Automaker uncertainty heavy on suppliers

Two of the biggest challenges faced by suppliers during the coronavirus crisis are navigating automakers' uncertain production schedules and securing the liquidity needed to sustain the business until the market bounces back.

Those are among the key findings of the latest survey conducted by the Automotive News Data Center. The survey — which gathered the views of 120 executives, managers and directors at suppliers servicing and operating in North America — found that suppliers have a grim outlook about the impact of COVID-19 on their business.

Other challenges respondents cited include staying flexible in response to uncertain recovery scenarios and implementing changes within their facilities in response to the "new normal."

The survey, conducted April 16 through Wednesday, April 29, found that suppliers also feel they are not getting the support they need from their customers as they navigate unclear production restart dates. About 93 percent said their primary automaker customers were giving no signs that suppliers will get financial assistance from them.

This comes as suppliers struggle to sustain themselves after racking up a month or more of expenses against virtually no income. Suppliers will also likely have major expenses to recall workers and get back online with the necessary health and safety measures in place.

In the short term, cash and revenue are top of mind as suppliers wait out coronavirus-induced shutdowns. Many major suppliers have drawn on their credit lines while withdrawing their 2020 financial guidance.

Pepperl and Fuchs Inc. — a privately held electronic sensors and factory automation components supplier to most major automakers in North America — indicated that it has drawn down on lines of credit, suspended dividends and ended share buybacks amid the crisis to help increase liquidity.

Despite short-term challenges, Thomas Miller, automotive market manager at Pepperl and Fuchs, says the recovery in China is promising for the business.

"We anticipate as the wave goes from Asia to Europe to North America, we all would follow suit," said Miller, who responded to the survey. He said the forecasting information he has received from Detroit automakers indicated "the big programs that they have are still moving forward."

"They've already contacted us to make sure we can adhere to their readiness plans," he said.

Respondents' views are mixed on how long it will be until the auto industry in North America returns to "business as usual." About 31 percent expect it will take two to six months, about 42 percent think it will take six to 12 months, and about 16 percent expect a year to 18 months.

Regardless of when normal comes, scattered restart dates are a major pain point. As one survey taker said: "Uncertainty is the biggest planning issue."

Richard DeBoer, executive vice president of sales, marketing and pricing at Carter Logistics, said that for logistics providers, different restart dates create "a lot of abnormal shipping conditions."

Sixty percent of survey respondents estimate a decline in 2020 North American revenue of more than 25 percent but less than 50 percent. About 1 in 4 expects a drop of 10 to 25 percent. About 14 percent project a plunge of more than 50 percent. Less than 1 percent each estimated there would be no change or that there would be an increase of less than 10 percent.

Scattered restart dates create "a lot of waste in the supply chain," DeBoer added. "That financial loss either has to be paid for by the Tier 1s or someone along the supply chain because we can't run trucks at 50 percent pay of what we were getting before."