For more than four decades, AMP Industries Inc. has been a go-to plastics injection molder for the auto industry. It has won awards from North American and international automakers and has been a key supplier on top-of-the-line cars and trucks.
But now it has had to lay off most of its 400 employees and is struggling to survive. In the past three to four years, the Mount Clemens, Mich.-based company has had to absorb $4 million in higher raw-material costs - in addition to $5 million worth of routine ``givebacks'' of the auto industry. Those are numbers that are tough to take in an industry already operating on thin margins.
``Half of the cost for a product for [automakers] is the raw-material cost itself,'' said founder Karl Blankenburg.
AMP won some concessions and advanced payment for tooling only to come under even more pressure from major customer General Motors Corp., and lost business from other customers that were nervous because GM was nervous.
Finally in March, AMP decided to give up its GM business, with its work distributed to other molders. In the meantime, the company is working to pick up more business from its other customers while also bidding on contracts from other re-sourced molding.
That would be a tough story any time, but in the auto industry today, it is far from unique. Hundreds - and possibly thousands - of auto suppliers are facing the same tough situation as AMP, hammered by customers and higher material costs alike, battered by slowing production that could drop even lower than the first predictions, and with banks in no mood to provide the financing that would give them breathing room.
``The fallout is not over,'' said Laurie A. Harbour, managing director of Stout Risius Ross Inc., a Southfield, Mich.-based consulting group. ``It's safe to say that 2008 will be worse than 2007 was, especially the first half of 2008.''
That means that watchers and suppliers alike are expecting more closures, more bankruptcies and more turmoil.
Already two major plastics suppliers - Plastech Engineered Products Inc., with an estimated $1.5 billion in annual sales, and Blue Water Plastics Inc. with $200,000 in annual sales - have filed for Chapter 11 protection this year, both citing worsening conditions in the industry along with rising costs.
Conditions have gone from bad in 2007 to worse in just the past few months. At the end of last year, most analysts were expecting North American auto production of about 15.2 million cars - the lowest number in a decade. Now those same analysts are quietly predicting the final number could go lower, to 14.5 million vehicles or even less. If gasoline prices rise to $4 per gallon, as some have predicted, then pessimists worry total North America vehicle production could dip by another 500,000 cars.
While there are some molders that are doing well, the bulk of them are dealing with financial problems, and more and more are finding it hard to survive. Conditions today are coming on top of slowdowns that began following the attacks of Sept. 11, 2001, and raw-material price and fuel hikes that followed hurricanes Katrina and Rita in 2005.
``You've had a series of shocks to the industry,'' said Jeff Mengel, a partner with consulting group Plante & Moran PLLC in Chicago. ``You combine all of them together and it makes for quite a difficult situation.''
Adding to the aggravation this year is a strike by American Axle and Manufacturing Holdings Inc., which in turn has led to parts shortages that have shut down multiple assembly plants - especially at GM, which had closed 29 by the end of March and cut production by 100,000 vehicles. Those closings have forced plastics suppliers to slow and cut production of their parts as well.
``You're going to see a lot more financial distress in the next three to six months,'' Harbour said.
With suppliers in distress, automakers are quickly shifting work from one supplier to another, hoping to keep ahead of potential shutdowns by their supply base.
Those moves can create another ripple effect, however.
Dearborn, Mich.-based Plastech entered Chapter 11 to stop an attempt by Chrysler LLC to move its work somewhere else. For now the U.S. Bankruptcy Court in Detroit has ordered Chrysler to leave its tools at Plastech.
Other companies like AMP, however, are seeing their work re-sourced, while also trying to tap into re-sourced work for other automakers.
But that will not last forever, Mengel noted. Each shift leaves processors in deeper distress, which puts them closer to the financial brink.
``Sooner or later, you're going to run out of viable companies,'' he said.
But despite the current situation, there is some hope. Detroit-based General Motors continues to predict that the economy will improve and auto production and sales will pick up in the second half of the year.
``We expected the first two quarters to be weak, and this has exceeded what we thought,'' said Mike DiGiovanni, GM's executive director of global market and industry analysis. ``Obviously we're not trying to minimize the fact that the economy and the industry is going through a difficult period.''
At the same time, the federal economic stimulus package will work and the economy will improve, according to DiGiovanni. Nine times out of 10, stimulus works, he added.
``I don't believe in being overly negative,'' said Mark LaNeve, vice president GM North America vehicle sales, service and marketing. ``What's the point in that?''
For those companies in good shape, they are in position to pick up new business, seek acquisitions and focus now on establishing their firms for long-term success, Harbour said. The U.S. dollar's current weakness also means that there are European and Asian firms looking for companies they can invest in - either through a full acquisition or through a partial purchase that will give them a foothold in North America.
``There are opportunities,'' she said. ``We've got companies in Germany and China and India who want a stake in the ground here.''