A March 31 explosion at a German auto parts plant is creating a déjà vu moment for automakers, whose production suffered when parts became unavailable in the aftermath of the earthquake and tsunami in Japan last year. In an attempt to avert a similar shortage, executives from the world's top carmakers are meeting today in Detroit to discuss alternative sources for a component used in making fuel and brake lines.
“Indications are that near-term production disruptions are likely,” said Deutsche Bank AG analyst Rod Lache in a research note obtained by Bloomberg Businessweek
Parts suppliers typically keep two weeks of product in stock, and if the auto industry doesn't quickly come up with a contingency plan, Europe will soon experience a shortage; U.S. and Asian carmakers, on the other hand, likely have several weeks' worth of supplies coming to them that were already en route when the explosion occurred. Shortages are expected to last six to nine months.
The component in question is a resin that was already in short supply due to increased demand from the commercial trucking and solar industries in recent years. And while the resin is also produced by a few other companies, those companies rely on the German plant for an essential ingredient in their formulas.
For safety reasons, switching to another chemical is not viable. “Brake lines and fuel lines are safety products, so you don’t make changes overnight,” Neil De Koker, president of the Original Equipment Suppliers Association, told Bloomberg Businessweek. “You have to do them very carefully with the right testing to prove out the product.”
After March 2011's natural disasters in Japan, U.S. automakers saw their production slowed for several months, while Honda
suffered throughout the year. The crisis raised the question among automakers as to whether to keep more parts on hand -- a more expensive proposition, but one that protects against future shortages.
“What we have to hope for is that, after last year’s situation, the auto companies followed through on what they told us they would do," Itay Michaeli, a Citigroup analyst, said in an interview with Bloomberg Businessweek. "Which was to build more comprehensive Plan Bs in contingency situations like this.”
According to a spokesman for the German factory, repairs to the facility are underway. The goal is to rebuild the plant by winter.