More work overseas likely, Dana tells lenders

3/24/2006

Bankruptcy forces corporations to make tough cost-cutting decisions, and Dana Corp. told lenders this week that it expects to increase its presence overseas, which analysts say could mean less work in the United States.

The Toledo auto supplier's chief executive officer has stressed for two years the need to pursue more work outside North America. But in a presentation to lenders this week, the company said it expects to reduce labor and logistics costs by increasing its presence in Mexico, China, India, Eastern Europe, and South America.

That likely translates, industry experts said, into a combination of increased production overseas in areas where Dana is winning more contracts and less manufacturing in the United States.

The cuts would be prompted by primary U.S. customers making fewer vehicles and by the lower cost of producing parts elsewhere and shipping them here, analysts said.

"There's going to be expanding and contracting," said supplier analyst Marc Santucci of ELM International Inc. in East Lansing, Mich.

Dana, which filed bankruptcy this month after financial losses and cash-flow problems, has hired consultants to help it determine a variety of moves to slash costs and boost revenues. It hopes to emerge from Chapter 11 bankruptcy in 18 months.

Before its filing in U.S. Bankruptcy Court in New York, the Fortune 500 firm was shifting some U.S. manufacturing to Mexico.

It dissolved its Mexican joint venture and assumed full ownership of five axle and driveshaft plants there, and last fall it announced plans to move some production south of the border.

For example, steering-shaft component and assembly operations are being moved to Mexico from Lima, Ohio, eliminating 100 of 385 jobs at that factory.

The plant had 650 employees about five years ago, but other work was moved to Canada, India, and Asia, the head of United Auto Workers Local 1765 at the plant has said.

The company last year also said it would open a 50-employee factory in Hungary to build axles and transmissions for off-highway agricultural and construction vehicles built in Europe and beyond.

Dana spokesman Chuck Hartlage said yesterday it's premature to talk about future investments in Dana's overseas operations or changes in U.S. factories related to the bankruptcy reorganization.

CEO Mike Burns touched on international plans in talking to lenders this week.

Said analyst Joseph Phillippi: "Dana's been doing a lot of this already."

Still, more is likely to come, he and others said.

Although some automotive parts made and used in the United States are not likely candidates for production outside North America, some forgings and components for them are, Mr. Phillippi said.

U.S. regulations make forge operations difficult and costly, and items such as universal joints for driveshafts could be made in Eastern Europe, which has a good base of machinists and other skilled tradesmen, said the president of AutoTrends Consulting in Short Hills, N.J.

However, the cost of shipping to the United States items such as axles and pickup frames would be too high, Mr. Phillippi said. "Axles are heavy, they take up a lot of space. Clearly, frames are not going to be made offshore."

More Dana parts could be built in Mexico and shipped to the United States, but only universal joints and other drivetrain products are likely to be imported from Europe, Asia, and South America, said Mr. Santucci of ELM International.

Canada, however, may be a good alternative as Dana continues to cut labor and logistics costs, Mr. Phillippi said.

It has universal health care, its currency is valued at less than the U.S. dollar, and shipping would not be prohibitively expensive, he said.

Contact Julie M. McKinnon at:

jmckinnon@theblade.com

or 419-724-6087.