In 1995, Butler Metal Group was a small stamping plant with a good reputation and excellent engineering.

But the Canadian supplier was finding itself short of the capital it needed to keep up with competitors. Maintenance and operations were slipping.

Enter Oxford Investment Group Inc., a buyout firm looking to build a new automotive stamping group. The firm bought Butler for an undisclosed amount and helped it win a major contract with General Motors Corp.

Within a few years Oxford added two other stamping suppliers - Lobdell-Emery Corp. and Howell Industries - creating Oxford Automotive Inc., which is now run from a new headquarters in Troy, MI, with annual sales of about $430 million.

Butler is one of hundreds of partsmakers that have tapped an overflowing pool of buyout capital in the struggle to stay competitive in the ever-shrinking supplier industry.

For several years, buyout firms and larger suppliers have been poring over the industry, looking for opportunities to combine complementary businesses. The ranks of North American suppliers have been cut by more than half over the past 20 years, to about 3,000 today, even accounting for foreign-based suppliers that have come to North America for the first time.

Despite the surge of mergers and acquisitions within the automotive supplier community over the last three years, the financial reservoir nourishing this consolidation seems deeper than ever.

In 1997 alone, buyout firms raised $30 billion for the sole purpose of buying and consolidating companies, both in and out of the automotive industry. The $30 billion has the potential to raise another $90 billion in debt funding for a staggering $120 billion that could be used to finance potential deals.

That's because for every $1 in equity that a buyout firm brings to the deal, they can usually raise at least another $3 in bank debt or high yield bonds.

A buyout firm raises money from investors, uses the fund to acquire and combine companies and then typically sells the new company for a significant profit, or takes them public. The profits are split among financiers in relation to their initial investment.

But much of it might go unspent.

In 1997, about 49% of the money available for buyouts went unspent. So for every Butler, there appears to be numerous small companies who are not yet in the game.

"Never before has there been so much capital chasing so many firms. The problem is, the two trains can pass in the night," says Scott Merlis, president of Merlis Automotive International Inc., a leading automotive investment bank attempting to match investors with suppliers for potential buyouts.

Gretchen Perkins, a vice president at Chicago-based Fleet Capital, concurs.

"There just aren't enough deals to go around that are good deals," she says. "This is an excellent market. There is ample capital in the system to accommodate smart business combinations. If somebody wants to buy somebody else, and the deal makes sense, there's money."

Attendees at a recent buyout symposium in New York City were still bullish on automotive mergers and acquisitions, Ms. Perkins says. Most of the funds are specifying automotive suppliers as one of the five areas they are pursuing, she says.

The buyout funds are bolstered by a healthy stock market, baby boomers aggressively stashing away money in their 401(k) accounts and a growing consensus on Wall Street that Detroit has stabilized its boom-or-bust pattern of the past. Because so much of the activity remains in North America, the Asian currency crisis really hasn't slowed the trend.

"I get no sense that people are uncomfortable about the auto industry. No one is talking about the cyclicality problem or other issues yet," Ms. Perkins says.

Like carnival barkers trying to lure customers into their sideshows, many investment bankers are frustrated that they aren't attracting more takers.

"There's a whole level of investment going on in this industry that is under the radar screen of the people in Detroit," says Nick Colas, automotive analyst with CS First Boston. "But it's a very smart way to fund your acquisition."

Despite all of the available cash, some suppliers may balk at selling, no matter what the price. Loss of identity, for instance, is a real concern for suppliers, says Mary E. Brevard, director of investor relations for Borg-Warner Automotive. Merrill Lynch Capital Partners took over Borg-Warner in a leveraged buyout in 1986 to prevent a hostile takeover.

"We find as we look for acquisitions, there are, especially in Europe, some small, family-owned businesses where there is reluctance to change. There also is the issue of control."

Control is a big issue, as the buyout firm does a lot more than sign the check. It takes over a company, develops a new strategy, usually brings in an aggressive new CEO, and often acquires other related businesses - all with an eye on improving profits.

And with the flood of consolidation, the buyout market is getting more crowded.

Ronald P. Mika of Boston-based Bain Capital Inc. says individual automotive opportunities are dwindling as more buyout firms enter the market. His company has completed five automotive supplier buyouts since 1986.

But the deals will continue as size becomes a matter of survival.

Mr. Mika says he sees an uncertain future for small suppliers that lack global production, design and engineering capabilities in interior trim, the sector that has undergone the most extensive consolidation already.

"I'd be scared to death to have a $100 million interior trim company. You need to be full-service, be low-cost, be in program management," he says. "You would be relegated to supplying a Lear or JCI (Johnson Controls Inc.) with components, and you lose a measure of control in being Tier 2."

Among the automotive sectors still ripe for consolidation: stampings, castings, vehicle structure, electronics and engine control.

Scott Rued is bullish that the acquisition binge has not run its cours, especially in the stamping market.

As executive vice president and chief financial officer of Minneapolis-based Hidden Creek Industries he helped put together stamping giant Tower Automotive Inc.

