Beginning a New Year with Renewed Optimism
Kathy Reiss, OESA

As evidenced by significant gains in the January Supplier Sentiment Index (SSI), OESA members began 2012 with more optimism.  The January SSI increased to 66 from 52 in November and levels of optimism increased across all company-revenue segments.  A sizeable shift in “somewhat more optimistic” opinion (from 25 percent in November to 58 percent in January) drove the improvement in the SSI rating over the past two months.  Suppliers’ remarks indicate that increasing vehicle production and sales volumes are supporting business growth.  In addition, the European debt crisis concerns are seen as being manageable.

As suppliers add resources to manage growth, they forecast 2012 North American light duty production planning volumes of 13.5 million units and 14.1 million units in 2013.  They indicated a higher median breakeven point of 11.0 million units, 500,000 units higher than the January and July 2011 levels.  However, the increase in breakeven compares to a 700,000 unit increase in year-over-year planning volumes indicating suppliers are keeping their cost structures in check.

With production levels continuing to increase, suppliers are faced with issues in meeting their release requirements.  As in 2011 and 2010, production overtime premiums continue to be an overshadowing concern, with 76 percent of suppliers indicating this as an issue.  Other operating factors that more than half of the respondents cited as concerns include skilled labor shortages (59 percent), internal manufacturing capacity constraints (54 percent), outbound-expedited freight (53 percent) and inbound-expedited freight (51 percent).  Two areas where suppliers have seen significant improvement from 2011 to 2012 are potential component shortages (dropping from 60 percent to 40 percent) and raw material shortages (declining from 61 percent to 28 percent).

With regard to the lending environment, the majority of suppliers see commercial bank lending practices as improving or more favorable.  However, there are still companies where lending remains constrained.  This shows in comments ranging from “Lending institutions are willing to invest monies and there is quite a bit of competition to lend monies to companies that prove they are financially stable and have good cash flow stream ” to “Terms for borrowing are very stringent with limitations on amounts.”