Detroit's annual lovefest of the automobile is in full swing.
Carmakers have buffed the fenders, served up buffets to the media and are rolling out the future models they hope will become the next hot vehicle as part of the North American International Auto Show 2001, which runs through Jan. 21.
But even as designers tout their brands, suppliers and automakers alike are tightening their belts for a slowdown in the industry that is likely to trim more than 1 million vehicles from North American production lines this year.
"There is a correction taking place in regards to the inventories," General Motors Corp. President and Chief Executive Officer Rick Wagoner admitted during a December news conference.
DaimlerChrysler AG, whose Chrysler unit posted a $4.6 billion operating profit in 1999, saw its first-half profit become nearly wiped out. The company expects it will net an estimated profit for 2000 of less than $500 million.
Caught in the squeeze are DaimlerChrysler suppliers, which face a mandatory 5 percent price cut on parts for this year and another 10 percent by the end of 2002.
GM, meanwhile, has taken on the mantle of "collaboration," announcing a new plan to split the benefits of cost-cutting initiatives, leaving 35 percent of the savings in suppliers' hands — similar to Chrysler's former Supplier Cost Reduction Effort, or SCORE, program.
North America's Big Three automakers have launched a series of temporary plant shutdowns to try and reduce overstocked dealer lots, with no clear sign when production will pick back up.
"The main thing is there is this sense of foreboding," said auto consultant Jeff Mengel, a partner with Plante & Moran LLP's Auburn Hills, Mich., office. "It's affecting people who don't even do work with Chrysler. The direct impact is only on a limited number of suppliers, but the trickle-down effect has everybody wondering what's next."
Auto analysts are quick to point out that even if production slips to 16 million vehicles in North America this year — from a record of more than 17 million for 2000 — the auto industry is not entering a complete recession. Just a few years ago, 16 million vehicles would have been record production.
"People read about these troubled companies and think the whole business is in trouble," noted J.A. Crough, director for the automotive group of the Canadian Imperial Bank of Commerce in Mississauga, Ontario.
"You need to put things in context. The softening is coming off from record years. The numbers are still very respectable."
But with the slowdown forecast to continue for at least one more year, most suppliers are not anxious to spend cash on new projects, unless they can find a way to use new technology to shore up their bottom lines.
The world's biggest auto supplier, Troy, Mich.-based Delphi Automotive Systems, announced last month it expected either a drop in sales or — at best — flat sales growth for 2001 of $28 billion to $29 billion, even with new products coming on line.
As a result, it would allocate about $1 billion for capital projects, including acquisitions, for the year, down more than 20 percent from 2000. Any purchases will focus on supporting Delphi's growth in value-added technology projects, Chief Financial Officer Alan Dawes said.
And as larger companies look to improve productivity in their plants, they likely will bring some molding back in-house that earlier was contracted to smaller businesses, Mengel said.
Molding presses are fixed capital, he noted, and the more a company keeps a press in operation, the more it can amortize the cost over a larger variety of pieces.
"Once there are fewer higher-value jobs being produced, there is capacity for lower-value jobs," Mengel said.
To survive, small and midsized molders must look for a wider variety of work outside the auto industry, making parts for anything from office furniture to plumbing fixtures. That, in turn, will put more stress on molders in those industries as a flux of available equipment is offered up, he said.
But all the doom and gloom out of Detroit does not mean that the entire industry has battened down its hatches. Transplant automakers, from Toyota Motor Manufacturing North America Inc. to BMW AG, have improved their sales numbers and are in the midst of a building flurry.
Honda of America Manufacturing Inc. has a new plant under construction in Lincoln, Ala., to make its hot-selling Odyssey minivan — with 117,000 on the road by the end of November 2000, a 77 percent jump from a year earlier.
Nissan Motor Co. Ltd. just announced its second U.S. plant — a $930 million investment in Jackson, Miss. Volkswagen AG's U.S. sales climbed nearly 9 percent in November while BMW posted a 30 percent jump.
"Those suppliers who are almost exclusively with [DaimlerChrysler] will definitely have some challenges," Crough said. "It's all going to depend on the diversity of the platforms they're involved in."
Some processors hope they can convince automakers anxious to shave dollars off production costs — but still offer up attractive models to consumers — to consider more use of plastic body panels.
"What everybody's trying to do is put out as many varieties on body style as possible," said Mike Dorney, chairman of the Automotive Composites Alliance and vice president of sales and marketing for Troy-based Budd Co.'s plastics division.
Promoting the combination of lower tooling costs and a wider variety of styles could provide composites with an inside track in a more competitive auto industry, he said.
"In any market, there are going to be winners and losers," Dorney said. "The winners are going to be the ones who offer a product the consumer wants to buy."