DETROIT - Up to 17 percent of North America's parts makers could wind up in bankruptcy court in the next two years, says a prominent turnaround firm.
The warning is in contrast to the fairly strong profits that many suppliers reported last year.
Alix Partners LLC warns that "a substantial part of the supply base faces financial distress" by 2006. The firm analyzed the finances of 115 publicly held global suppliers, based on 2003 results.
John Hoffecker, a principal with the Southfield, Mich., firm, said the 10 top performers, led by Denso Corp., collectively posted a 40 percent increase in net income last year, to $5.43 billion.
The 10 worst performers had a collective net loss of $3.50 billion, about the same as in 2002. Visteon Corp. finished last among the companies studied with a 2003 loss of $1.21 billion.
Suppliers' problems are likely to grow as raw-material prices and interest rates rise, the study predicted. Suppliers also face increasing price pressure from automakers.
Net profit margins for the top 25 percent of companies in the study rose 1.8 percent last year, to 6.6 percent.
Hoffecker said the winners in global competition aren't necessarily the biggest companies or the ones focused on supplying certain parts of a vehicle. They are companies with "flawless execution of the right strategy."
He also found that conglomerates have performed roughly the same as so-called "pure play" auto parts makers over the past decade.
The general consensus in the industry is that conglomerates' inability to compete in the auto sector prompted their exodus. Conglomerates United Technologies Corp., Textron Inc. and others sold their auto units during the past decade to redirect capital to industries with a better return.
The study included 36 companies with headquarters in North America, 27 in Europe and 52 in Asia.