"I don't know that people are getting more cautious," Mr. Rued says. "There are more and more buyout firms looking at the auto sector, but many of the new companies don't understand the industry."

Hidden Creek began in 1989 when President Tony Johnson, a former Cummins Engine Co. executive, determined consolidation of the auto industry was inevitable. He teamed up with Mr. Rued to start looking for ways to buy into the trend. In addition to Tower and Dura Automotive Systems, Hidden Creek also put together Automotive Industries before Lear snatched it up.

The emphasis of buyouts is shifting as consolidations continue. After several years of mostly Tier 1 acquisitions, buyout funds are looking more closely at the second and third tiers for opportunities.

Plante & Moran LLC, a Southfield, MI, accounting firm, serves some 300 small to midsize suppliers, many of whom have had a steady stream of suitors eager to buy.

"These funds are very aggressive in the market," says Paul J. Flanagan, managing principal of Plante & Moran's Corporate Finance. "A lot of them wouldn't look at our clients three years ago. They were small and doing less than $100 million in sales. Now they are getting a serious look because the consolidation has intensified."

They buying continues despite declining returns on automotive investments. While buyout funds have returned 30% or more above the initial investment over the life of an automotive deal, today the funds may settle for 20%, says Mr. Flanagan.

But 20% is still better than letting the money sit idle. "They will lose the money committed to them if they don't invest it," Mr. Flanagan says.

Some buyout managers take a cautious view of automotive investments. At some point, they argue, there won't be much room for further consolidation.

"All of the attractive consolidation plays have been picked up," says Angus Littlejohn, a former principal with Joseph, Littlejohn and Levy and now on his own as Littlejohn & Co. in Greenwich, CT.

"Pricing in the market is exploding. It's hard to justify the multiples anymore, unless by making the purchase a supplier becomes a Tier 1."

But even Mr. Littlejohn is loathe to predict an end to the binge.

"As an investor, this is one industry really full of fabulous people all through the workforce," he says. "In this industry you tend to be working with real workers from the top to bottom."

When Delphi Automotive Systems sold its lighting business recently, creating the largest independent supplier of automotive lighting, the deal was struck by a buyout firm.

Little-known Palladium Equity Partners is just one of numerous equity funds wrapping their financial tendrils around the shifting fabric of the auto supply industry.

Two of the principles in Palladium used to work at Joseph, Littlejohn and Levy (JLL), which helped put together deals that established Hayes Lemmerz International and another Delphi castoff, Peregrine Inc.

And when Dura Automotive Systems bought Universal Tool & Stamping Co. Inc. in the same week as the Delphi lighting deal, rival buyout firm Hidden Creek Industries, which controls Dura, was responsible.

In fact, much of the behind-the-scenes consolidation of the auto suppliers is directly or indirectly driven by a core group of low-profile buyout firms. Tower Automotive Inc., Cambridge Plastics, Delco Remy International Inc., Titan International, Borg-Warner Automotive and Lear Corp. all benefited from the work of buyout firms that pool private capital to build new, more valuable operations out of segmented parts suppliers.

With his recent deal, Marcos Rodriguez is right in the middle of things. With the stroke of a pen, the Palladium managing director will turn the Delphi lighting plants into a new $665 million supplier, to be named Guide Corp. The deal is expected to be complete in June.

Mr. Rodriguez also was among the team that negotiated the Peregrine deal for JLL. He left JLL to start Palladium after the Peregrine buyout, but he says the earlier negotiations with Delphi helped form the basis for the lighting deal.

General Motors Corp.'s ongoing struggle with the United Auto Workers union, the large number of UAW workers choosing to retire and Delphi's need to compete with smaller, leaner suppliers have created attractive opportunities for entrepreneurs and buyout specialists.

Opportunities exist both in captive spin-offs, such as the former Delphi plants, and the independent market, says Dick Cashin, president of Citicorp Venture Capital, a major automotive player.

The capital fund controls 110 companies with annual sales of more than $31 billion. The stable includes about $3 billion in auto business including Delco Remy, engineering firm MSX and interests in Titan International.

Citicorp recently took Delco Remy public after building it through acquisitions and shifting operations from aging plants to new facilities.

But even after the stock sale, Citicorp maintains control of Delco Remy. That's the pattern Mr. Cashin has followed in his other investments, too. In the last few years CVC has bought 45 companies and only sold three, Mr. Cashin says.

"We see these companies as a good investment for 10 to 15 years," he says. "Why not just work with them and create earnings growth?"

But most funds don't stay in the game that long. The average is closer to five to seven years before a buyout firm will sell or go public, otherwise known as "the exit strategy" in financial circles.

Angus Littlejohn, one of the original "L"s in JLL, is now on his own as Littlejohn and Co. in Greenwich, CT.

Today buyout firms must realize that the longer they hold the company, the lower the internal rate of return - the amount earned on the investment.

"If you're a buyout firm, you're under the constraint of your investors," Mr. Littlejohn says. "As soon as an exit strategy presents itself, they're gone. But that shouldn't be a bad thing. With the right management team, it shouldn't matter."

