We were struck recently by the juxtaposition of an interesting set of circumstances that illustrate the fun (and by "fun" we mean "challenge") of being in the auto industry:
It seems ironic that at a time when there are so many factors driving up the attractiveness of plastic components, that the manufacturers of such components are unable to stay in business. What's going on?
It is one more example of the classic dilemma of balancing short-term and long-term needs. In the short term, suppliers of plastic components are struggling with the same forces affecting all suppliers-slow sales, lower-than-projected production volume, rising material costs-that make it hard for some companies to hang in until the market picks up again. In addition, this part of the industry has been characterized by excess capacity, even aside from the industry downturn, due to relatively low barriers to entry for molding. Some of the Chapter 11 filers in this field have been unable to reorganize or find buyers and are simply closing and liquidating assets (e.,g. Progressive Moulded Products). Ford Automotive Components Holdings LLC's difficulty in finding a buyer for its Saline, MI, interiors plant may lead to removal of capacity to the tune of a 1.6-million-ft2 plant if they decide to shut it down. The operating assumption is that in the long term there will always be enough capacity for what is needed-someone is going to be the last molder standing. Wilbur Ross is making a play for that role by continuing to add companies to his International Automotive Components North America, but he also selectively closes facilities to consolidate and reduce capacity. So, some of the disparity between the apparent opportunities for plastics and the current realities for injection molders is from an in-process correction in capacity overhang.
What's more, you could say that the basic plastic building blocks, e.g., injection-molded trim, get no respect. Years ago, we were watching a demonstration of Freemarkets' new reverse auction technology at an industry seminar. As the graphic on the screen ticked lower and lower with supplier quotes on a package of plastic parts, the powder metal salesman next to me leaned over and said, "And that's why you don't want to be in injection molding." To take advantage of the opportunities in an industry that desperately needs lighter vehicles, suppliers need to get beyond the routine commodity parts and into new applications, developing the data and technology to support conversion of more components and systems. This is not an easy assignment when there is little short-term return (e.g., reimbursement for R&D/development dollars) and cash flow is tight, even if in the long term it would pay off. Balancing short-term issues with long-term opportunities may never have been more difficult. For some suppliers of plastic automotive components, the future is bright, but it just can't get here fast enough.