Loading…
Monday, September 22, 2014
Current Weather
Loading Current Weather....
Published: Friday, 4/30/2010

Profits raise U.S. auto parts makers from near death

ASSOCIATED PRESS

DETROIT — Companies that crank out gears, hoses, gauges and other parts for U.S. automakers are making a comeback.

Many are profitable again, and some are cautiously hiring after months of layoffs. They've also accomplished something that two of their biggest customers, General Motors and Chrysler, haven't: They've repaid everything they borrowed from the government.

In the past two weeks, large suppliers such as Gentex Corp., BorgWarner Inc., and Federal-Mogul Corp., have reported millions in profits for the first quarter, reversing huge loses from early last year when the auto industry nearly collapsed. The revival is driven by rising auto sales and the suppliers' own painful cuts during the recession.

The companies are among more than 2,000 in the U.S. that make just about all the 10,000 parts in a single car or truck, components that are bolted into vehicles by the Detroit Three or Asian and European automakers. You name it and the suppliers make it — transmissions, belts, speedometers, wires — even plastic bags that keep seats clean in the factory.

Many are concentrated around the Great Lakes, but thousands have set up in southern states like Kentucky, Tennessee, Georgia and Alabama. They're also in Texas and California. Together they employ more than 420,000 people and form links in a complex supply chain that turns sheet metal and plastic into Chevys and Corollas.

The suppliers' profits stand in contrast to 2009, when at least 54 went into bankruptcy protection and the government approved loans to help them buy raw materials and meet payrolls. Many couldn't borrow elsewhere because of frozen credit and doubts that they would be paid by General Motors Co. and Chrysler Group LLC as the pair headed into Chapter 11.

"There is no doubt whatsoever that there is a recovery both in the global economy and the auto industry," says Federal-Mogul CEO Jose Maria Alapont, whose company saw revenue rise 20 percent in the first quarter while results swung from a $101 million loss to a $15 million profit.

Many companies, like Federal-Mogul, used the recession to shed staff and excess factory space. Now they can make money even though U.S. auto sales this year could be more than 30 percent below the 2000 peak of 17.3 million vehicles, says Jim Gillette, an analyst with the firm CSM Worldwide, who advises parts suppliers.

"I think the job the suppliers did to lower their costs and reposition themselves is nothing less than remarkable in the environment," Gillette says. "The suppliers faced reality and cut very sharply."

CSM predicts U.S. light vehicle sales of 11.8 million this year, up from last year's 10.4 million. Through March, they're up nearly 16 percent over the first quarter of 2009.

Last year was brutal for suppliers. Their trade association asked the federal government for a $25.5 billion bailout, including guarantees the GM and Chrysler would pay their bills.

The government offered $5 billion in loans, to be administered by GM and Chrysler. But speedier payments by the automakers, increased production due to Cash for Clunkers incentives and restructuring helped most suppliers outlast the recession. They only borrowed $413 million from the government, all of which was repaid by March 31, 2010.

Even though GM CEO Ed Whitacre has bragged in ads that his company has repaid its government loans in full, GM and Chrysler have yet to return the full amount of federal aid they received. GM has paid back about $6.7 billion in loans, but the remaining obligation from both companies is about $55 billion. The government has turned that debt into a 61 percent ownership stake in GM and 10 percent in Chrysler. But that won't be repaid until the companies sell stock to the public, later this year at the earliest.

Meanwhile, some suppliers are starting to add back some of the thousands of jobs they cut. There's even a billboard along a freeway west of Detroit that says "GENTEX IS HIRING" in big block letters.

Gentex, which makes mirrors and other auto parts, is adding about 100 full-time production workers and engineers. During the recession, the company laid off about 400 people. Federal-Mogul, based in Southfield, Mich., laid off 11,000 workers during the recession and has added back 2,000 since late last year, 80 percent of them temporary hires.

Any hiring is cause for celebration in Motown, which has the highest unemployment rate of any big U.S. metro area at 15.5 percent.

Connie Hamblin, a spokeswoman for Zeeland, Mich.-based Gentex, says the company may hire more workers in the second half of the year if forecasts of increased auto production come true.

The company needs help to make more of its current products, and it needs engineers to design products for the future, she says.

Even though the first quarter was strong, suppliers still must be cautious. Demand for vehicles, especially in Europe, could slow in the second half of the year due to the lack of Cash for Clunkers incentives.

"There is a lot of uncertainty for the second half of the year," says Federal-Mogul's Alapont.

The recovery is likely to be slow and steady, says Gillette. Automakers can quickly cut production if circumstances change, so he cautions suppliers against investing too soon. The parts industry has a history of bulking up quickly after recessions as auto sales recover, only to struggle later if demand wanes.

Many such as Gentex are hiring temporary workers until they know for sure that the recovery will take hold, says David Andrea, vice president of the Original Equipment Suppliers Association, a parts company trade group. Employment, he says, will lag behind the supplier profits and increased auto sales.

Some suppliers, especially those that didn't scale back enough during the recession, will continue to struggle. Gillette says there's still too much factory capacity for the smaller U.S. auto industry.

"I certainly would not advise any of our clients ... to get too overly optimistic," he says. "Just be really cautious about hiring back too many people and getting ahead of yourself."



Guidelines: Please keep your comments smart and civil. Don't attack other readers personally, and keep your language decent. If a comment violates these standards or our privacy statement or visitor's agreement, click the "X" in the upper right corner of the comment box to report abuse. To post comments, you must be a Facebook member. To find out more, please visit the FAQ.