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Detroit Free Press: New Technologies Save Some Auto Parts Suppliers
Jul 8, 2007 (From the CalCars-News archive)
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Here's a very revealing article about the impact of the woes of Detroit automakers on part suppliers. The Detroit Free Press article concludes by citing Compact Power, one of the companies hoping to supply batteries for the GM Volt, as a ray of hope.

Then a commenter on the story brings into the story Europe's new emission requirements, ably translates grams/kilometer into US MPG, and shows that it's the "Det3" who manage -- somehow -- to build cars that meet European standards there, but can't/won't do it here! (Feel free to add your views!) Here, up front, are those two paragraphs by "PatAnthony:"

WE CAN SEE how Chyrsler, FORD, GM (Vauxhall/Opel) [world headquarter in Detroit] are responding to European CO2 emissions requirement of 160 g/km in 2005 (resulting in fleet average of 35 mpg(US) combined city/highway); 140 g/km in 2008 (resulting in fleet average of 44 mpg(US); and 130 g/km proposed for 2012 (resulting in fleet average of ~47 mpg(US).

Now look at what they have already done in Europe. http://www.vcacarfueldata.org.uk/­information/­how-to-use-the-data-tables.asp#petrol This is a list of 36 EU vehicles that all beat the proposed 2012 emission standards by achieving 120 g/km ... all get 47 mpg(US) combined or better. If Smart is counted as a Chrysler, Daihatsu and Vauxhall/Opel as GM, add 4 Fords, then 33% of these 47 mpg plus vehicles were brought into production over the last few years by the Detroit 3.


AUTO INDUSTRY WOES
CHAIN REACTION: Parts makers feel the pinch as U.S. market shrinks
July 8, 2007
BY JEWEL GOPWANI FREE PRESS BUSINESS WRITER
http://www.freep.com/­apps/­pbcs.dll/­article?AID=/­20070708/­BUSINESS01/­707080651

The woes of the Detroit automakers, who lost a combined $15 billion last year, are taking their toll on North America's financially distressed parts makers.

Recent studies of the supplier industry show that these companies are cutting costs, changing where they do business and what they make in order to survive the most competitive auto industry they've ever seen.

As Detroit automakers lose market share to competitors like Toyota and Honda, they're making fewer vehicles, so they need fewer parts. And they're pressuring suppliers to charge less for those parts.

But at the same time, the cost of doing business keeps going up. Plastics, steel, electricity and health care are all getting more expensive. And many suppliers are burdened with lots of debt, which has become more costly to carry as interest rates rise.

Rising costs and falling demand make a brutal combination.

"They have to be able to rethink the entire way in which they do business," said Erich Merkle, an auto analyst with IRN Inc. in Grand Rapids. "That means going out and finding new customers. That means looking for innovations in terms of their product line."

The suppliers that are doing well in the massive auto-parts industry -- estimated at $902 billion by Merrill Lynch -- are typically those with lean operations, global scope and proprietary technology.

"It can be a great business for those who operate at the top of their game," said John Hoffecker, a managing director at Southfield-based AlixPartners LLP, who compiles an annual study of the industry's health. "It can be a very unforgiving business for those who do not move as quickly as those around them."

Investment help

The storm of bad news has sent dozens of auto suppliers into Chapter 11 bankruptcy, the largest being Troy-based Delphi Corp.

Once the world's largest supplier, Delphi plans to close or sell 21 plants in the United States. It negotiated a new UAW contract and is preparing to emerge from bankruptcy later this year with investment from private equity firms.

Other suppliers have been going down a similar road.

You can find two examples in Oakland County. Cerberus Capital Management LP plans to buy Novi-based Tower Automotive Inc., and Carl Icahn plans to buy at least 43% of Southfield-based Federal-Mogul Corp., both of which went through extensive restructuring.

And the march into bankruptcy isn't over.

Southfield-based consulting firm BBK estimates that a third of North American suppliers are in financial trouble.

Enter private equity, which has taken on a bigger role in the auto industry, as it has throughout the economy. Private equity players were involved in 24% of all mergers and acquisitions last year, versus 14% in 2003, according to AlixPartners.

The jolt of new ownership might be what some suppliers need to change their businesses. "You tend to see on average, a sense of urgency in private equity companies, greater than you do in the average supplier," Hoffecker said.

Global reach

While North America has been a tough place to do business, auto suppliers are expanding overseas to get a stake in fast-growing car markets and to cut their costs.

