By Lindsay Chappell, Automotive News
Detroit, Michigan -- Exports of most US-made goods are soaring, thanks to a cheaper dollar. But not exports of auto parts.
Exports of US-made auto parts of all kinds - both original equipment and aftermarket - plunged 27 percent in the third quarter compared with a year earlier, according to the US Commerce Department.
Competitors with factories in China and India are winning business in world markets are chiefly to blame.
US suppliers are paying more for raw materials. As the US dollar loses value, copper, steel and other materials grow more costly for them than for buyers who use stronger currencies.
US suppliers are opening plants in low-cost countries to reduce costs and shorten transportation lines to customers in those regions.
"I predict there will be less and less opportunity to export," says Jerry Scott, CEO of Grand Haven Stamped Products Co. in Grand Haven, Mich. "Parts production has to follow where the vehicle production is."
Actually, globalization has been good to Grand Haven in recent years. The company landed the contract to deliver shifters and related mechanisms for the current Honda Civic - not just at Honda Motor Co.'s plants in Ohio and Ontario but globally. That was a huge win for the privately held 82-year-old company. Honda builds the Civic in 13 factories around the world.
As a result, the US operation now exports some volume to Honda in Europe. And to keep up with the Civic globally, Grand Haven must have a plant in Thailand and another in China.
"Our company intends to aggressively pursue global growth," Scott says. "But we can't do that just through exporting. You have to follow the volumes."
Tom Stallkamp, the former Chrysler Corp. president who is now an industrial partner at Ripplewood Holdings, says top US suppliers already have established plants internationally to be near their customers. Ripplewood is a private equity company in New York.
"Most of the parts that we're making are for a specific customer, so you don't have global parts" that cross borders, Stallkamp says. A Ripplewood subsidiary owns major stakes in seven automotive companies, including Asahi Tec Corp. and Niles Auto Parts.
The drop in auto parts exports is counter to the trend in other industries, where exports are soaring. Exports of all goods and services rose 10.2 percent in the third quarter of this year compared with the same period of 2006.
Exports normally are helped by a weak dollar. On Nov. 30, 2005, one euro purchased $1.17 worth of American goods. Last week a euro was worth $1.45. Similarly, 1,000 Japanese yen were worth $8.36 two years ago. Last week 1,000 yen were worth $9.09.
Yet, U.S. factories exported $9.99 billion worth of automotive components in the quarter ending Sept. 30, down from $13.81 billion a year earlier, according to data from the U.S. Office of Aerospace and Automotive Industries.
The weak dollar hasn't helped suppliers of original equipment, partly because they are typically locked into multiyear contracts with their customers and vendors.
The advantage of a lower dollar also is offset by higher production costs for companies that import raw materials. US parts manufacturers rely on imported copper, nickel, cobalt and some steel products.
Since the cheaper dollar gives the manufacturer less buying power, more costly raw materials drive up the cost of finished components, says Ian Levitt, president of QualCast LLC in Nashville, a distributor of engine aftermarket parts to 200 markets around the world.
High oil prices also are hurting U.S. suppliers more than some overseas suppliers. A European business currently pays 61.47 euros for a barrel of $90 oil, or about 22 percent more than two years ago. But because of the falling dollar, a U.S. supplier pays 50 percent more.
The cheap dollar still gives U.S. suppliers a price advantage in Europe, Levitt says.
"I recently had to tell one of my European customers that because of higher material costs, I was going to have to raise my prices 18 percent," he says. "Luckily, the euro is up. The customer told me, 'That's all right, mate - you're still a bargain."
But that may be small consolation at a time when exporters in China, India and Brazil are grabbing market share around the world. "We're coming up against that," Levitt confirms. "We're running into salesmen from China and India in places we've never seen them."
Part reduction: Exports of US auto parts are dropping rapidly this year.
- 2002: $50.08 billion
- 2003: $48.50 billion
- 2004: $52.63 billion
- 2005: $55.05 billion
- 2006: $58.86 billion
- 2007: $39.07 billion*
Source: U.S. Office of Aerospace and Automotive Industries
From Automotive News (A Crain publication)