Study: Financial strains on suppliers growing

The financial distress of automotive suppliers is growing, according to a new study by the Center for Automotive Research.

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"In tough times, it gets even tougher," said Sean McAlinden, director of the economic and business group at the center.

Preliminary results from the June survey of 67 suppliers showed:

  • 75 percent earned 4 percent or less in after-tax profit.

  • More than 50 percent get 8 percent or less in return on investment.

  • Pricing doesn't adequately cover upfront development costs or recapitalization needs for most.

  • Some suppliers can't afford to invest in the advanced equipment and design and manufacturing technology that customers demand of them.

  • Price-cut demands from customers, mispriced products and lower bids from competitors that didn't pay for development are the biggest barriers to investment.

  • Restrictive lending agreements and high debt levels limit the ability to raise capital.

    The center conducted the study at the behest of the Michigan Economic Development Corp., which noticed that Michigan suppliers increasingly were unable to invest in improving or expanding their businesses. More than 80 percent of the surveyed companies are small suppliers with less than $300 million in sales, the group tha� has been most battered by the industry downturn, automaker demands and wary lenders.

    "It's not a good situation in our industry right now," said Pat Thompson, president of Trans-Matic Manufacturing Co. in Holland, Mich. "We simply have too much capacity chasing too few opportunities."

    More extensive survey results will be issued in September.

  • You can reach Amy Wilson at awilson@crain.com

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