Beyond the Big Three, Many in Auto Industry Suffer
Saturday, January 10, 2009
The worst auto sales market in decades is having a ripple effect on the thousands of companies who supply carmakers with everything from aluminum to airbags, putting some firms at risk and forcing plant closures, layoffs and furloughs at others.
Just this week, Pittsburgh-based Alcoa, which relied on the auto industry for 8 percent of its revenue in 2007, announced it was laying off 15,000 employees, selling four businesses, and freezing salaries and hiring because of a drop in demand for aluminum. General Motors typically buys more than 1 billion pounds of aluminum in a good year, but expects to purchase much less in 2009.
Visteon, which makes everything from automobile instrument panels to heating and cooling systems, recently announced that 2,000 salaried workers would shift to a four-day workweek and take a 20 percent pay cut. Lear, another big auto supplier, has laid off hundreds of employees from Florida to Ohio in recent months.
"With the production cuts we are facing, automobile suppliers have a very tough outlook right now," said Mike Wall, an analyst with CSM Worldwide, a market research firm. "We are going to see more suppliers pushed over the brink and probably cease to exist in six to nine months. Between 12.5 to 25 percent of suppliers are currently vulnerable."
The problem is this: If automakers are building fewer cars and trucks, they are ordering fewer parts. The makers of those parts have less cash coming in to cover fixed costs and employee salaries.
Wall estimated that North American automakers, which include the Big Three in Detroit and foreign-based companies with U.S. plants, will produce 10.1 million units in 2009, down from a peak of 17.2 million in 2000, 15.1 million in 2007 and 12.7 million last year.
The drop-off in auto sales, and the subsequent pullback in production, has caused automakers such as GM and Chrysler to extend their traditional, two-week, end-of-year shutdowns by several weeks. GM also has delayed several product launches.
"We are feeling cutbacks on automakers and we are adjusting on a daily basis on what the automakers do," said David Ladd, a spokesman for International Automotive Components, which sells just over $3 billion in interior parts to North American manufacturers annually in good times. Ladd said IAC, which is owned by billionaire investor Wilbur Ross, has laid off employees at all 30 of its North American plants over the last year.
The automakers consume huge amounts of goods and raw materials. GM alone buys materials, from steel to leather, from more than 2,000 direct suppliers in 46 states. The auto giant is the biggest purchaser of steel in the United States and among the biggest consumers of aluminum, magnesium and copper.
The automakers are paying their bills on time, but they aren't ordering as many products as before, said Art Blanchford, vice president for GM business at Autoliv, a Stockholm supplier of safety systems, which has about 4,000 employees in the United States.
"The big issue is low volumes," Blanchford said. "It's tough, but we are going to restructure to survive. We are already cutting back. We are closing a plant in Columbia City, Ind. It's not a shutdown. It's a close-and-sell."
Frank Venegas Jr., who started the Ideal Group in Detroit 29 years ago to supply auto plants with items such as tools and gloves for employees, said demand for his products dropped 50 percent in the last quarter of 2008.
The Ideal Group employs about 250 people and also helps build and equip auto plants. Venegas said the extended end-of-year shutdown by auto plants is going to affect his business and employees in 2009."I have seven or eight guys in each plant that need to bring in the gloves or the motors. And when the plant is closed, they don't have anything to do," Venegas said. His company's revenue is more than $156 million in a typical year, with about 60 percent coming from GM.
Some companies began to cut back last year.
E&E Manufacturing, based in Plymouth, Mich., and maker of everything from fasteners to cup holders, employed 550 people at the beginning of 2008, but that number is about 300 now. The firm has another plant in Athens, Tenn.
"We made a series of cutbacks," said E&E President Wes Smith, whose grandfather started the metal stamping company in 1962. "We have done our forecasting and a worst-case scenario. We downsized and didn't wait until the last minute."
Still, Smith said there is cause for optimism. One of his employees recently picked up a new car at a dealership, and he said the showroom was buzzing with customers.