Wednesday, April 18, 2012

Auto Industry Faces New Problem

Ken O’Brien

An explosion at a German factory that makes resins used in automotive parts has threatened to slow down or halt new car production around the world

The March 31 blast at a plant of chemical maker Evonik Industries AG in the city of Marl in Germany’s Ruhr valley is leading to a shortage of a resin called PA-12. The explosion, which killed two, resulted in a complete loss of making Cyclododecatriene, also called CDT and a key element of PA-12. Global capacity of CDT is very limited. 

The PA-12 resin is used in most fuel and brake-line coatings, flexible hoses and quick connectors supplied to automakers. Research firm IHS Automotive projected that shortages of the chemical, which was already in short supply, are "likely to be serious" and could curb vehicle production.

General Motors confirmed that some of its suppliers have been affected by the disruption, and other auto companies said they were assessing the situation.

David Andrea, senior vice president of industry analysis and economics for the Original Equipment Supplier Association was quoted in the Detroit Free Press as saying, “Vehicle manufacturers and suppliers are all in disaster-recovery mode right now to protect their production schedules. We're too early in the process to know what kind of short-term production impact there will be."

The industry had been trying to find alternatives to the resin before the crisis. The disaster revealed the auto industry's heavy reliance on a seemingly minor component. Experts said it also carried echoes of the 2011 crisis when the Japanese earthquake and tsunami disrupted the industry's global supply chain.

On April 17, executives from several major car manufacturers met near Detroit to discuss alternatives.

The disruption will likely start in Europe; assembly plants in the U.S. and Asia "likely have several weeks of supply en route," Rod Lache, analyst for Deutsche Bank AG, told Bloomberg News.

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