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Motors Liquidation Co.

Automotive Suppliers Struggle Amidst Industry Downturn

Strategic Insights

— 1 min read

With new-car sales in the United States at a historic low, the fortunes of the auto suppliers are dire. These small businesses, often family-owned, have been pillars of the industry, providing crucial components to the big three automakers-General Motors, Chrysler, and Ford. However, as the auto companies struggle to stay afloat, their suppliers are forced to diversify or face the very real possibility of extinction.

Key Takeaways:

  • Over 500 of the 4,000 auto suppliers in the United States could go out of business by the end of the year, according to Neil DeKoker, chief executive of the Original Equipment Suppliers Association.
  • The auto suppliers have seen their billings to the three Detroit automakers plummet, dropping from $16 billion in January to $7 billion a month on average.
  • Many suppliers have been forced to lay off employees, with some cutting their hours back significantly in an effort to stay afloat.
  • Family-owned businesses, which make up a significant portion of the auto suppliers, are particularly vulnerable in this economic downturn.
  • Suppliers are diversifying into other industries, such as food and beverage packaging, medical, and wind energy, in an effort to stay afloat.
  • Low-car-volume operations, like Pioneer Forge, struggle to adapt to changing market demands and often find themselves as captives of the automotive industry.

Statistics:

  • 500 suppliers out of 4,000 may go out of business by the end of the year.
  • Billings to the three Detroit automakers have fallen from $16 billion in January to $7 billion a month on average.
  • The Strong brothers, Mark and Tim, saw their sales shrink from $632,000 in 2008 to less than $95,000 so far this year.
  • The work force at the Strong brothers' machine shop has decreased from seven employees to just three.
  • Whitlam Label's revenue has dropped from $20 million in 2008 to $14 million this year.
  • Avon Broach's payroll has decreased from 25 to 16 employees after a round of layoffs in March.
  • Pioneer Forge's revenue has plunged to less than $10 million, at an annual rate, from more than $15 million in 2007.

Sources:

  • Daniel Luria, research director of the Michigan Manufacturing Research Center in Ann Arbor.
  • Neil DeKoker, chief executive of the Original Equipment Suppliers Association.
  • George Buhaj, president of Avon Broach.
  • Michael Regal, manager of Pioneer Forge.
  • Richard Shaieb, president of Whitlam Label.

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