North American suppliers must cut costs and pursue business with transplant carmakers to withstand production cuts by domestic auto companies.
Suppliers need to be vigilant in adjusting factory capacity quickly to match customers' demands, said Kevin Tynan, an analyst for Argus Research Group in New York.
North American car and truck production is about flat this year. But Ford Motor Co. production through Nov. 5 was down 11.6 percent to 2.7 million cars and trucks compared with a year ago, and GM production dropped 9.1 percent to 3.9 million units. Tynan said he expects Ford and GM production to continue its path, creating continuing problems for suppliers.
"It's a classic train wreck scenario: the engine stops and the cars behind slam into it," he said.
GM has said it is increasing production in North America to 1.3 million units in the fourth quarter of 2005, up from 1.1 million in the third quarter.
Overall, North American vehicle sales in 2006 should be close to the final numbers in 2005, which Tynan pegged at 16.9 million to 17.1 million units.
An Automotive News survey of 16 suppliers found that the companies -- led by Delphi Corp., Lear Corp. and Visteon Corp. -- lost a combined $919.6 million in the third quarter, which ended Sept. 30. Those same 16 companies lost $799.7 million during the same period a year ago. Total third-quarter revenue rose to $43.88 billion from $42.03 billion during the same quarter last year.
For the first nine months of this year, the 16 companies lost $995.2 million compared with a gain of $558.2 million during the same period in 2004. Total revenue rose to $144.10 billion for the period compared with $136.99 billion during the same nine months of 2004.
Suppliers heavily reliant on GM and Ford saw earnings suffer in the third quarter.
Delphi, which does half of its business with GM, led decliners. It lost $788.0 million in the quarter on revenue of $6.28 billion, before putting its U.S. operations in Chapter 11 bankruptcy protection on Oct. 8. During the same quarter last year, it lost $119.0 million on revenue of $6.64 billion.
Lear posted a net loss of $750.1 million in the third quarter as it looks to spin off its interior trim business after GM said it would bring interior design in-house. Lear posted a $91.7 million gain during the same quarter last year.
Visteon last week said it lost $200.0 million on total revenue of $4.12 billion during the third quarter, compared with a loss of $1.43 billion on revenue of $4.14 billion during the same quarter of 2004.
Suppliers with bigger books of transplant and European business, such as Johnson Controls Inc., fared better. But Magna International Inc. -- even though it posted improved year-over-year earnings in the third quarter -- failed to meet analyst expectations.
Magna is looking at plant consolidations and the possible sale or closure of operations, particularly in those divisions viewed as underperforming, said President Mark Hogan during an earnings call with analysts last week.
Magna's vehicle fascia business, Decoma International, has excess capacity at a plant in the United Kingdom, and it is working through inefficiencies at its Belplas, Belgium, plant, Hogan said.
On top of that, Magna was hit in the quarter by the same issues hounding other suppliers: rising costs for steel and resins, customer pressures for price concessions and costs associated with vehicle launches.
Magna is ramping up production at a new fascia and paint plant in Georgia to supply Mercedes M-class and R-class production in Alabama, as well as a frame plant in Kentucky for the new Ford Explorer and next-generation Ford F-Series Super Duty pickup, Hogan said.
He said Magna's efforts to win transplant business continue. Hogan said the company has landed a future transfer-case program for an undisclosed Japan-based automaker for production of the parts for Japan and North America.
You may e-mail Dave Barkholz at [email protected]