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Idle plants call for supplier action

30 January 2019 Ben Della Lucia

The end of new program allocation at three GM vehicle assembly plants will require suppliers to realign their business

The planned idling of five General Motors plants, including three vehicle production plants, will have ripple effects throughout the automotive supply chain. The three vehicle production plants -- Detroit-Hamtramck, Michigan Lordstown, Ohio and Oshawa, Ontario -- combined to build more than 300,000 vehicles in 2018. The reduction in production allocation at these plants in 2019 will put strain on suppliers, more significant with certain facilities that are uniquely exposed to the expiring vehicle programs.

IHS Markit evaluated 16 vehicle components to analyze the impact of the GM plant announcements on suppliers to these plants. Particularly affected are supplier locations that provide sequenced and just-in-time (JIT) components to the vehicle assembly plants. These are often interior components including the seat assembly, door trim panel, and floor console. These supplier facilities are highly sensitive to the volumes of a single vehicle plant. It is not uncommon for these JIT supplier locations to send more than 40 percent of their production volume to a single vehicle plant.

Less affected are supplier locations with a diverse OEM customer profile. Brakes assemblies, HVAC modules, and power steering systems do not present the same inventory or sequencing challenges of many interior components, allowing one supplier plant to send its components to multiple vehicle assembly plants and customers. In contrast to the high level of exposure JIT facilities have to individual vehicle plants, the share of component production from one of these component plants sent to any single vehicle plant is typically in the single digits.

The idled plants cause waves in the automotive pond with the greatest impact being felt by suppliers co-located with vehicle production. These suppliers will need to adapt and seek opportunities to gain new business on other OEM programs, and strategically realign their manufacturing capacities while considering the future of other OEM plants in order to maintain a steady flow of business once the GM plants are idled.

This scenario is not unique in its impact as there are many seismic shifts currently underway from vehicle segment shifts to non-traditional competitors entering the automotive market, all with different potential impacts to be considered.

Our Automotive Advisory team at IHS Markit is following these developments closely and working with customers to mitigate risk, capitalize on opportunities and build strategies for weathering the forthcoming changes. To learn more on how we can help, please email automotive@ihsmarkit.com .

Posted by Ben Della Lucia, Associate Manager, Automotive Advisory, IHS Markit.

Posted 30 January 2019 by Ben Della Lucia, Associate Manager, Automotive Advisory, IHS Markit

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