The Wall Street Journal-20080123-Auto-Parts Firms Look Abroad
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Auto-Parts Firms Look Abroad
Several U.S. auto-parts makers will rely on Europe and Asia for sales growth as they prepare for their fourth year of heavy cost- cutting in North America amid declining demand from Ford Motor Co., General Motors Corp. and Chrysler LLC.
American Axle & Manufacturing Holdings Inc., Visteon Corp. and ArvinMeritor Inc. are either closing plants, buying out workers or researching plans to offload health-care costs to try to halt financial erosion in the U.S. in 2008. Meanwhile, these same companies are building plants, hiring workers and winning contracts in Europe and Asia.
The dichotomy suggests the majority of large suppliers are fully engaged in expanding beyond North America both in production and sales dependence to survive. U.S. sales of cars and light trucks are at their lowest level in a decade, and analysts aren't optimistic about a quick recovery. Adding to the woes of many suppliers that do the bulk of their business with GM, Ford and Chrysler, the Big Three Detroit auto makers have seen their share of U.S. sales fall to an all-time low of about 51%.
"The massive transformation of the auto industry will continue right on through 2008," American Axle Chief Executive Officer Richard Dauch told a group of automotive analysts during a conference in Dearborn, Mich., last week. "On a global basis, we must remember the auto industry is expected to grow at a nice healthy pace of 3.8%. This is a time where the strong get stronger and the weak perish or become feeble."
American Axle, which didn't operate a plant outside the U.S. 12 years ago, now expects 75% of its $1.3 billion in product orders to be filled by non-U.S. plants. Mr. Dauch is planning to build plants in Thailand and India, as well.
Visteon, a former Ford subsidiary, represents one of the best examples of the change the suppliers have undertaken. The company, which makes parts such as heating and cooling systems, has relied on Ford for the majority of its sales. By 2010, however, Hyundai Motor Co. and Kia Motor Corp. will become its largest customers, accounting for 28% of its overall sales. Sales to Ford's North American operations are slated to be cut to 6% from 15%, CEO Michael Johnston said.
Meantime, most automotive suppliers continue tweaking staffing levels in the U.S. and pursuing other steps to trim costs. The U.S. work force is a high-expense area for most because of benefits such as health-care expenses. Wages can be as much as three times higher in the U.S. than those paid to workers outside North America.
American Axle, the largest supplier of axles to GM, trimmed 2,500 workers in 2007. Among those cuts was the idling of its Buffalo, N.Y., plant, which was the company's second-largest. About 550 of the 650 workers at the plant took voluntary buyout packages.
Visteon is planning to trim $635 million in costs by the end of 2010, with much of the cuts coming from North America plant closings.
ArvinMeritor CEO Chip McClure, who already has slashed his U.S. work force, is trying to develop a heath-care trust fund that will allow him to move those costs off the company's books. The trust could be similar to the type created last year by the United Auto Workers, GM, Ford and Chrysler.
