Being an automotive parts maker these days must be like trying to sell Girl Scout cookies during an Atkins diet craze.
At the Automotive News World Congress (subscription needed to view specific stories) in Dearborn (January 15-18) Ford Motor honcho Tony Brown dropped a bombshell. He said that February 2007 would likely bring more Chapter 11 bankruptcy filings in the automotive OEM supplier sector in North America and Europe than ever before.
And he should know. After all, he’s the purchasing boss at Ford. Brown said “The number of financially distressed suppliers that Ford has on our ‘watch list’ in 2007 has grown by 44% compared to this time last year.” He went on to add that many of those Chapter 11s could be filed by some of the Tier 1 biggies, though he didn’t name names.
Right now some of the biggest names in the parts industry are in Chapter 11 already (Delphi, Dana, Collins & Aikman) – brought to their knees by high materials costs, production cutbacks by troubled carmakers, and brutal competition.
So as the pain, like other things, rolls downhill, parts suppliers have to make the same tough decisions as their customers. In many cases this means layoffs. Other companies, such as American Axle & Manufacturing, are following in the footsteps of Ford and GM and reducing headcount through attrition by making buyout offers.
Unfortunately, the competitive landscape for suppliers is likely to get much worse as carmakers like Ford aim to reduce purchasing costs by drastically trimming their number of suppliers.
In lieu of making any predictions about which companies might be in trouble, I’ll take the safe route and just say you can’t go wrong by investing in a few boxes of Girl Scout cookies.
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