Will Supply Chain Issues Ruin Auto Industry’s Resurgence?

Automotive supply chains are struggling to keep pace with a surge of sales and new car models this year leading large automakers such as Ford Motor Co. (NYSE:F) and Nissan Motor Co.  to brace themselves for the worst. The news is leading many observers to wonder whether the automotive chain will snap.

New car sales are estimated to eclipse 15 million this year with 500 vehicles launched by 2016 — a new record. However, because of the economic downturn, many suppliers were forced to close plants, lay off large numbers of workers, and reduce the capacity of their operations by as much as 30 percent. Now that the auto industry is seeing a huge rebound in the realm of 22 percent, the supply chain and automakers are in a huge bind due to delays, disruptions, material shortages, and quality issues.

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In order to increase capacity, Ford has added shifts at their plants resulting in an additional 400,00 vehicles with plans to add another 200,000  this year. Ford’s purchasing staff, which works directly with suppliers, has been in constant damage-control. ”We’re meeting weekly,” Joe Hinrichs, Ford President of the Americas, said.

While the U.S. has averaged 37 vehicle launches a year for the past decade, it is likely to rise to 44 a year for the next four years. Globally, it is estimated that there will be 135 car launches a year through 2016 compared to the prior rate of 100 a year. That means 500 total vehicle launches by 2016.

Problems are already widespread. The Lincoln MKZ, which is owned by Ford, was plagued by quality issues which resulted in months of waiting for customers looking for replacement parts. Chrysler’s Jeep Cherokee, owned by Daimler AG, has been delayed two months and will be released on June 24th.

Toyota Motor Co. (NYSE:TM) and Honda (NYSE:HMC)  are struggling to keep up with demand for their electric vehicles, which spiked when both automakers dropped their leasing costs.

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While automakers have been able to navigate the turbulent environment for the most part, the question is whether these problems will come to be too much for the automakers and supply chains to handle. If that happens, it will be a disappointing road block in the otherwise outstanding recovery for automakers.

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