From The News and Observer
CHARLOTTE, NC — Some North Carolina automotive supply companies may soon be squeezed out of the market as U.S. automakers, struggling with declining sales, ramp up their efforts to cut costs.
Last month, General Motors, the world’s largest automaker, said it would set price targets for the auto parts it buys. Companies that are unable to produce parts at a certain price will be automatically out of the bidding.
In August, DaimlerChrysler said that it would award more long-term contracts and fewer short-term deals, which will eliminate companies that can’t handle large orders.
Then last week, Ford said it plans to cut by more than half the number of suppliers from which it buys seats, tires, rubber, plastic seals and the like — a move that will affect more than 1,000 suppliers.
A number of the companies that could be shaved from the car makers’ lists are in North Carolina.
The state Commerce Department estimates that there are more than 160 North Carolina companies that produce the parts used to make vehicles. They employ more than 68,000 workers.
Among them are Cooper Standard Automotive in Goldsboro, NC, which makes rubber, metal and plastic seals and trim; Dana Corp., maker of air, oil and fuel transmission filters, with a plant in Gastonia, NC; and GKN Automotive, which makes front-wheel-drive components at a plant in Sanford, NC.
Whether a company makes the cut will primarily depend on what it manufactures, said Robert Handfield, a professor of supply-chain management at North Carolina State University.
“Suppliers that produce large bulky parts and high-technology components — things that are difficult to ship overseas — are more likely to be safe,” said Handfield, as “opposed to companies that mass-produce products at high volume and low cost.”
Bulky items include engines. High-tech items include fabrics for seat covers, seat belts, airbags and other products. Products that can be shipped easily from overseas include radios and the wiring used to connect components.
The auto companies are tearing a page from Wal-Mart’s strategy book by forcing companies to meet certain price targets, said Albert Segars, a professor at UNC-Chapel Hill’s Kenan-Flagler Business School.
“They are looking to draw profits from suppliers, the same as Wal-Mart,” said Segars. “If I was a small supplier, the first thing I would do is put myself up for sale. If Ford decides to work with Company A, then I would want to be acquired by Company A.”
Segars said that mergers and acquisitions will likely be the only way small suppliers will survive this transition. One exception will be small companies that supply a niche product.
Segars and Handfield agree that some large supply companies will benefit from the new system. Since the auto dealers will only work with a small number of suppliers, the largest companies will get a larger share of the auto-parts market.
This could help turn around financially troubled major suppliers such as Collins & Aikman, which filed for Chapter 11 bankruptcy in May. The Troy, MI, company, which makes instrument panels, automotive fabric and other car parts, has several locations in North Carolina, including a plant in Pitt County, NC, that employs about 600 workers.
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