Suppliers Must Think Globally, Leaders Say; Many in Auto Parts Industry are Struggling

The Milwaukee Journal Sentinel

TRAVERSE CITY, MI — To avoid becoming casualties in the auto industry’s restructuring, parts suppliers need to become less beholden to Detroit, more globally focused and focused on products that improve safety or boost fuel economy.

That was the consensus of experts who reflected Tuesday on the industry tumult that has sent at least 17 suppliers into bankruptcy in the past 18 months.

"The past 18 months in the automotive supply world has been particularly painful and challenging. Much of our industry went into a hunker down’ mode, and in many cases, companies placed well- thought-out strategies on hold while they fought for survival," said Tom Amato, an executive vice president of Metaldyne Corp., a supplier based in Plymouth, MI.

He spoke at the annual Management Briefing Seminars hosted by the Michigan-based Center for Automotive Research, an industry think tank.

Companies that work with suppliers remain concerned that the bankruptcy wave hasn’t abated.

"My biggest thing I worry about on a day-to-day basis is who’s going to go bankrupt next," said James Applegate, president of supply chain solutions with the logistics firm National Logistics Management.

General Motors Corp. and Ford Motor Co., which have lost market share in sales this year, are projected to see their market shares slide further by 2012, said Mike Wall, director of North American market assessment with the consulting firm CSM Worldwide.

Suppliers should focus on winning new business with Toyota, Renault-Nissan, Hyundai and Honda, which all are projected to gain share by 2012, he said.

In a sign of how far Detroit has fallen, no North American companies will have a listing among the top 10-selling vehicle platforms in 2012, Wall said.

Currently, the GM full-size sport utility vehicles and pickup trucks rank as the third-highest selling platform worldwide. That group includes the sport utility vehicles manufactured at GM’s Janesville,WI, plant, the Chevrolet Tahoe and Suburban and the GMC Yukon and Yukon XL. But as other global automotive platforms grow, Wall said, GM’s SUV/pickup platform will drop out of the top 10.

CSM is forecasting growth in the small-car and luxury-car segments as sales of large cars and midsize SUVs decline. Minivan sales also will contract, Wall said, offset by gains in crossover utility vehicles SUVs built on car platforms as well as tall wagons similar to the Chrysler PT Cruiser.

While the North American sales will grow by about 1.3 percent a year, China and Taiwan will see 9 percent growth; southern Asia sales also will grow by 9 percent, and central and eastern Europe will grow by nearly 7 percent, CSM Worldwide forecasts.

The industry buzz a few years ago was to become more international, expanding to selected countries, Applegate said. But today, more automakers want their suppliers to be everywhere as they move to making vehicles on common global platforms.

"Now it’s a need to be global," he said. "It’s not just one country at a time anymore."

That need to become global contributed to the dramatic growth in the automotive seats and interiors business at Johnson Controls Inc. of Glendale, WI. Last year, Wisconsin’s only Fortune 100 company took another step, buying the battery business of struggling Delphi Corp. to become the world’s leading automotive battery supplier.

Johnson Controls isn’t alone. Racine, WI-based Modine Manufacturing Co. expanded into Asia with its acquisition of a Korean supplier several years ago.

Earlier this year, Glendale, WI-based Strattec Security Corp. formed a new joint venture, the Vehicle Access Systems Technology Alliance, or the VAST Alliance, to pursue global contracts in vehicle latches, lock sets and related products. The three-company alliance has plants on four continents.

Suppliers need to think globally, and they need to think about how their parts or components can help a car’s fuel economy or reduce emissions during a time of spiking crude oil and gasoline prices. A key opportunity for suppliers will be helping carmakers deploy energy-saving and fuel-efficient technologies, whether through reducing the vehicle’s weight or improving its fuel economy through direct injection, six-speed automatic transmissions or other methods, Wall said.

"In the age of $3 gas or $3.50 gas, it’s definitely a big factor in the market right now," he said.

But raw material costs remain a concern. Rising crude oil prices have made plastics and resins more expensive. For Metaldyne, the dramatic rise in steel prices in 2004 and 2005, which contributed to the supplier bankruptcies, prompted the company to have frank talks with both customers and suppliers, Amato said.

"When a cost that makes up 40 percent of your total cost doubles, you start shipping dollars out the door pretty quickly," Amato said.