German auto production is bursting at the seams | Business| Economy and finance news from a German perspective | DW | 28.01.2011
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German auto production is bursting at the seams

With demand outpacing production capacity, Volkswagen will idle production at its Wolfsburg facility for 24 hours. Supply chains, which atrophied during the recession, are now struggling to meet capacity.

VW Wolfsburg plant

VW is halting production for 24 hours in Wolfsburg

Often seen as an indicator of prosperity, Germany's automobile industry has surged as the country's export-heavy economy recovers from recession. But it may be edging close to the limits of its capacity.

Faced with a shortage of parts, Volkswagen is planning a 24-hour prodcution pause on Monday at its Wolfsburg plant. The parts include motors, which come from both external manufacturers and the company's own facilities.

Every day, some 3,000 automobiles leave the assembly line at the Wolfsburg factory, which produces the Golf, Tiguan and Touran models. In 2010, Volkswagen sold more than seven million cars, a 13.5 percent increase from 2009. Workers have been working overtime for months.

So far, Daimler and BMW say they're managing to keep up with the increased demand.

Run-up phase

A spokesman for the German automobile industry told Deutsche Welle that production industry-wide is "currently in a run-up phase" with workloads of more than 80 percent of capacity. During the worst part of the recession, it was around 60 percent of capacity, he said.

A cargo ship

Automakers rely on a global supply chain which can be slow at times

The planned production pause at VW is intended to "stabilize the resupplying of the plant in an economically sensible way," a company spokesman told Deutsche Welle.

"Our order volume is so good that at this point we're expecting an interference in a very complex logistical chain, which we have anticipated to deal with in an economically sensible way," he said. "Naturally, we would want to carry out stable production, but under the given circumstances, this measure will have no effect on agreed delivery dates."

Karsten Ötschmann, an expert on supply chains and vice chairman of the industry organization Information Technology for the Automotive Industry (ITA), said production capacities atrophied during the recession as companies industry-wide tried to keep their balance sheets in the black.

"Their main goal was to get through the crisis without massive layoffs or having to declare bankruptcy," he told Deutsche Welle. "They started by parting ways with their temporary workers, and then they adjusted their capacities by reducing employees' working hours."

Resurgence a surprise

But then a resurgence in demand during 2010 caught automotive companies off guard, Ötschmann said. It forced them into situations in which, for instance, they had to fly parts in at a premium over shipping costs in order to maintain production levels.

New cars waiting to be shipped

Sudden demand caught the industry by surprise

"Nobody knew this would happen, and so nobody wanted to play the prophet," he said. "So nobody made the necessary investments – capacities weren't increased, personnel wasn't increased, and no new equipment was procured. The entire year of 2010 was just about managing shortages."

Ötschmann noted that, next to a product recall, a shortage of parts is one of the worst things that can happen to an automobile manufacturer. Stopping production at a factory means forgoing returns from a massive investment, he said.

Also, while component suppliers deliver parts unique to one car model, those parts usually contain smaller parts that are interchangeable. To some degree, that puts automobile producers in competition for the parts, according to Ötschmann.

"When there's a production interruption like this, the phone is going to ring at the executive level right away," he said. "The flow of information is pretty direct in that case."

Author: Gerhard Schneibel
Editor: John Blau

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