U.S. auto suppliers, which are being squeezed by demands for lower prices for fewer parts as General Motors Corp and Ford Motor Company implement massive restructuring plans, could face more bankruptcies according to analysts.
The shakeups among suppliers have placed manufacturers at an increased risk of costly production delays as unions respond to wage and benefit cuts. A strike could hit GM's largest parts supplier in the coming weeks. Delphi has warned it will ask a bankruptcy judge to void its contract with the United Auto Workers union if the two parties are unable to reach agreement on wage cuts by March 30. The UAW has responded by threatening to strike if the request is granted.
A coalition of unions have also warned Tower Automotive, which supplies body structures, lower vehicle structures, suspension components and modules for nearly every major automotive manufacturer, that it will strike if a bankruptcy court voids their contracts.
"The next 18 months are to be very tenuous given the financial conditions and the uncertainty in the productions schedules," David Andrea, vice president of business development for the Original Equipment Suppliers Association said March 24. "The cost structures are still elevated and the prices pressures are still downward."
Ford and GM are expected to cut production by more than two million vehicles as they shutter two dozen facilities over the next six years. Meanwhile, suppliers have been unable to pass along rising costs for fuel, steel and higher interest rates, Andrea said.
Delphi may have set a bad precedent when it entered bankruptcy protection late last year, said credit rating agency Standard and Poors. "Delphi's Chapter 11 filing, however, may have marked the beginning of a shift in focus for the auto supply sector toward bankruptcy as a primary means to reduce a range of costs," credit analyst Robert Schulz wrote in a recent report.
Earlier this month, Dana Corporation of Toledo, Ohio became the fourth major supplier in the past 13 months to file for court protection under Chapter 11 of the US bankruptcy code. But more bankruptcies may be inevitable given that GM and Ford are expected to continue to lose market share in the next few years and Lear Corp could be next, said Merrill Lynch analyst John Murphy.
Only two years ago, Lear, Dana, Collins and Aikman, Delphi and Tower were considered basically stable and relatively prosperous for an industry with historically low profit margins. However, their fortunes unraveled as GM, Ford and DaimlerChrysler pressed for price cuts at the same time the suppliers were losing market share to aggressive Asian rivals.
The suppliers that are thriving are those who have sought new markets and customers. Johnson Controls Inc, of Milwaukee, which makes seats and batteries, has become one of the top suppliers in North America by developing close ties with Japan's Toyota Motor Corporation, which is expanding its operations in the United States.
Copyright Agence France-Presse, 2006
