Parts Makers Suppliers Fear Worst

Detroit Free Press (MI)

As Ford Motor Co. prepares to close assembly plants and reduce production at other factories from New Jersey to Atlanta, the automaker's suppliers are bracing the for worst. They know the fallout will hit them next.

"There's no question that when you're talking about taking out capacity and restructuring the company it's going to have a significant impact on the supply base to Ford," said David Cole, president of the Center for Automotive Research in Ann Arbor.

"If you're not lean now, you're going to be," added Bill Dawson, spokesman for Johnson Controls Automotive Group in Plymouth, a supplier for Ford, General Motors Corp. and the Chrysler Group.

Ford and the other automakers have leaned on their suppliers for years to trim costs, with the Chrysler Group even demanding 5 percent price cuts from its suppliers effective Jan. 1, 2001.

The Sept. 11 terrorist attacks and the economic downturn only added to the financial pressures facing the suppliers -- and that in turn can only mean trouble for their own suppliers, many of them small, family-owned tool and die shops.

According to the United Auto Workers, employment in major parts-producing industries has been falling steadily since the second half of 2000. By August 2001, the UAW says in its publication, "Jobs, Pay & the Economy," employment was down nearly 10 percent from a year earlier, a loss of 66,700 jobs.

The union's publication predicted that the worst was yet to come. The union represents some parts workers, but the industry is increasingly less unionized today than 10 or 20 years ago.

Southfield-based Lear Corp., maker of automotive interiors systems, for example, has responded to economic pressures last year by reducing its workforce by 4,800 employees, or 4 percent of total employment, through layoffs and attrition.

The company also closed a small operation in El Paso, Texas, and a plant in O'Fallon, Mo., and eliminated its contribution to workers' 401(k) retirement plans.

Other suppliers have also pared their workforces and cut or reduced their 401(k) contributions, among them Visteon Corp., Ford's largest-single supplier, which trimmed some 2,000 jobs. Many suppliers' earnings have also suffered.

"We've had to cut our cost structure," Andrea Puchalsky, director of corporate communications at Lear, said Monday. "That includes plant consolidations and right-sizing our workforce."

Now, Ford's attempt to return to profitability by reducing capacity by closing plants such as its truck-making factory in Edison, N.J., could add to suppliers' struggles.

"It's absolutely painful and challenging for suppliers any time to deal with change of this magnitude, this restructuring. The whole extended enterprise is going to feel a certain element of pain," Cole said.

Dennis Gioia, professor of organizational behavior at the Smeal College of Business Administration at Penn State, questioned how much more savings Ford could wring from its suppliers.

"How much more blood can you get out of this turnip?" Gioia said Monday. "Any time one of these things happens, the parts industry has to cringe. I'm sure the parts industry is waiting for the shoe to fall."

Puchalsky said the parts industry can still scare up new savings.

"It's our position that if you have a good working relationship with the customer, you can always find ways to take costs out of the system," she said.

Cole said he believed Ford would be willing to work with its suppliers. One of its top executives is Chief Operating Officer Nick Scheele, who rose through Ford's purchasing division.

Cole said Scheele (pronounced SHAY-la) will work with suppliers in an "intelligent way" and that Ford will learn to rely on them more effectively.

He said he expects to see "more extensive reliance from the suppliers for engineering, with less interference from Ford, and that's quite positive."

Neil De Koker, managing director for the Original Equipment Suppliers Association, a trade group in Troy, said suppliers have worked for years with the car companies to cut costs, become more efficient, and improve quality.

But, he said, the restructuring at Ford may not be as great a blow to its suppliers, especially if the company is cutting its overhead costs by closing plants operating below capacity, yet still builds the same number of vehicles.

"The fact that they're reducing their overhead and taking out costs doesn't mean that automatically translates to suppliers," De Koker said. "When it translates to suppliers is when Ford loses market share and reduces vehicle volumes," said De Koker, whose organization represents 270 companies with global auto parts sales of $280 billion.

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Penn State's Smeal College of Business offers highly ranked undergraduate, MBA, executive MBA, Ph.D., and executive education opportunities to more than 5,500 students at all levels. Featuring academic departments of accounting, finance, marketing, insurance and real estate, management, and supply chain and information systems, the college is also home to major research centers such as the Center for Supply Chain Research, the Institute for the Study of Business Markets, the eBusiness Research Center, the Farrell Center for Corporate Innovation and Entrepreneurship, the Center for Global Business Studies, and the Center for the Management of Technological and Organizational Change.

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