As 2011 approaches, the state of the supply chain is a study in contrasts. For every upbeat economic indicator, it seems there is a negative sign to suggest the recovery remains elusive.

For instance, Tier 1 parts makers are hiring again, but supplier employees who lost pensions and benefits remain bitter. Suppliers have discovered that lean operations can be profitable, even at lower unit volumes; but the heavy workload, exhaustion and speed of execution are taking a toll on workers and engineers.

This dichotomy became apparent when several top U.S. automotive suppliers answered a simple question posed by Ward’s: “How are things at your company?” Some preferred to go unidentified, freeing up blunt, unfiltered responses such as this one:

“We are seeing pressure from the OEMs to go back to the old way of doing business. They are putting the heat on, making sure you reduce your price if you want a job. I think it will get more heated as we get into the ’11 calendar year. The OEMs say, ‘We left you guys alone in ’08 and ’09, and in ’10 we didn’t come after you too hard. Now we need your help.’ The pressure will be immense.”

This same Tier 1 supplier executive says he is surprised how many smaller parts producers have failed to grasp the risks associated with accepting unprofitable parts contracts – a strategy that ended in bankruptcy for dozens of suppliers.

“There were companies that were buying business that have probably for the most part stopped doing that,” he says. “But I think there are pockets of companies that are still struggling to understand their cost structures. They bid on business and make mistakes. There’s still a handful of Tier 2 and 3 suppliers we are watching in terms of performance and survival.”

The past two years represent a monumental watershed for the North American part-supply community. In 2008 and 2009, some 200 suppliers went out of business, and 60 more declared bankruptcy.

With vehicle production down by a third in a contracting economy, both auto makers and suppliers had to make drastic and immediate adjustments in manufacturing capacity and headcount.

The pain still is felt. Anxious consumers are deliberating over vehicle purchases, rather than making snap decisions to buy; credit remains elusive for some suppliers; and concerns about a double-dip recession in early 2011 have everyone on edge. Analysts suggest European suppliers could feel acute distress in 2011.

But optimism is taking hold. The Original Equipment Suppliers Assn., in its November barometer of the parts industry, finds more positive sentiment among suppliers than the three prior months, and significantly more optimism than first-half 2009.

About half of respondents plan to spend at least 10% more on plant and equipment improvements in 2011 and up to 9% more for research and development, compared with 2010 levels.

But first, suppliers want evidence production levels are sustainable. On average, suppliers

are looking for sales of 13 million vehicles before adding salaried staff and 15 million units before they reinstall plant square footage.

Federal-Mogul Corp. is among the Tier 1 suppliers proceeding with extra caution. The supplier spent more than six years in bankruptcy (as a result of asbestos liability) before emerging in December 2007.

Along the way, Federal-Mogul closed 27 facilities and exited several product lines that had been acquired within the previous decade during the industry’s merger and acquisition heyday.

But the company is on the rebound, having posted a solid third quarter with boosted sales ($1.5 billion) and net earnings ($53 million).

Federal-Mogul President and CEO José Maria Alapont attributes much of the improvement to aligning the supplier’s manufacturing footprint with global market demands. Federal-Mogul has expanded its “best-cost” manufacturing, which means less capacity in the U.S. and more overseas.

“While we were closing uncompetitive sites, we also opened greenfield sites in China, India, Brazil, Russia, Eastern Europe and other global markets where it was a strategic necessity to establish a local manufacturing and engineering capability,” Alapont says in an e-mail to Ward’s.

The supplier has 11 manufacturing sites in China (and a new technical center), seven in India, six in South America and two in Russia. “Our investment is paying off,” Alapont says.

Also in these emerging markets, Federal-Mogul has been scouting – and finding – lower-tier local suppliers for materials and components. In all markets worldwide, Federal-Mogul is maintaining a dual-source strategy for components and materials, while keeping close tabs on the financial health of its supply base.

Alapont is upbeat about the near future, saying, “All indications point to steady market strengthening” globally.

Compared with 2009, Federal-Mogul anticipates sales growth of 52% in North America, 26% in Europe, 78% in China, 22% in Brazil and more than 200% in Russia.

Emerging more recently from bankruptcy is Visteon Corp., the part-supply division that separated from Ford Motor Co. in 2000. The Chapter 11 filing came in May 2009; the exit was Oct. 1.

After massive restructuring, Visteon is a shell of its former self. Ford used to be its No.1 customer. But in the third quarter, Ford was second behind the Hyundai-Kia Automotive Group.

Visteon, which once had dozens of North American plants, now has a miniscule regional manufacturing footprint: only one plant in the U.S. (Alabama), one in Canada (Ontario) and six in Mexico.

Asia accounts for 42% of Visteon’s sales, followed by Europe with 34%. North America represents only 17% of sales.

But with bankruptcy now in its rear-view mirror, Visteon has won $633 million in future business – 42% of it in Asia and 39% in Europe.

In exiting bankruptcy, Visteon also sheds liabilities, such as future obligations to reimburse Ford for pension and retiree benefit costs.

The supplier also has the latitude to reject all purchase orders that “would not provide a benefit to the reorganized company,” as well as commitments from Ford to source $600 million worth of new and replacement business annually for vehicle programs launching through 2013.

An assurance like that can do wonders for the bottom line.

tmurphy@wardsauto.com