The $1 billion North American steel fastener industry may be on the verge of a profitability crisis that ultimately could lead to a capacity shortage.

A study conducted by Coopers & Lybrand Consulting for the Automotive Industry Fasteners Group (AIFG)-- an organization of 32 steel fastener suppliers located mostly in the Midwest and Canada -- concludes that the industry must get lean and consolidate or expand more into non-automotive business if it is to survive.

The problem, suppliers say, is minuscule margins. Income before taxes averaged just 3.8% of sales in 1993 -- the best performance in the five years covered by the survey. That doesn't leave much to pay for new tooling to keep up with demands from the U.S. Big Three automakers, the AIFG says.

One such point of contention is inventory turns. Steel fastener suppliers say inventory turnover averaged 4.7 times in 1993, up from 3.8 in 1989. Although an improvement, that still lags by a wide margin other automotive suppliers who are at nine to 12 turns annually.

One problem, executives say, is the Big Three's requirement for just-in-time shipment of nuts and bolts -- and refusal to stock the items themselves.

Fluctuations in production schedules and lost inventory means suppliers have to "stock just-in-case," says Charles O'Brien, AIFG chairman and president of Michigan-based Ring Screw Works. "We need stable production schedules and changes in shipping requirements. We're trying to tell the Big Three it's not worth (the potential interruption to production) to ship a $20 box of bolts just-in-time." Among other findings in the study:

* More than $1 billion in steel fasteners were sold to original equipment makers in 1993. That averages out to $90 to $1 10 per vehicle.

* More than 6,000 are employed by the steel fastener industry, with more than $275 million paid in wages and benefits in 1993.

* For every dollar in sales in 1993, 31 cents went for materials, 10 cents for labor, 10 cents to subcontractors, 34 cents for overhead, 9.7 cents for white-collar costs and 1.6 cents for interest expense.

* Return on assets, valued at $439 million in 1993, was 6. 1 %, an amount executives say is too low to be able to borrow money easily for new investment.

* Sales per employee rose to $167,000 in 1993, from $135,000 in 1989, but gross profit margins fell 1.1 points during the same period. Actual industry sales adjusted for inflation were below 1989 levels in the 1990-1992 period, before rebounding to just 2% above 1989 in 1993. Coopers & Lybrand says sales per employee needs to rise to $200,000-plus.

* Investment grew at 20% per year from 1989 to 1993, with average outlays in new property, plant and equipment at $10,900 per employee in 1993. As a whole, the industry doesn't generate enough cash to finance investments and is forced to borrow about 16% of its investment dollars.

The study concludes that suppliers that have not lowered their cost structure, hit $40 million in sales and made necessary investments in plants and equipment should consider getting out of the business. Executives say five AIFG member companies either sold out to other companies or exited the original equipment (OE) business after seeing results of the study. "Companies that struggled in 1990-'91 may not survive the next downturn in 1996-'97," Coopers & Lybrand predicts. That could have dire consequences on industry capacity when the market rebounds, fastener executives say.

"If any one of our member companies has to pull out of the auto business, other members may not be able to make up the difference," Mr. O'Brien says. "Fasteners for seating are different than fasteners for engines. This puts everybody at risk: the automakers, fastener companies and other OE suppliers who need fasteners."