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The never-ending supplier squeeze (Part I of II)

A supplier squeeze is at work. This is code for auto suppliers being literally squeezed from the inside out, outside in, and in any other conceivable direction humanly possible. A gentleman by the name of Paul Eichenberg presented this best at a talk at the Forging Industry Technical Conference last year. He took a six cylinder Chrysler Minivan, opened up the hood, and called on attendees to take a glance underneath. What did they see … axles, spindles, gears, pinions, rods and more. All parts used to power 270 million passenger cars on U.S. roads.

Eichenberg then took a step back, peered out at the crowd, and exclaimed (not in his exact words), that there are roughly 107 forgings that bring to fruition a working engine’s unique choreography, taking fossil fuel and converting it to horsepower. But what came out next had everyone simultaneously cleaning coffee off their shoes. An electric car by comparison, noted Eichenberg … has 7.

Now, we do have to admit that 107 to 7 sounds invented – the common “7” in both. Perhaps it is 111 to 9, or 108 to 5, but regardless, the auto parts supply business has clearly been accustomed to supplying a whopping 107 (or in that neighborhood) of forgings over millions of cars per year. And if electric vehicles (EVs) take hold, a massive drop is imminent.

When we talk about a drop, Eichenberg thinks that might be roughly 90%. Yikes! Across the U.S., approximately 1,100 firms provide 130,000 employees steady employment, which from a payroll perspective, numbers $8 billion plus. Rather substantial to say the least, and like many industries across a multitude of sectors, the traditional auto industry is one that is being threatened due to emerging technologies. Most of these supply companies are located in Michigan, Indiana and Ohio. These are “rustbelt” states, areas where industrial manufacturers and communities have not had it easy as of late.

Stay tuned for Part II!

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