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Automotive Industry

Will the billion-dollar bullies get bloodied? - Wip - automobile supplies industry - Brief Article

Automotive Design & Production, Sept, 2001 by Christopher A. Sawyer

"In most recessions, automotive suppliers see their profits drop about 30% from their peak," says Craig Fitzgerald, partner, Automotive Supplier Strategy Services, at consultants Plante and Moran (Southfield, MI). "So far, the decline has been on the order of 12%, making this a relatively mild recession, and the continuing strength of the non-manufacturing sector of the economy will help keep it mild." So everything is OK, right? Not at all, says Fitzgerald.

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"I have 350 suppliers as part of my practice, and they are being squeezed by the economy, a poor debt-to-capital ratio, and continuing pressure to cut margins from their 'billion-dollar bully' customers. Eventually, the technology will stop coming because margins have been cut so close, quality will continue to drop, and a number of suppliers-perhaps a large number of them-will go bankrupt. When that happens, the OEMs may-and I stress 'may'-realize that the reason for the decline in their vehicles' technology and quality doesn't lie with the supply base, it lies with them," he says. But by then, Fitzgerald stresses, it may be too late.

"I'll consider it a good decade if, at the end of 10 years, the combined market share for GM and Ford is at 50%," he says. (Fitzgerald no longer considers Chrysler to be a domestic automaker.) "If I'm going to be realistic, however, I expect them to have a combined market share of 40% at the end of 2010. And that," he says dejectedly, "is pretty pathetic. It will be very, very difficult to get people to consider a domestic product once they have left the fold," he claims. Plus, the need to convince buyers that it's safe to come home will add marketing cost to the bottom line of automakers still struggling to come to grip with their problems from the 1990s.

Take GM, for example. The early 1990s were particularly hard on the company, according to Fitzgerald, and it has yet to regain its momentum. "Bankruptcy was one potential strategy GM considered for dealing with its cash flow shortfall," he says. In 1991, the company had to borrow against its credit line for 51 of 52 weeks to make payroll. "That's why a number of models were delayed," he says. GM sources confirm that the Corvette and full-size trucks, among other models, were scheduled to launch three years before they eventually arrived on the market. The delay kept old product alive, forced GM into adding incentives to keep them competitive, and alienated buyers.

Fitzgerald thinks the weakness shown by domestic automakers will play into the hands of importers, especially the Japanese. And the changing information technology landscape will work to their advantage.

"The Japanese-despite the continuing weakness of their economy-will be the ones to benefit from the changes in information technology," claims Fitzgerald. "For the domestic automakers, the changes have meant they are able to get information more quickly. Unfortunately, they're not able to process or act upon it any faster. There are too many approval layers; people are constantly being shifted around the domestic automakers, which leaves few managers with experience in place; and Detroit likes to turn everything into a process. To the Japanese," he says, "quick communication between each area of the company is a way of life, not a chapter in a manual."

Automotive Industry

Will the billion-dollar bullies get bloodied? - Wip - automobile supplies industry - Brief Article

Automotive Design & Production, Sept, 2001 by Christopher A. Sawyer

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