Material Matters

The shock waves from Ford Motor Co.'s major restructuring announcement in January still are reverberating throughout the automotive industry.

But while the focus has been on the Dearborn, MI-based auto maker, little attention has been given to what material suppliers have been enduring. Included in the shakeup at Ford: a $1 billion charge on an undisclosed amount of palladium (used in catalytic converters to lower emissions), closure of the Cleveland, OH, aluminum casting plant and divestiture of the Greenleaf recycling operations.

The palladium issue is the most controversial. Driven up by demand from auto makers looking to improve environmental performance and a limited and unreliable supply base, palladium's price soared to about $1,100 an ounce in 2000 and early 2001. In an effort to bridge future supply disruptions, Ford was buying the precious metal for safety stocks. Because prices and supply had fluctuated for several years, Ford and other auto makers began looking for other catalytic solutions. With demand drying up and the economy faltering, palladium's price began to fall — all the way to about $300 in late 2001. Come January, Ford admitted it had overpaid for way too much palladium.

Besides reportedly being the focus of a class action lawsuit filed by some Ford stockholders that alleges the company artificially inflated its stock price by failing to disclose its precious metal purchase commitments, the writedown also has thrown the palladium market into disarray. Platinum group metals, already in a price tailspin since mid 2001, got hammered on the Comex division of the New York Mercantile Exchange in the weeks following Ford's actions.

There's also no hope of a rebound in prices or demand with traders expecting Ford to sell large portions of its palladium stockpile. “The expectation is that they wouldn't do that precipitously because the market is already soft, and that may well cause the market to get softer,” says Gordon Bassett, general manager for precious metals marketing at Johnson Matthey.

Ford also turned heads by announcing it would close Cleveland Casting, a facility that opened just a few years ago and Ford's only internal source of aluminum blocks. It had some wondering about the future of aluminum block engines at Ford. Rest easy, aluminum suppliers.

“We are committed to the belief in the advantages of aluminum blocks,” says David T. Szczupak, Ford vice president-powertrain. “But we also have to get our cost structures in order. Our joint venture with Nemak (SA) is still a very strong, key part of our future. All our other aluminum blocks will either be purchased externally or made through our joint venture.”