Over the past year, North American suppliers have learned one brutal lesson: Bigger isn't necessarily better.
In 2005, eight major suppliers filed for bankruptcy protection and three more followed suit this year. The carnage is evident in Automotive News' newly updated list of the 150 largest North American parts suppliers.
Five of the continent's largest 27 suppliers operate under court protection: Delphi Corp., Dana Corp., Collins & Aikman Corp., Tower Automotive Inc. and Federal-Mogul Corp. And Visteon Corp. likely would be on that list if it had failed to negotiate a bailout deal with Ford Motor Co.
The scary fact is that these should be good times for suppliers. Since 2001, North American automakers have produced about 16 million vehicles a year.
But many North American suppliers made unwise acquisitions in a bid to become one-stop shops for automakers. When automakers didn't buy the concept, those suppliers were left in the lurch.
Delphi and Visteon had their own difficult circumstances. As spinoffs from General Motors and Ford, they were saddled with high labor costs and a portfolio of commodity products. The other suppliers don't have that excuse. And they have learned one brutal lesson: Growth at any price may kill you.
Federal-Mogul purchased a British supplier that had been saddled with a batch of asbestos liability lawsuits. Collins & Aikman tried to grab business by negotiating too many unprofitable contracts. Tower piled up debt when it made a spree of acquisitions.
Meanwhile, suppliers that focused on thoughtful growth and profitability are doing quite well. Last week Johnson Controls Inc. delivered solid quarterly results, giving beleaguered suppliers a boost on Wall Street.
Other companies with thoughtful growth strategies include Robert Bosch Corp., BorgWarner Inc., Magna International Inc., Denso Corp., ArvinMeritor Inc. and Continental AG.
Their success stems from a healthy diversity of customers and products. They also preferred steady growth and rejected a get-big-quick acquisition strategy.
The numbers speak volumes. It's better to be profitable than big.