BBK sees bumpy ride ahead for U.S. manufacturers

CHICAGO (Reuters) - U.S. manufacturers are optimistic their industry has bounced off the bottom it hit as a result of the worldwide downturn.

Now, the biggest question facing the sector is where rebounding volumes are headed.

"I don't know that anybody's got the crystal ball to answer that question," Bill Diehl, the top executive of the BBK consultancy group, said on Wednesday.

Adding to manufacturers' concerns: The fear that the sprawling supply base they rely on has been whipsawed, and seriously undermined, by the rapidity of both the downturn and the rebound.

"The good thing is we're seeing volume up -- better than what we saw in 2009," said Diehl, who serves as president and chief executive of BBK and head of its global automotive advisory group.

"I think most people are feeling comfortable that we have hit the bottom and we're on our way back up. The question is how bumpy a ride up are we going to have?"

Diehl said that uncertainty about where volumes were headed -- and whether suppliers could cope -- was the biggest issue facing manufacturers, most of whom survived the downturn by rapidly slashing capacity and headcount.

"Manufacturers today are just trying to figure out what's really going on and 'What do I do with my cost structure?'" he said.

"What they do know is they've taken out too much in 2009. But they're very hesitant to put it back in until they really feel confident that we've seen solid demand going forward."

The viability of stressed suppliers is another big concern, in part because many who really should have been forced out of business by their debts during the downturn were allowed to survive by lenders who had bigger problems to deal with.

As their industrial customers now turn to them and ask to ramp up production, those overstretched suppliers will be required to put up working capital that many of them don't have and won't be able to raise, Diehl said.

"There is still quite a bit of consolidation that has to take place in the supply base," he said.

"The lenders have taken a position of, as we say, kicking the can down the road a little bit ... Some of the suppliers that aren't going to make it, they aren't being cut as quick as they would have in the past just because the asset value is so low."

BBK, based outside Detroit, advises manufacturers on a number of issues, including supply chain risks.

(Reporting by James B. Kelleher, editing by Matthew Lewis)