DETROIT -- Suppliers that rely heavily on Big 3 business are taking a beating from Wall Street analysts.
Market watchers last week lowered suppliers' earning estimates after General Motors said it plans to cut its fourth-quarter North American production 6.8 percent from last year's levels, while Ford Motor Co. plans a 7.4 percent reduction. The news followed disappointing August sales.
Deutsche Bank Securities Inc. cut its fourth-quarter estimates for American Axle & Manufacturing Holdings Inc., Delphi Corp., Lear Corp., Magna International Inc. and TRW Automotive Inc.
Seventy-nine percent of American Axle's revenue comes from GM. About 55 percent of Delphi's revenue comes from GM. At Lear, about 60 percent of revenue is tied to Ford and GM.
Ford's major suppliers did not escape Wall Street's attention. Credit
Suisse First Boston forecast lower earnings for Visteon Corp., a Ford spinoff, as well as Superior Industries International Inc., Dura Automotive Systems Inc. and Tower Automotive Inc.
Some suppliers have been taking measures to offset the production cuts. TRW Automotive CEO John Plant has ordered a production increase in Europe "to help mitigate the situation in North America," he told analysts during his second-quarter conference call on July 27.
Collins & Aikman spokesman David Youngman says the interior supplier last month told analysts that it had begun an accelerated program to take work back from vendors in an effort to boost profits.
August U.S. car and light-truck sales were down 12.4 percent from the year-ago month. The seasonally adjusted annual rate fell to 16.0 million in August, from 18.1 million in July.
Uncertainty followed news of plans to cut production
"If they cut production 10 percent, it's not a 10 percent impact on us," says Lear spokeswoman Andrea Puchalsky. "It depends on the (vehicle) models, so it's not quite that simple."
Puchalsky says Lear doesn't know which vehicles will be affected.
American Axle also says it's too early to tell how the cuts will affect the company. And a Visteon spokesman says the company is still evaluating the Ford announcement. Ford accounts for 72 percent of Visteon's revenue.
Suppliers to the Chrysler group may fare better in coming months, says Christopher Ceraso of Credit Suisse First Boston. Chrysler looks poised to deliver a fairly normal level of quarterly production. He says Chrysler has been helped by strong sales of models such as the Chrysler 300.
Industry watcher John Groustra says lower production is bound to hurt suppliers dependent on higher volume to offset continuously lower piece prices demanded by automakers.
"Any disruption in that volume will have an adverse impact," says Groustra, a partner with corporate turnaround firm Conway MacKenzie & Dunleavy of Birmingham, Mich.
The CEO at one small company that is facing escalating raw-material prices says some Tier 1s will respond to the production cuts by taking work back from their own suppliers.
"This is not good for the Tier 2 companies," he warns.
Rod Lache of Deutsche Bank of New York disagrees with some of his colleagues. He says production cuts are to be expected. The Big 3, Lache points out, have been losing market share for three decades.
"It's the same old story," he says.
Lache says suppliers with solid backlogs of new business can hope to maintain sales. He puts these companies on that list: BorgWarner Inc., Johnson Controls Inc., Lear and Magna.