Auto supply chain might not meet demands, say analysts

Auto parts manufacturing is running near capacity in Canada and experts don't think companies can keep up with the surging auto industry.

Surging auto sales could put a strain on an overworked parts supply industry

A concern at the North American International Auto Show industry days is that there may not be enough tier one and tier two parts suppliers. 1:46

Auto parts manufacturing is running near capacity in Canada and experts don't think companies can keep up with the surging auto industry.

During the recession, some suppliers had to close but now that the industry is back on track, auto analysts have other concerns. They are worried that the tier-one and tier-two suppliers may not be able to meet the demands of automakers.

"Much of the automotive value chain is in the hands of the supply chain, and suppliers will be key to driving innovations in vehicle technology," the Centre for Automotive Research in Ann Arbor said in a piece entitled Supplier Readiness.

According to the centre, lower-tier suppliers also supply more than one automaker and more than one tier one. Sometimes. they supply each other.

The lower tier suppliers are the companies that manufacturer parts for larger components used in cars; things like leather for seats or systems and equipment used by larger suppliers.

"Many of them are small businesses that are being asked to produce twice, if not more, the amount of parts they've been producing. The demand on them to produce those parts is huge," said Kim Hill of the Centre for Automotive Research in Ann Arbor, Mich.

Centreline Ltd. in Windsor, Ont.,is an example. The company builds automated welding assembly systems, a product used by the suppliers of the auto industry.

Five years, ago the company had to downsize. It reduced hours for staff and issued layoff notices. They have since doubled their sales and are preparing for what auto analyst have forecasted.

"We're putting on a physical expansion here as we speak," said vice president of sales, Phil Campbell. "We will be clearing an additional 25,000 square feet of manufacturing space so we can take a large volume of work in anticipation of this demand and we're really positioning ourselves for the future."

Last year marked the second-best sales year on record for Canada, where 1,675,675 vehicles were sold. That was a 5.7 per cent increase from 2011.

Analysts expect Canadian sales in 2013 should be better than 2012.

In the U.S., the most recent auto sales forecast by R.L. Polk & Co. suggests they should top 15 million units in 2013, a rise from 500,000 in 2012.

In 2015, Americans are projected to buy more than 16 million cars. That hasn't happened since 2007.

"A return to years of 15 or 16 million units of light vehicle sales could be challenged by the sup­plier sector’s ability to manage volume increases," the Centre for Automotive Research said on its website.

During the last two years, Centreline has hired 100 people. There are plans to hire 40 more.

Mitchell Bastien works for Centreline. He got a job there right out of high school.

"Right off the bat they let me do a bunch of cool stuff and I learned so much already. It's been a great experience so far," he said. "You know, now people need to get around. People need cars and we need to build robots."