Several major U.S.-based suppliers are refocusing their business on Europe to combat financial problems in their home market.
The combination of higher raw-material prices, relentless price pressure from U.S. customers and falling U.S. production has put many traditional Detroit-oriented suppliers in a financial bind.
Delphi Corp., Dana Corp. and several others have had to ask bankruptcy courts for Chapter 11 protection against creditors. Visteon Corp. escaped only because former owner Ford Motor Co. took back 23 money-losing U.S. parts plants.
But Delphi, Visteon and Dana all contend that their European operations are profitable.
Of the nine U.S.-based suppliers in the top 30 of Automotive News' list of the 100-largest global suppliers, the four in the deepest financial trouble - Delphi, Visteon, Dana and Collins & Aikman Corp. - all have less than a quarter of their sales in Europe.
The five others - Johnson Controls Inc., Lear Corp., TRW Automotive Inc., ArvinMeritor Inc. and DuPont Automotive Systems - get at least 35 percent of their total revenue from Europe. More than half of TRW's sales are in Europe.
A supplier that is in Chapter 11 reorganization in the United States still can thrive in Europe if it prepares its Chapter 11 filing carefully, says Eric Wallbank, a London-based analyst in Ernst & Young's European automotive team.
"Provided they adequately ring-fence their European business and ensure channels of funding, there's no need for their operations here to be affected," Wallbank says.
Dana filed for Chapter 11 protection March 3 after losing $1.6 billion in 2005. Delphi filed in October 2005.
Other large U.S. suppliers in financial trouble are using their European units as a source of cash. Collins & Aikman sold its European operations to U.S. billionaire financier Wilbur Ross, who is trying to create an interiors supplier. Similarly, Lear said it plans to give its car-interior units to Ross in exchange for 34 percent of Ross' new company. But Lear also said it would consider instead an outright sale of its interiors business.
U.S.-based suppliers are reducing their dependence on the high-cost, low-margin American market, shifting manufacturing to lower-cost areas and growing in Europe, where margins are higher and competition less cutthroat.
"The customer market is very different in Europe," Wallbank says. "In North America it is hard to find other customers than Ford and GM. European suppliers have a much wider choice of OEMs, and they can still move to Eastern Europe to lower their costs."
Ralf Goettel, president of Dana Europe, is optimistic.
"Dana's operations in Europe continue to be profitable and financially strong," he says. "Europe is a completely different market."
Dana is consolidating U.S. operations, growing in Mexico and may shift work to low-cost countries. But it already has 50 plants and customer centers in Europe, as well as 10 technical centers.
When Delphi filed for Chapter 11 last October, it had prepared so that European operations would not be affected.
Under its transformation plan, unveiled March 31, Delphi plans to sell or downgrade one-third of its global manufacturing sites. The company also plans to leave sectors it thinks are commodities, including chassis and brake systems, catalysts and cockpit systems.
But few of those are in Europe, where the supplier is gaining new business.
Last year, Delphi won more than $8 billion in new business in Europe. In the first two months this year, Delphi added nearly $3 billion in new European contracts.
Volker Barth, Delphi's European president, earlier this year told Automobilwoche, "We expect further growth, also on the profit side."
Delphi already has made a substantial investment to boost European business. Of 164 plants worldwide, Europe is home to 82, plus 10 technical centers, a Delphi spokesman says.
At Visteon, selling back to Ford many of its North American units dramatically shifted the supplier's center of gravity toward Europe.
The North American portion of Visteon's sales fell to 39 percent, from 63 percent, while Europe-South America region sales grew to 43 percent.
The move helped Visteon trim its losses from $1.50 billion in 2004 to $270.0 million in 2005.
Visteon also is investing in Europe. The supplier has eight technical centers and 53 plants and customer centers in Europe out of 170 plants and technical centers worldwide.