After years of resisting structural expansion during the recovery, most auto suppliers expect to invest in new capacity in the next two years.
It adds risk for many suppliers that have found that slow-walking growth improved margins and gave them freedom to reject unprofitable contracts. But suppliers recognize that they can't run factories on a three-shift basis indefinitely.
A September survey by the Original Equipment Suppliers Association found that 84 percent of members active in North America are somewhat or very confident they will make capital investments in 2014 and 2015 to meet higher demand.
The recovery in auto production since 2009 has been strong but uncertain. Many suppliers have followed the pattern of their automaker customers and added shifts and overtime instead of brick-and-mortar capacity in case demand faltered.
But that is a short-term solution. Even though the rapid post-recession surge has faded, North American production is on pace to increase about 4 percent this year from 2012, LMC Automotive says, and it forecasts a 3 percent gain in 2014 to 16.6 million units. Suppliers still must address long-range issues.
OESA members say their biggest challenges are handling new-model launches, expanding capacity, and personnel -- namely, hiring more engineers, retaining employees and attracting skilled tradespeople.
Suppliers need to reinvest. If they keep the same measured approach to expansion that they took with holding the line, they should avoid the woes that come with overexuberance.
