If supplier executives are struggling to sleep these days, their minds surely must race with nagging questions.

Will our plants be shut down while the Big Three negotiate a new contract in 1999 with the United Auto Workers union?

How can we finance that big acquisition with a sluggish stock market?

Is DaimlerChrysler an opportunity or a threat for suppliers?

Can we compete with a fully independent Delphi?

Just how committed are automakers to "partnership?"

How can my company afford all the computer technology the industry says we all so desperately need?

How close am I to hiring a bankruptcy attorney?

At some point, hopefully, sleep comes from sheer mental exhaustion. The worrying stops. When morning comes, the problems have not gone away, as life is not a Bobby McFerrin ("Don't Worry, Be Happy") song. Still, it's easier to confront them with a clear head.

Supplier executives may obsess about a lot of things, but they deserve credit for accomplishing a great deal in 1998.

They continued to pitch innovative new technology to their OEM customers and push into volatile overseas markets. They assumed greater responsibility for designing, engineering and testing, while swallowing price cuts.

The largest suppliers increasingly played the role of "program manager" by coordinating the supply chain for entire chunks of the vehicle. One of them, Magna International Inc., decided "Tier 1" wasn't quite appropriate, so it began classifying itself as "Tier 0.5." Dana Corp. practically took over the entire underbody in its development of the "rolling chassis" for the Dodge Dakota pickup.

Suppliers continued to consolidate their ranks through mergers and acquisitions. Dana buys Echlin Inc. Johnson Controls Inc. buys the Becker Group. Lear Corp. buys Delphi's seating business. Valeo SA and Continental AG split up the biggest chunks of ITT Automotive. Cooper Automotive ends up with Federal-Mogul Corp., where CEO Richard Snell seems intent on consolidating anyone who hasn't already been bought. He's made seven acquisitions in little over a year.

The pace of consolidation, however, slowed in the second half of the year as the stumbling stock market depleted mutual funds, which in turn pushed up the cost of borrowing in the high-yield debt market, a key financing tool for acquisitions. It essentially shut the window on suppliers looking for the highest possible sale price.

"As a seller you either sell for a lower price than you would have earlier in the year, or you wait for the markets to comeback, and we don't know how long. It could be 30 days or six months," says Gretchen Perkins, a vice president at Chicago-based Fleet Capital Corp.

The speed with which the high-yield market closed was exceptionally rare, says Richard Broeren Jr., a managing director at Bank of America. The outcome, he notes, was a distinct advantage for the largest suppliers with the deepest pockets and the ability to complete such deals without as much leverage.

Despite depressed overseas markets, it's critical for the highly leveraged companies that recently completed major acquisitions to keep current with loan repayments.

"I don't think anyone's panicking yet because 1998 looks pretty darned good," Ms. Perkins says. "But the question is, 'How low can things go before these suppliers can't meet their initial interest payments?' When that happens, then you get people filing for Chapter 11 and restructuring their debt."

So far, such a broad scenario has been avoided in North America, but there are dark clouds. Breed Technologies Inc. has struggled with disappointing financial returns and special charges relating to its acquisition of AlliedSignal's $900 million seat belt business.

Peregrine Inc. was rescued from the brink of bankruptcy when turnaround specialist Jay Alix bought the company and restructured it. Troubled supplier JPE was on the verge of bankruptcy until being rescued by Toronto-based DGI Investments Inc.

Even if going broke wasn't your concern as a supplier in 1998, achieving long-term profitability surely was.

In a report released during the summer, the Automotive Consulting Group of Ann Arbor, MI, found that median operating income as a percent of sales for 51 publicly traded suppliers dropped from the 1995 high of 8.2% to 6.5% last year.

Likewise, Plante & Moran LLP of Southfield, MI, finds that operating income for privately held suppliers it tracks had been declining four years in a row but rebounded to about 6% in 1997 and 1998.

"We believe there is good money to be made as suppliers, but in the long term," says analyst Craig Fitzgerald of Plante & Moran. "Six percent does not excite a savvy investor, but the trend line is upward."

