DETROIT - Suppliers who have followed their customers around the world are finding that they too have too much capacity.
'We simply can't continue to add capacity to serve every market niche around the world,' said Joseph Magliochetti, president of Dana Corp. 'We've got to do it in a more intelligent way to make sure we're getting the optimum use of our collective capacities, wherever we have them.'
To accomplish that collective goal, parts suppliers and car companies are going to have learn to cooperate in ways that will move them even closer together, said Magliochetti. Other speakers on a supplier panel agreed with him at a panel discussion at the Automotive News World Congress last month.
Such close cooperation is not imminent.
Car companies are still reluctant to trust some suppliers with long-range plans for new models. And many suppliers are not too keen about building a new factory, especially in an underdeveloped market, for an uncertain payback.
But panelists pointed to the emerging practice of modular supply as an example of how the automotive parts industry could work.
In the modular system, a parts maker assembles a number of parts into a built-up piece that is installed on the vehicle as a finished assembly. In theory, modules make the assembly process easier for the car company, which also has fewer suppliers to keep track of.
Mercedes-Benz US International Inc. is using modules to build its M-class sport-utility in Alabama. The automaker sources from only 65 suppliers for the M-class, said Robert Birch, vice president of purchasing and logistics.
Until a few years ago, most vehicle programs involved hundreds of suppliers of parts and components. Using fewer suppliers to deliver larger components and modules should translate into less duplication of effort in the supply chain. And fewer companies would be investing in the same plant and equipment to make the same parts.
Dana is an active supplier of modules. Beginning next year, Dana will provide a built-up Dodge Dakota pickup chassis to Chrysler Corp. in Brazil. Dana is managing 61 different suppliers for the project, which projects volumes below 40,000 units annually.
Magliochetti said Dana is working on 65 different projects involving some level of modular assembly. Two of them are large programs comparable to the Dakota project, for customers he declined to name.
'This is the way vehicles are going to be produced,' Magliochetti said.
Ridding the supply base of wasteful capacity requires trusting partnerships, said Dennis Pawley, executive vice president of manufacturing at Chrysler. Unfortunately, he said, the use of the word 'partnership' has degenerated into a buzzword in some parts of the auto industry.
Real partnerships will have to include more participants than just assemblers and suppliers, Pawley said. Labor unions, government officials, university researchers and educators all need to be more intimately involved.
Pawley quoted figures that showed a growing overcapacity problem in the auto industry. In the North American market, for example, there was demand for 16.7 million vehicles in 1997, but excess production capacity of 1.8 million units. By 2002, demand will rise slightly to 16.8 million units, and excess capacity will increase to 2.7 million vehicles.
The projected excess capacity is about equal to the output of 10 assembly plants, Pawley said. He described the situation, which exists in other markets, as a worldwide capacity showdown.
Said Pawley: 'It's just going to get more and more competitive.'