U.S. Auto Parts Suppliers Are Looking To Foreign Automakers For Growth

Autoparts Report, Nov 19, 2002

Price cutting demands by the Big Three are forcing U.S. suppliers to seek stronger ties with Asian and European carmakers, whose increasing share of the American market may be a path to growth. Automakers such as Toyota Motor Corp., Honda Motor Co. and Volkswagen AG are selling more cars to U.S. customers at the expense of Detroit's Big Three. Detroit's share of the U.S. market has fallen steadily to 61.5 percent now from 72.1 percent in 1992, according to Ward's AutoInfoBank.

The figures exclude foreign brands such as Jaguar, Mercedes, Volvo and Saab, all made by the Big Three. In another decade, some industry observers fear U.S. car models will account for just half of all vehicles sold in the U.S. Fears that America's car-buying binge is finally running out of gas could force another round of belt-tightening at the automakers.

U.S. automakers, in particular, could then turn up the heat on their suppliers, the companies that make key components ranging from axles to airbags, and which already face mandates to slash prices on parts by 1 percent to 8 percent each year.

John Fielder, chairman and chief executive of BorgWarner Inc., told Reuters that his company set aggressive goals for broadening its customer base after determining it was too risky not to be diversified in the event of a downturn in the car market. The proportion of BorgWarner's sales to the Big Three dropped to 61 percent last year from 73 percent in 1997. By 2005, more than half of sales are expected to come from non-Big Three automakers.

Another major supplier, Dana Corp., a maker of axles, driveshafts, brakes and chassis, also wants to boost its sales outside of the U.S. market to above 50 percent from less than one-third currently, said Bill Carroll, Dana's automotive systems group president. "We have to grow faster with the non-Big Three to balance our customer portfolio," he said in a recent interview.

Foreign auto makers, especially the Japanese are gaining marketshare because they compete on the basis of value, performance and features, while the Big Three are buying share through incentives and pricing, said Frank Macher, chairman and chief executive of Federal-Mogul Corp. "That is a major flaw that needs to corrected," Macher told Reuters. "They need to learn to compete on the basis on what people really want."

U.S. automakers, for their part, have indicated a willingness to work more closely with suppliers to improve the relationship, in some cases by bringing them into the planning process earlier. GM's head of North American operations, Robert Lutz, told an industry conference this summer that building trust among its supplier base was key to future success.