The automotive slowdown is continuing to ripple through the North American supply base, with companies closing plants and laying off workers. But executives say the climb out of the valley could begin soon.
Automakers already have settled into regular patterns for their shutdowns, allowing suppliers to prepare their own companies. At least one automaker has boosted its outlook for the first three months of 2001.
"We remain optimistic about the prospects for a `soft landing' and healthy auto sales," Bob Rewey, group vice president global consumer services for Ford Motor Co., said in a March 1 announcement about the Dearborn, Mich.-based company's February sales.
Ford expects to sell 1.06 million vehicles in the first quarter, 10,000 more than its earlier estimates, but still 16 percent less than the blistering production record set in 2000.
DaimlerChrysler AG, meanwhile, noted its February auto sales of 201,000 vehicles were up 36 percent from January — even if they did trail figures from a year earlier by 10 percent. The company figures the final quarter of 2000 was its low point, and now is plotting its recovery, Chrysler division Chief Executive Officer Dieter Zetsche said in a Feb. 26 news conference.
But processors still are feeling the slowdown that started in October. Among the latest businesses to take a hit:
Federal-Mogul Corp. reduced its global salaried work force by 1,100 people and eliminated another 200 open positions.
"These are difficult decisions, but we are operating in very tough market conditions," said Frank Macher, chief executive officer for the Southfield, Mich.-based maker of lighting systems, wiper blades and engine seals.
Meridian Automotive Systems, based in Dearborn, will shut down an interior trim molding operation in Lapeer, Mich., by the end of June, cutting about 450 jobs. The unit has suffered from financial losses for several years, officials said, and failed to meet customer quality demands.
Johnson Controls Inc., is cutting its salaried work force in the Plymouth, Mich.-based auto division by 300 this year, mostly through attrition, said company spokesman Bill Dawson.
The reduction comes on top of a drop of 400 salaried jobs last year, which was part of an internal restructuring that preceded the automotive slowdown. The new cuts recognize reduced auto production, but also continues an attempt to scale back on staff.
"We're just letting ourselves get skinnier," Dawson said. "We'd like to see ourselves come out of this far stronger than when we went in."
Lear Corp. will close an 80-employee injection molding facility in El Paso, Texas, by the end of June. The site made a variety of components for the Southfield company, but its orders have been falling for years, said spokeswoman Andrea Pulchalsky.
LDM Technologies Inc. of Auburn Hills, Mich., laid off 23 employees at the end of February, according to an employee source interviewed by Crain's Detroit Business. The company would not confirm the report.
Collins & Aikman Corp. of Troy, Mich., announced last month it has launched a companywide hiring freeze.
Even if consumers resume their car-buying habits, it will take time for all of the members of the auto supply chain to feel any relief, warned Richard Hilgert, automotive analyst for First of Michigan Corp. of Detroit.
"They have to get rid of the inventory first," he said. "Production is what drives the suppliers, more so than sales, so for the suppliers, they still have a little more pain to go through."
That includes DaimlerChrysler's continued cost-slashing moves. The automaker, which has offices in Stuttgart, Germany, and Auburn Hills, already demanded an across-the-board, 5 percent cut at the start of this year from its suppliers. Now during 2001 and 2002, it will free up "hundreds, or you could fairly say thousands of engineers" to work with supporting companies to find another 10 percent worth of cuts, Zetsche said.
"We are very confident that we can achieve more than 5 percent [in material-cost reductions] by the end of this year," he said.
That even takes into account some companies that have refused to pay the mandatory cut. Zetsche would not comment on which suppliers have not signed on, but said DaimlerChrysler is keeping track.
"We think that it's part of our responsibility toward the vast majority of suppliers working cooperatively with us that we clearly award them in the long run, vs. those few that are not cooperating with us," he warned.
Despite the continued belt-tightening, suppliers maintain they see light at the end of the tunnel. North American car production still is slated to hit nearly 16 million vehicles — down from more than 17 million for all of 2000, but still "a very good start — better than we expected," Rewey said.
"In fact, it's looking more and more like 2001 could be the third-best U.S. sales year in history."
Ford expects first-quarter sales to drop 16 percent behind the same period a year earlier, but run only 5 percent behind 2000 for the second quarter of 2001.
Detroit-based General Motors Corp. expects to make 1.2 million vehicles during the first quarter of 2001, and to increase that by 100,000 cars and trucks during the second quarter.
Suppliers are noticing those tentative improvements, said Tom Evans, CEO of Collins & Aikman.
"The fourth quarter was just panic work," he said. "Warnings were just coming in over the transom every three days. By the first quarter, we'd get four, five weeks [of] warning.
"What I see by the end of this quarter, I see stability coming back, but still in relative low schedules for the quarter. Through the summer months, they'll get back on the stick to push the new models."
Hilgert agreed that plastics processors should see their business begin to pick up in the second half of the year, but analyst Dennis Virag warned that it is too early to make any predictions about how the rest of this year will pan out. At best, he calls himself "cautiously optimistic" that the worst is over.
"Hopefully, sales will remain stable. But if you read the tea leaves, it's really hard to see what's going to happen four or five months from now," said Virag, president of Ann Arbor, Mich.-based Automotive Consulting Group Inc.
The stock market is unstable and consumer confidence is dropping, he noted. Carmakers' comments now are designed to encourage potential buyers as much as report on the state of the industry.
"It's about the psychology of the market," Virag said. "The real, telling sign that things have changed will be when automakers start calling their own people back to work, rather than laying them off."