BUSINESSWEEK ONLINE : JANUARY 8, 2001 ISSUE
INDUSTRY OUTLOOK 2001 -- MANUFACTURING Crunch Time for Parts Makers Auto-parts suppliers who thought they had it tough in 2000 haven't seen anything yet. Amid the strongest auto boom in history, suppliers have been getting hammered as auto makers press them for cost cuts to keep vehicle prices low. ''The auto makers have been beating the living crap out of these suppliers,'' says Ron Tadross, analyst for Banc of America Securities, one of many analysts who have downgraded their outlooks for supplier stocks. ''The reality is, these guys are weak, and the environment just got weaker.'' Chrysler's suppliers will face the toughest challenge. The U.S. unit of DaimlerChrysler (DCX) ordered all suppliers to begin the year with immediate 5% price cuts. Over the next two years, Chrysler's new boss is demanding they find an additional 10% of savings. The supplier crackdown at Chrysler is the most recent skirmish in an ongoing process. Nearly every carmaker has been pressuring suppliers for at least 3% annual cuts to help keep auto prices flat. This pressure is one of the main reasons car and truck sales have stayed strong for so many years. Supplier profits have been steady, if unimpressive, over the past several years. But their combined market capitalization has fallen 43% from its 1998 high, says Ward's Supplier Index, which tracks the stocks of 65 publicly traded auto suppliers. The problem is that after a decade of cost cutting, suppliers have little room to maneuver now that auto sales are looking soft. The largest suppliers had hoped to achieve some defense against cost pressures by spending billions to bulk up in recent years. The consolidation also helped them develop core business strategies as they took on more of their customers' engineering and design work. But most say they still haven't seen these advancements rewarded in the form of better prices. The good news: Some suppliers have lined up a lot of incremental new business, particularly with Japanese manufacturers that are adding U.S. production, says UBS Warburg analyst Joseph S. Phillippi. Dana Corp. (DCN), for instance, has a strong portfolio, with new axle business for Toyota Motor Corp.'s (TM) light trucks. But even if there are some tiny nuggets of hope, there's little to suggest 2001 will be anything but a big struggle for suppliers. By Jeff Green _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ BACK TO TOP					CONTENTS RELATED ITEMS Autos CHART: Spotlight: U.S. Car and Light-Truck Sales Crunch Time for Parts Makers INTERACT E-Mail to Business Week Online

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