Ford's Belgium plant closing could impact U.S. suppliers
Tim Manganello: "The economic mood of not just the country but globally has gotten a little bit more conservative."
The announcement that Ford Motor Co. will close its Genk, Belgium, plant begins what will be a long, painful road for U.S.-based suppliers if they don't react quickly as the European economic crisis deepens, experts say.
The Ford plant, which is supported by several U.S. suppliers, including Visteon Corp. and Lear Corp., is expected to close in 2014 as the automaker projects losses in Europe of $1 billion.
Lear Corp. produces seats for the facility from its plant in Genk, said Lear spokesman Mel Stephens.
Stephens said in an e-mail the Ford closure is still too fresh to estimate its impact on Lear. The company will update shareholders on its business plan during its third-quarter investor call on Friday.
Federal-Mogul Corp. also supplies the Ford Genk plant, but doesn't expect to be affected, spokesman Jim Burke said in an e-mail.
But Federal-Mogul did announce layoffs of 300 temporary workers in Europe last week, with plans for more, he said.
"We expect to reduce about that many more temporary positions in Europe between now and the end of the year," Burke said. "We also anticipate taking additional down time in some of our plants in the coming months, depending on our OE customer plans."
The issue is about overcapacity in Europe as sales are nearing a 17-year low, much like they did in the U.S. three years ago, said Tom Manganello, partner at Detroit area law firm Warner Norcross and Judd LLP and head of its automotive practice.
"There is way too much capacity in the European Union, and the entire auto industry needs to swallow the bitter pill that (automakers) and suppliers did in North America and right-size plants and their entire supply chain," Manganello said in the e-mail. "Those that do so fastest will win, not fail."
Manganello is the brother of Tim Manganello, the CEO of BorgWarner Inc., which generates about half of its automaker business in Europe.
Meanwhile, Johnson Controls Inc., which operates its automotive seating business out of Plymouth, announced this week that it was restructuring its European operations due to slowing sales.
The company declined to specify how many plants would be shuttered and how many jobs would be affected, but said employee-related costs will be between $180 million and 210 million, Reuters reported.
"Time is up in the EU thanks to their debt crisis, and companies will either react appropriately or suffer a lot more in the long run," Tom Manganello said.
Tim Manganello of BorgWarner told Bloomberg Television earlier this month that the fourth quarter could be "a little more difficult" for the supply base because of Europe.
"The economic mood of not just the country but globally has gotten a little bit more conservative and a little bit more nervous," he told Bloomberg.
BorgWarner is prepared to adjust its temporary workforce in Europe to match demand. About 20 percent to 25 percent of the Auburn Hills-based supplier's European workforce is temporary, he told Bloomberg.
Sitting on cash
He said companies are hesitating on investing globally because of Europe, which is also affecting lower-tiered suppliers.
"People are sitting on cash," Tim Manganello said to Bloomberg. "When larger companies like ours are sitting on cash, that trickles down to the small guys. They're not going to invest if we're not going to invest."
BorgWarner had $185.9 million in free cash flow at the end of the second quarter on June 30.
Mike Wall, director of automotive analysis for IHS Automotive Inc., said that the automakers and supply base are equipped to handle the shrinking sales in Europe due to the recent downturn in the U.S., and Ford's actions will inevitably benefit the supply base.
"By closing the Genk facility, Ford will be in a much better position to weather the downturn in Europe and eventually return to profitability in the region," Wall said. "A financially healthier OEM base should also benefit the broader supply chain, as well."