Analyst Roger Freeman of Merrill Lynch looks at supplier stocks as a decent investment these days if the North American economy remains healthy, even though the price-to-earnings multiple for supplier stocks has declined relative to the benchmark S&P 500.

"These companies are in better financial condition than they were before, with stronger cash flow and better margins. These investments are less risky than they were six or eight years ago," Mr. Freeman says.

If the economy wilts, suppliers will feel more than a little pain as their stake in the overall industry has grown.

"The next one (recession) will be even more difficult on suppliers than the last, because as they've taken on more and more responsibility, they've taken on more fixed cost, more overhead costs," says John Hoffecker, vice president at A.T. Kearney Inc. of Southfield, MI.

Automakers are telling their major suppliers that they expect 1999 to be a solid year with sales in the 15- to 15.2-million range. But those assurances aren't enough to nudge Dana off a more conservative 14.8-million figure, says Joe Magliochetti, president and chief operating officer.

Mr. Magliochetti learned the value of having a diverse customer base this year when two United Auto Workers strikes in Flint, MI, virtually shut down General Motors Corp. operations in North America for nearly two months. Dana was spared most of the serious impact because it has many other customers.

He says suppliers remain wary of the automakers' campaign to push more responsibility into the supply tiers.

"As more and more work is transferred to the supply base, more investment eventually has to be returned, too," Mr. Magliochetti says. "It all sounds great, but you look at the horizon and see all these suppliers announcing an exodus because the returns are not justified."

He is referring, of course, to ITT Industries Inc. and Cooper Industries Inc. , two conglomerates that left automotive in 1998 because profits lagged behind ot her divisions.

Herbert Everss, president and CEO of Mannesmann VDO North America, expresses frustration in building true "partnerships" with automakers. He says suppliers continue to endure bidding wars against competitors who have not shouldered the expense of product research and development.

"That's something that is frustrating for us. Is it a major problem, a major consideration? I think so. Is there an easy solution to it? I don't think so," Mr. Everss says. "This is not a goodwill industry that we're servicing. We're not here to sell technology. We're here to sell benefit to the manufacturer that results in a commercial opportunity for us. I think there's got to be a balance between the two."

The competition is likely to get more fierce as GM's Delphi Automotive Systems and Ford Motor Co.'s Visteon Automotive Systems leave home in search of new opportunities.

GM is spinning off Delphi as an independent company, and between 15% and 19% of the new company's stock will be offered to investors in the first quarter of 1999.

But don't expect an initial public offering at Visteon in 1999. Spokesman Niel Golightly says the company, under new President Craig Muhlhauser, is focused on its goal of reaching 20% of sales outside Ford by 2003. That figure has blossomed from 6% in 1996 to 9% today. He notes that 45% of Visteon's new business in 1998 is outside Ford.

Independence for Delphi and Visteon will make for some unexpected relationships. Even before the IPO, Ford affiliate Jaguar Cars Ltd. announced it is working with Delphi to develop adaptive cruise control. Jaguar plans to introduce the microwave radar technology on selected models by the end of 1999.

But new technology from suppliers is not restricted to vehicular applications. Software suppliers are pitching dozens of new tools to the auto industry, for manufacturing simulation, product design, testing and enterprise resource planning.

The era of electronic data interchange takes one step forward with the launch of the Automotive Network eXchange, a private Internet for automakers and suppliers to share information.

These concepts are not new, but suppliers and automakers are investing heavily in them after years of discussion and development.

GM, TRW, Lear and, most recently, Visteon, are among the 450 automotive-related companies worldwide to begin using R/3 software from SAP America Inc. to simplify their supply chains, shorten product development and improve planning.

But convincing the auto industry that such investments are worthwhile has been extremely difficult.

"There is still the mentality that technology is nice, once it's ferreted out," says Greg Mekjian, SAP's vice president of automotive. "This is a tough industry. It's hard to sway decisions. I don't see a landslide coming our way because other industries are jumping on board."

An economic downturn would make the possibility of such a landslide even more remote. - with Jeff Green