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U.S. auto sales

Date: Apr 10, 2005
Contributor: Allie Bohland

Auto suppliers' fortunes buoyed by overseas ties

As U.S. auto sales have remained virtually flat for the past two years, a divide has formed in the automotive supply industry.

Companies that have historical ties to General Motors Corp., Ford Motors Corp. and DaimlerChrysler's Chrysler Group have seen their business weaken as the domestic automakers cut back on production.

The companies that supply Nissan North America, Toyota and Honda have seen an upswing as the Asian automakers build new plants and increase production at their North American operations.

''You're seeing a dichotomy within the industry,'' said John Novak, an analyst at Chicago financial firm Morningstar Inc. who follows many of the major auto suppliers.

''You have some of the suppliers who are tied in to the Big Three, such as Visteon, Delphi and Collins & Aikman, who are really struggling as the Big Three continue to lose volume and market share,'' Novak said.

''Other suppliers such as TRW Automotive, Johnson Controls, Borg Warner are more diversified and seem to be doing better,'' he said. ''They're all struggling, but on a relative basis, the more Big Three exposure you have, the worse you're doing.''

Automotive parts plants dot the landscape in Tennessee. In the past five years, the number of automotive suppliers in the state has grown from about 800 to more than 1,000 today.

The auto industry is an important part of the state's economy. It accounts for more than 159,000 jobs in Tennessee with an annual payroll of more than $6.6 billion. There are plants in 91 of the state's 95 counties. The plants can be found in 197 Tennessee communities.

And while that's good for the state, it is an industry that is hurting, though not as badly here as it is in other areas of the country.

''It's a bad time for (automotive) suppliers,'' said Philip Guziec, a colleague of Novak's at Morningstar who follows GM, Ford and DaimlerChrysler.

Many of the largest automotive suppliers in the nation have either filed for bankruptcy protection or are teetering on the brink of bankruptcy. Others have had to close plants and eliminate jobs in response to cost-cutting demands from automakers.

''They're facing rapidly rising material costs and slowing sales in the industry, especially from the domestic manufacturers,'' Guziec said. ''It's not a good time to be an auto supplier.''

Auto suppliers bear the brunt of many of the automakers' cost-saving efforts, said Kenneth Currie, director of the Center for Manufacturing Excellence at Tennessee Tech University. At a time of sluggish auto sales, manufacturers are reluctant to try to pass along price increases to consumers.

''They can press (suppliers) a lot more on their prices,'' Currie said.

The pressure has taken its toll, resulting in a spate of mergers and acquisitions that has led to consolidation in the industry and the shutdown of some older plants.

For example, Eaton Corp. eliminated 570 jobs in Tennessee after it bought Dana Corp.'s Boston Weatherhead group in 2003 and consolidated the work with other Eaton plants. Slow truck sales pushed Eaton to close its 30-year-old truck transmission plant in Shelbyville in 2001. It then ex- panded in Gordonsville last year with a division that makes hoses and hydraulic fittings.

''The suppliers are getting pressed so much, I think you're going to see some of the smaller suppliers start to go away,'' Currie said. ''The ones that are big, like Denso (International) and Calsonic(Kansei North America), are going to be around and maintain their market share.''




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