufacturing Advocacy & Growth Network (MAGNET). The Manufacturing Advocacy & Growth Network (MAGNET) exists solely to help manufacturing companies in Northern Ohio become more competitive and grow. MAGNET is an Ohio Edison Technology Center, a contractor with the NIST Manufacturing Extension Partnership program administered through the Ohio Department of Development, and a part of the regional economic development system in Northeast Ohio.

This article was first published for the March issue of the quarterly newsletter Ohio Motor Vehicle Supply Chain News.

Posted by MAGNET Ohio in Economic-Issues-For-Mfgs, Motor-Vehicle-Supply-Chain, Workforce-Development

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