The turmoil shaking through North America's automotive supply industry is putting huge players in the plastics industry up for sale and raising one big question - who, exactly, is in the fiscal shape to invest in them?
Collins & Aikman Corp., with $4 billion in annual sales, is seeking its best exit strategy from Chapter 11 bankruptcy protection.
Lear Corp. is seeking alternatives for its interiors production, worth more than $1 billion.
Visteon Corp. spun off more than $7 billion worth of business to create Automotive Components Holdings LLC, controlled by former parent Ford Motor Co., which is seeking buyers for the operations.
Those three firms alone represent more than $3 billion in injection molding in North America.
North America's largest auto supplier, Delphi Corp., entered Chapter 11 in October for protection while it restructures its $26 billion business. On March 3, Dana Corp. - with $9 billion in annual sales, including seals and under-the-hood plastic parts - entered Chapter 11.
``I think we are in a state of play we've never seen before in the auto industry,'' Phil Martens, president of Dearborn, Mich.-based Plastech Engineered Products Inc., said March 7 at the Executive Forum in Tampa.
In the past, auto industry insiders expected that competitors already in the supply business would swoop in to buy up troubled firms and boost their own market share in the process. But with so many companies in trouble now - and the sheer size of what's up for bid - many of those same companies are either fighting to survive, or finding it hard to convince traditional lenders to provide the funds for acquisitions.
``At the level of something like C&A, you'd need [buyers] who are looking for significant market share, and there simply aren't that many of them out there,'' said Jeff Mengel, a partner with consulting group Plante & Moran PLLC in Southfield, Mich.
Traditional lenders are wary of funneling money into a company that is too heavily focused on one customer, especially molders with extensive exposure to traditional North American automakers, which have seen their share of the market fall, said Jeff Kolke, vice president of chemicals and plastics for Stamford, Conn.-based GE Commercial Finance Corporate Lending.
``From a lender's point of view, we have to watch what we're doing,'' he said.
So instead, the industry is drawing the attention of a variety of new players.
Investor Wilbur Ross has proposed joining his financial backing with Southfield-based Lear's injection molding expertise to create a powerhouse venture that would buy out Collins & Aikman.
The New York-based financier has launched his plans even without a final agreement with Lear. On March 2, he completed the acquisition of C&A holdings in England, Germany, the Netherlands, Belgium, Spain and Sweden. The combined sites turned out more than 425 million euros' ($506 million) worth of auto parts in 2005.
Ross is continuing his efforts to unite those plants in the new International Automotive Components Group with Lear's European interior systems facilities, while continuing talks on the North American side.
Ross' profitable track record in steel may bring extra attention and money to the auto industry, Mengel said.
Private equity from investment groups like Cerberus Capital Management LP and Carlyle Group - which have backed troubled companies in the past - along with Ross are leading the interest in major investments, but a number of less-well-known investors banking on smaller-scale players.
Private equity group KPS Special Situations Fund II entered the auto industry when it purchased injection molder Sarnamotive Blue Water Inc. of Marysville, Mich., in 2005. Fellow New York equity player Harbinger Capital Partners led the investment into bringing the one-time Venture Holdings operations out of Chapter 11 to create Cadence Innovation LLC in Sterling Heights, Mich.
``These investors want to create the next Plastech,'' said David Evatz, vice president of investment banking for Stout Risius Ross Inc.
The auto industry also is getting attention from hedge funds.
At the same time, some existing auto suppliers still may find a way to make some purchases.
Conglomerates that split their attention between multiple industries are finding that the auto industry is so demanding that they could opt to sell nonautomotive assets to finance purchases at a bargain price, or put their auto interests on the auction block, said Michael Benson, managing director of automotive investment banking for Stout Risius Ross.
Meanwhile, some international suppliers may be seeing the instability in supplier ranks in the U.S. as a good time to expand there.
Japanese suppliers could pick up multiple plants while their traditional customers - Toyota, Honda and Nissan - are expanding production in the U.S. and Canada, Mengel noted.
Firms in emerging markets like China and India also could decide to enter North America, Benson said.
Mengel maintains there is a bright side to all of the current turmoil.
``It's generating real interest in the industry,'' he said. ``It's bringing in different money and different people who are aware that we're still producing 17 million units, and someone is going to be making those parts.''