In China and India, car and truck sales grew by more than 20% last year. AlixPartners expects China to replace Germany as the world's third largest auto market by 2009. (Including minicars and heavy trucks, China's market is already bigger than Germany's.) India is expected to be the fifth largest by 2013.

More and more, automakers are expecting their suppliers to be global players, said David Cole, chairman of the Center for Automotive Research in Ann Arbor.

He expects that more automakers will follow General Motors Corp. in its strategy to use common parts in vehicles around the world, making it more important for suppliers to go where their customers make cars.

Growing globally is not only a way to reach customers, but also a way to cut costs. When done right, moving manufacturing to low-cost countries can save a company 15% to 20%, AlixPartners says. Federal-Mogul, for instance, is closing 25 plants in Europe and North America and moving that work to low-cost countries.

Future powertrains

The industry does offer some opportunities for growth, particularly for suppliers that offer breakthrough powertrain technology.

Hoffecker said: "The ones that are doing well, and there are a number, ...they're using technology and innovation to differentiate themselves from the pack."

As consumers get used to high gas prices, automakers are racing to offer more fuel-efficient vehicles -- opening doors for suppliers who can help them do it.

In hopes of topping Toyota's popular Prius hybrid, GM has made a big bet on the Chevrolet Volt, which is expected to use a battery-powered drivetrain that could get more than 50 m.p.g. with a gas-powered generator.

Troy-based Compact Power Inc. is among the early winners. It is developing a battery prototype for the Volt and has visions of growing $10 million in sales last year to $500 million in 10 years.

Jim McTevia, chairman of restructuring firm McTevia & Associates in Bingham Farms says this is the way of the future.

"We're going to have to become manufacturers of technology instead of heavy machinery and heavy equipment," he said. "That age is over." .

  • View all Comments
  • Posted: Sun Jul 08, 2007 10:14 am PatAnthony: "Too bad the solution was not to demand changes in the American automotive industry instead if abandoning it. This is an American problem, not a Detroit problem"

    I wish to differ with you. I have tried for 35 years to encourage Det3 to provide better better fuel economy and quality (including service).

    In 2005 I started a major correspondence effort with Chyrsler, FORD, GM regarding "future needs" including possibility of fuel price increases expected by at least one Congressional staffer of $4/gallon by 2007. To put it bluntly ... the responses I got basically said "GO AWAY ... WE KNOW WHAT WE ARE DOING".

    They have not observed losses to Honda, Hyundai, Kia, Nissan, Toyota, or VW over the past 35 years.

    What can/could the "average" American do other than buy the product that "BEST" meet their needs, be it "domestic" or "foreign".

    WE CAN SEE how Chyrsler, FORD, GM (Vauxhall/Opel) [world headquarter in Detroit] are responding to European CO2 emissions requirement of 160 g/km in 2005 (resulting in fleet average of 35 mpg(US) combined city/highway); 140 g/km in 2008 (resulting in fleet average of 44 mpg(US) combined city/highway); and 130 g/km proposed for 2012 (resulting in fleet average of ~47 mpg(US) combined city/highway).

    Now look at what they have already done in Europe. http://www.vcacarfueldata.org.uk/­information/­how-to-use-the-data-tables.asp#petrol This is a list of 36 EU vehicles that all beat the proposed 2012 emission standards by achieving 120 g/km ... all get 47 mpg(US) combined or better. If Smart is counted as a Chrysler, Daihatsu and Vauxhall/Opel as GM, add 4 Fords, then 33% of these 47 mpg plus vehicles were brought into production over the last few years by the Detroit 3. It turns out that an additional 20% are provided by several Hondas, Toyotas, a Hyundai, and a VW.

    What Detroit 3 (world headquarters) has offer the US are vehicles that can not meet the 10 plus year old current CAFE standards of 27.5 mpg combined average using the 2008 EPA methodology. http://www.fueleconomy.gov/­feg/­byMPG.htm

    I think MOST of US CARE ... BUT we can't even get the Detroit 3 to address the fuel economy issue ... how can we save the industry employees?

    If Detroit does not want to build vehicles that people want, the plan must be to dismantle domestic manufacturing ... a National Security issue ... in my opinion ... but I'm nobody ...

    Sorry ... I am powerless also ... I WISH YOU ALL GOOD LUCK and MAY YOUR FUTURE ... QUICKLY BECOME CLEARER ... AND .... BRIGHTER!

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