But investors' money is important to open up new markets.

New York-based Windward Capital Partners LP formed in 1995 and acquired three automotive suppliers in their first two years - American Bumper & Mfg. Co. (bumper systems), J.L. French Corp. (die cast powertrain parts) and HCC Industries Inc. (connectors).

Now, Windward is looking overseas to acquire partners for American Bumper and J.L. French, says Robert Barton, chairman of the two companies. In February, J.L. French acquired British-based Morris Ashby plc, opening a door for French to compete in Europe for the first time.

"And we have a lot more deals going on," Mr. Barton says.

Windward Capital's financial resources are substantial. The initial equity fund of $825 million came from investors such as Metropolitan Life Insurance Co. and Northwestern Mutual Life Insurance.

Steven M. Abelman, president and CEO of stamping supplier Oxford Automotive, says his company also is using buyout capital to expand into new markets. Oxford has two new plants operating in Mexico and a third on the way.

The company is the creation of buyout firm Oxford Investment, consolidating a series of stamping companies into a systems and engineering powerhouse, he says. Business is booming for the private supplier.

Oxford has sales of $430 million now and will be at $1 billion within the next 18 months. Oxford's five-year goal is to reach between $3 billion and $5 billion in annual sales and to meet those goals with 20% internal growth and 80% acquisition.

And there's no shortage of companies lining up for potential deals, he says. Five are under consideration in Europe, as well as several in North America.

"There are a lot of big deals yet to be done," says John Eberhardt, an investment banker with New York-based Austin-Pierce Ltd.

Mr. Eberhardt says plenty of opportunities exist to combine companies in areas still fragmented and for larger companies to absorb smaller rivals. Also, with larger companies, debt becomes much cheaper.

Once a company gets to about $75 million in sales, it can buy long-term bonds to cover its debt, which is cheaper and more flexible than shorter-term bank loans.

"Unfortunately, there's a lot of suppliers up to their ears in short-term debt," he says.

Which ultimately means more clients for the swarm of buyout firms.

Palladium Equity Partners worked more than a year to find the right kind of company for Michael N. Hammes to lead.

In mid-March it settled on Delphi Automotive Systems lighting division. Mr. Hammes will be the chief executive officer of the new company, which Palladium plans to rename Guide Corp.

Mr. Hammes, 56, helped Chrysler Corp. restart its international operations and also previously worked at Ford Motor Co. He came most recently from the top job at camping equipment supplier The Coleman Co.

"We work with about a half dozen guys looking for the right kinds of deals," Marcos Rodriguez, Palladium managing director, says of prospective chief executives. "We believe companies can't just be bought and sold using financial techniques alone."

Palladium is one of dozens of buyout firms targeting automotive suppliers and trying to find the right mix of talent at the management, operations and finance level to make new ventures work.

In most cases, it only takes a few minutes for Ed Crowder to know if the executive sitting in front of him is fit for the task at hand.

The headhunter and owner of Crowder & Co. has been conducting executive searches for the last dozen years or more.

He helped line up the management team for J.P. Industries in 1982, the $30 million platform for a company that reached $500 million before being acquired by T&N plc. He also helped build the team that heads up JPE Automotive.

Not everyone can do what Ken Way has done with Lear Corp. or what Richard Snell is doing at Federal-Mogul Corp. Nor is every executive suited to the whirlwind career of the likes of Tim Leuliette, now vice chairman of Detroit Diesel Corp.

Even the best resume isn't enough when chemistry is wrong, Mr. Crowder cautions. When the chemistry meshes, deals move quickly.

But it's taking longer than ever to get the top executive to his next interview, he says.

In the past, the search cycle was about 90 days from start to finish. Now it's more like 120 days because globalization expands the travel and meeting requirements of top bosses and makes them harder to pin down. "They pretty much demand people who can hit the ground running," he says.

Experience also is only part of the picture. Many executives mistakenly assume that 25 years in the automotive industry is enough. They retire and call an executive search firm to offer their services. Many never get going because their relatively safe position in the middle level trenches doesn't prepare them for entrepreneurship, he says.

"Risk tolerance is one of the big assets," says Mr. Crowder. "A guy like Dick Snell is motivated by challenge and adventure."

The executive that can run a successful company needs to ask a lot of questions. He or she also needs to command respect without an overwhelming ego.

"The most successful guys we recruit have their egos in check and have a certain kind of sincerity, a real persona," Mr. Crowder says. "They also have to be inquisitive, not pontificating."

Mr. Crowder admits that sometimes a smooth-talking candidate fools him. "It happens to everyone. Three or four times I've just been fooled. It's painful because the client was fooled, too," he says.

He cautions against "slippery" executives who seem to keep moving around just ahead of their level of ineptness. But if you navigate that minefield, you typically end up with a solid executive.

"What they're really most interested in is, 'Are you going to let me do my thing?' as opposed to managing by meddling," Mr. Crowder says.