TRAVERSE CITY, MI -- U.S. auto suppliers, coping with declining North American vehicle production that cuts into the top and bottom line, are trying their best to guess what will happen next and exploring strategies to deal with inevitable fluctuations.

Just this week, GM, Ford and Toyota reduced their vehicle sales projections for the year, and production cuts are expected to follow. On Friday, Lehman Brothers auto analyst Brian Johnson said he expects GM to sharply cut back full-size pickup production late this year.

Predicting customers' demands accurately allows auto-parts makers to avoid idling factories or running them on overtime -- both of which waste money and other resources.

But auto experts at the Management Briefing Seminars in Traverse City warned this week that even the most logical approaches -- such as expanding globally and investing in innovation -- present new challenges and risks.

Suppliers "have to make a judgment call," said Kim Korth, president of Grand Rapids-based consulting firm IRN Inc. She said the difference between an automaker's initial expectations and actual production can range from 5% to 25%.

Large suppliers, such as Magna International Inc. and Yazaki of North America, said they use automaker expectations, third-party forecasts and their own projections to come up with a range of expectations and plan how to use their plants and workers.

The last thing you want is to be unable to make as many parts as automakers need, Magna International President Mark Hogan said. "On the other hand, capital is ever more scarce and so you have to find the right number and work to that and stretch your productivity as best you can."

Shifting preferences

Sometimes suppliers are affected when consumer preferences shift, say from trucks to cars. But General Motors Corp.'s purchasing chief said that as parts and components are more often used on widely different vehicles, suppliers can be shielded from at least that part of the market's turbulence.

"I think the trick will be what we do internally working with engineering and purchasing to have common parts -- common seat frames, common steering wheels, common radios," said Bo Andersson, GM's group vice president of global purchasing and supply chain. "Then the end customer decision is not that important because it's common parts."

But eliminating complexity in design and purchasing will take time, talent and cash -- and most suppliers don't have much to spare.

"The hard part about this is that these kinds of numbers and your domestic production is really what needs to generate the cash flow for many of you to be able to make the transition into other segments, into other regions," Korth said in a speech Friday directed at suppliers.

Moving forward

As auto suppliers try to cut their costs and reduce their reliance on Detroit automakers, which are making most of the production cuts, they're turning to new markets and lower labor costs overseas.

Korth and Michelle Hill of Harbour Consulting cautioned suppliers to study themselves and potential markets well before making those moves.

"I think there is a tendency that 'I must go global because everyone else is going global,' " Korth said. "Chasing dollar and low-value costs around the world really isn't in a company's best interests. It's figuring out what makes sense in terms of where you make those kinds of investments."

Moving manufacturing to low-cost countries makes sense for high-volume commodities, such as nuts, bolts and gears. For more complex components such as instrument panels, where intellectual property could be at risk, or when a supplier could erode its savings with higher shipping costs, Hill said it would be better for a supplier to stay in its own market.

"Understand the total cost savings before you make the move," said Hill, Harbour's director of North American benchmarking.

Another area for parts makers to thrive is in advanced versions of their products.

But auto suppliers don't feel that automakers offer enough rewards for new product innovations, according to a recent survey by J.D. Power, commissioned by Automotive News.

That's why Korth advises parts makers to go straight to the end customer -- the drivers -- to pitch their innovations.

"Go straight to consumers to tell them to go to GM and Toyota -- that if they don't use these products, they'll be left behind."

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