Lexington, KY - Camrys, Corvettes, Explorers and F-Series pickups are just some of the popular vehicle models built by Kentuckians on assembly lines in Louisville, Georgetown and Bowling Green. But for every shiny new car, truck, van, SUV or hybrid that rolls off the dealer's lot, there are as many as 10,000 individual parts - the guts of the vehicles - that are produced in satellite parts plants around the state. That's everything from bumpers to car seats, from electrical wire harnesses to stainless steel piston rings, and much more in between.
The automotive industry is vital to Kentucky, which ranks behind only Michigan and Ohio in light- vehicle production. But most of Kentucky's automotive jobs aren't in the relatively glamorous vehicle assembly plants, but in 479 allied parts manufacturing plants scattered around the state. And for the last two years, most have suffered.
"We were fearful a year ago about suppliers remaining solvent," said Tom Goldsby, Ph.D., associate professor of supply chain management at the Gatton College of Business and Economics at the University of Kentucky. Goldsby's research focuses on logistics strategy, customer service and supply chain integration. He also studies development and implementation of lean and agile supply chain strategies.
"Now we can safely say the economy has bottomed out. I'm pleasantly surprised that we didn't have many suppliers go out of business here in Kentucky and nationwide."
Many suppliers nationwide are profiting again, and if they got federal stimulus funds are re-paying the loans. Some suppliers have reversed massive losses from 2009 when consumers stopped buying new vehicles and the auto industry almost collapsed.
Goldsby said parts suppliers need a diversified portfolio of customers to survive lean times. For instance, when Toyota shut down last winter due to recalls and safety issues, suppliers should have had other customers to feed parts to.
"You can't have all your eggs in one basket," he advised.
One Lexington manufacturer survived the recession by producing materials for a variety of industries as it saw its auto parts business dry up. Molding Solutions produces custom-molded rubber and plastics and mechanical assemblies. The automobile portion of its business produces materials for vehicle suspensions.
"We had the rug yanked out from under us. It was a sudden, precipitous decline in orders or even cancellation of orders," said Richard McIntee, manager of marketing and assembly operations. "What really carried us through have been defense contracts. Our company is pretty diversified, but the bottom dropped out of our automotive business. It has barely shown much evidence of coming back to life. It's very slow."
Some parts suppliers that survived drastically cut resources - usually managers and team members. Now that the rebound has begun, will they be able to fill new orders? Goldsby isn't so sure.
"With their leaner labor force, what will be difficult for suppliers is to accommodate increased demand from automakers," he said.
Toyota laid off some temporary workers during the safety crisis and recalled them when they were needed.
"Parts suppliers don't have much of a temporary work force," said Goldsby. "So when those people left, many were gone for good. Suppliers may have to hire a new workforce without as much experience."
Some Kentucky suppliers didn't survive the auto slump and quit the business. Jackson Plastics, located in Nicholasville and a Tier One or direct supplier to Toyota, closed its doors in late April, sending 100 workers to the unemployment office.
The company was founded in 1994 by Henry Jackson. Last year, in an interview with Business Lexington, Jackson predicted that the slump in auto sales would greatly impact supply businesses like his. He proved more prophetic than he imagined.
World economics is also expected to affect Kentucky automobile parts suppliers in a way few have ever experienced. Goldsby said suppliers are hearing talk from vehicle manufacturers about what's called the world price. What that really means is the "China price." American suppliers may decide to start running their shops the way many Chinese manufacturers do - acquiring raw materials, processing them into finished goods using relatively inexpensive labor and doing it as cheaply as anyone in the world.
"There's going to be anxiety among our suppliers to provide a world price, a competitive price - like Chinese parts, but stateside," said Goldsby. "Our plants must remain lean, keep working capital and inventories down and maybe not rehire workers for a while."
Some believe the worst of the auto slump has passed. Vehicle sales are picking up again. A lot of new cars are moving because of aggressive promotional strategies like zero percent financing, rebates and incredible warranties, but still, said Goldsby, "You have to keep your costs down."
Future automotive developments that interest Goldsby include alternative fuels, new battery technologies, wholly electrical vehicles and hybrids.
"I look forward to the day when we move entirely away from combustion engines," he said. "That'll require a tremendous technology transition. That's where universities will play a prominent role."