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Many Automotive Suppliers Won’t Survive Production Cuts

December 23, 2008
Related Topics: Financial Impact, Future Workplace, Termination, Latest News
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A White House bailout of General Motors and Chrysler won’t prevent the collapse of North America’s shakiest automotive suppliers, some forecasts conclude.

Domestic and import brand automakers in North America are expected to produce 2.1 million vehicles in the first quarter, according to projections by CSM Worldwide and company forecasts. That would be a 39.2 percent drop from the same period in 2008.

And many suppliers will find it hard to survive such gruesome vehicle production cuts, predicted Neil DeKoker, CEO of the Original Equipment Suppliers Association in suburban Detroit.

“We’re going to see bankruptcies like you won’t believe” he said, “even with the rescue package.”

Idle factories
Suppliers to the Detroit Three will be in the toughest shape. Detroit Three production is expected to total 1.1 million units, a precipitous 47.2 percent decline from the same period a year earlier.

DeKoker, who has worked in the auto industry for 47 years, says he has never seen a situation so dire.

Suppliers typically must operate their factories at 80 percent of capacity or better to turn a profit, DeKoker said. Early next year, suppliers will be lucky to operate at 50 to 60 percent of capacity.

“There’s no way they can be profitable under those circumstances,” he said.

DeKoker’s association is seeking federal funds for suppliers. “We’re requesting assistance from the presidential transition team,” he said.

 Lear: At ground zero
Lear Corp. is at ground zero of the disaster. The suburban Detroit seat maker relies on the Detroit Three for nearly 46 percent of sales. Lear idles seat plants whenever a customer shuts an assembly plant.

“It’s a direct hit,” said Lear spokeswoman Andrea Puchalsky. “When they close, we close.”

The company is looking at cost savings from plant utility costs to layoffs, she said. One plus is that Lear has cash. Although it burned about $17 million in the third quarter, Lear still has $523 million.

Dave Ladd, a spokesman for trim supplier International Automotive Components Group, said the company has made no decision on layoffs, but said there “could be extended shutdowns and temporary layoffs in January.” IAC operates 34 plants in North America.

IAC is a group of interiors companies purchased by investor Wilbur Ross. Despite the consolidation, interior suppliers still are being pinched by high raw material prices and big volume cuts.

Delphi Corp. is not planning any wholesale plant closings unless a plant is 95 percent dedicated to GM, spokesman Lindsey Williams said.

North America accounts for about 45 percent of Delphi’s sales, and GM makes up 22 percent of the global total.

None of Delphi’s 14 U.S. plants is shut down, said spokesman Lindsey Williams. But he said the giant parts maker, which has been in Chapter 11 since October 2005, anticipates significantly scaled-back operations and further staffing reductions at several operations as customer volumes decline.

“We are watching customer schedules,” he said. “These are very different times for us, and we have to make adjustments very rapidly.”

Filed by David Barkholz and Robert Sherefkin of Automotive News, a sister publication of Workforce Management. To comment, e-mail editors@workforce.com.

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