Detroit, Michigan - Even after 36 major US supplier bankruptcies since 1999, Ford Motor Co. purchasing chief Tony Brown warns that the supply chain shakeout could worsen this year.
The number of suppliers on Ford's watch list is up 44 percent from last year, he said, and excess capacity could make 2007 the year of the shakeout. The pace of bankruptcies, including liquidations, rose 30 percent in 2006 over 2005, he said.
Brown told the Automotive New World Congress last week that overcapacity in the injection plastics sector could be as high as 50 percent. In the interiors business, it could be 40 percent. For metal stampings, he estimated, it's 35 percent.
A big supplier shakeout has long been expected, Brown said. Many subsectors remain in financial trouble. And many suppliers cannot afford the global reach Ford and General Motors demand. Still others are losing money at a time when the Detroit 3 are slashing production.
Brown's message is that the Detroit 3 will have fewer suppliers as consolidation continues. They each employ thousands of parts makers, while leaner automakers such as Honda of America have just 600.
The new boss
With a new boss, CEO Alan Mulally, Brown must show results as Ford seeks to return to profitability.
"He wants the most competitive supply base in the industry," Brown said of Mulally. "And he wants a sustainable one."
Industry survivors face difficult relations with automakers. George Dettloff, CEO of seal and bearing supplier SKF USA, said collaboration can end up being "clobberation."
"It's not an easy process," he says.
Still, SKF's quick response to a bearing problem on the high-performance Cadillac STS V series just months before launch won Dettloff more GM business. Detloff's automaker strategy: "We answer trouble with technology."
Daniel Ustian, CEO of truck and diesel-engine maker Navistar International Corp., also called for more collaboration, but cautioned that "the math must benefit all" when it comes to profitability.
"You need to set the targets together," he says. "Together you're going to have a better target. Once you get together on the (parts) buy, the rest is easy and the supplier can be held accountable."
Need for stability
The supplier sector is unstable, but Tim Myers, a senior manager at Honda of America, said the Japanese automaker works intensely to ensure a stable supply base -- even when he shares a supplier with a Detroit 3 automaker.
"We need stable suppliers," he said.
Too many companies that loaded their balance sheets with debt now are easy prey for buyers looking for undervalued assets. But "the jury is out" on private equity and hedge funds entering the auto industry, said Mark Hogan, president of Magna International Inc.
Ford's Brown says the industry has little choice but to accept financial buyers because the industry is starved for capital: "I don't care if the (supplier) is flipped and sold, as long as it creates value.
"If they don't create value, I don't want to work with them."
From Automotive News (A Crain publication)