Tier Two Automotive Suppliers Getting a Raw Deal

Consulting firm A.T. Kearney issued its 14th Annual Automotive Study a few weeks ago, and among its findings:
Since 2005, Tier One suppliers have increased the time between when they receive parts to when they pay for said parts by 21 days. In 2005, the payment delay to Tier Two suppliers averaged a reasonable 26 days; today it’s swelled to 47 days.
Get used to it! “We don’t expect Tier Ones to go back to paying their Tier Twos at that faster rate,” says A.T. Kearney partner Daniel Cheng.
Want some good news? The study finds that most suppliers will have enough working capital to meet increased North American production levels, predicted to climb back toward 16 million vehicles/yr. by 2012.
”Only eight percent by revenue of North American Tier One suppliers are at high risk of running short of working capital,” says the study.
So what’s a Tier Two supplier to do? Crain’s Detroit Business recently profiled a company it says “typifies supplier survival:” Grede Holdings, a Novi, MI foundry. Says CEO Doug Grimm: “At 10:30 every day, I get my cash position.”
Later in the article, Grede poses this challenge as he tries to explain his cautious approach to adding costs or debt to handle any uptick in business:

“Do you put on the second shift (and) add workers? Bring back the machine idled for a year at $50,000, or wait because you don’t need it until September?”

Any suggestions?

MetalForming magazine editor Brad Kuvin has covered the metalforming and fabricating industry since 1984. His interviews with engineers and managers at manufacturing sites aim to transfer technology to the magazine's readers and website visitors, helping them improve productivity, quality and safety.