European suppliers have five major advantages that protect them from the threat of bankruptcy facing North American parts makers, according to the head of a European auto suppliers group.
"We have perhaps prepared better," says Lars Holmqvist, CEO of CLEPA, the European association of auto suppliers.
Delphi Corp., the second largest global supplier, is the latest example of problems facing U.S. suppliers. Its American operations are in Chapter 11 bankruptcy protection, but its European unit is profitable. Similar crises have hit U.S. suppliers such as Collins & Aikman Corp., Federal-Mogul Corp., Tower Automotive Inc., Meridian Automotive Systems and Oxford Automotive Inc.
But in Europe, suppliers have:
1. More diversified customers. Three automakers in the United States control 69 percent of North American production. Europe has 10 major carmakers. None has more than 20 percent of the market.
2. Fewer pension and health care costs. A major part of the problem in the United States is that companies pay the health care costs of their workers and retirees and also much of their pensions, Holmqvist says.
3. Longer-term contracts. European suppliers say a greater emphasis on long-term relationships reduces pressure for short-term price cuts.
4. Nearby low-cost labor base. European suppliers outsource labor-intensive work to eastern Europe.
"It's easier for European suppliers to use nearby low-cost countries," says Svenake Berglie, managing director of the Scandinavian Automotive Suppliers. "There are so many very, very close to us. In the U.S., there's only Mexico."
5. Richer mix of vehicles. Holmqvist says a greater percentage of luxury vehicles in Europe produces higher profit margins on parts.
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