Small Car Shift Has Winners – and Losers

Special Coverage

Management Briefing Seminars

TRAVERSE CITY, MI – As the U.S. market shifts to small cars and shuns large pickups and SUVs, sorting out the winners and losers among suppliers is not too difficult.

The winners are ecstatic; the losers aren’t talking.

Of course, suppliers to Japanese auto makers – especially Toyota Motor Corp. and Honda Motor Co. Ltd. – that are capitalizing on soaring fuel prices with higher-mileage small cars are enjoying a boom as well.

And some small and midsize cars built by the Detroit Three such as the Chevrolet Cobalt and Malibu and Ford Motor Co.’s Focus, Fusion and Mercury Milan also are making gains or holding their own in a sliding market.

Some forecasts peg small-car sales at 3 million units this year in the U.S., up 10% in an overall market that through July was running 11% behind 2007. High fuel prices, now receding slightly, have raised havoc with trucks and SUVs.

At the Management Briefing Seminars here, suppliers with North American manufacturing operations tell Ward’s they see the small-car trend continuing, regardless of fuel prices.

There are a few wrinkles. Mark Fields, Ford executive vice president and president-Americas, underscores that even though buyers are moving down-market, they want all the goodies to which they’ve grown accustomed, such as heated seats and premium sound systems. That’s good news to accessory suppliers.

David Cole, chairman of the Center for Automotive Research, sponsor of the briefings, says suppliers with a technical edge and reputation for innovation will find business as small cars gain popularity. “But they’ll have to be nimble and work on costs because profits are narrowed on small cars,” he says.

It will be much tougher for traditional suppliers of major components and systems for light trucks and SUVs. One that stands out is American Axle & Mfg. Holdings Inc, which relies heavily on light trucks built by General Motors Corp. “AAM will feel the pinch, at least temporarily,” Cole says.

Tim Leuliette, who joined Dura Automotive Systems as president and CEO a month ago after it emerged from bankruptcy, says Dura has the advantage of a “strong small-car presence, especially in Europe.”

Dura supplies numerous components currently used on Ford of Europe small cars that are destined for North American production around 2010.

Tim Leuliette, Dura Automotive Systems president and CEO.

Fields says Ford is commonizing all of its car platforms globally to reduce component redundancies, which creates opportunities for suppliers such as Dura, beyond their traditional regional roles.

Leuliette says Dura supplies Ford of Europe with automatic shifter control systems, trim, and interior door components on three models reportedly targeted for North American production: Fiesta (known as the Verve in concept form), the midsize replacement for the Ford Fusion and Mercury Milan and a smaller version of its popular fullsize Transit van.

Friedemann Strasser, chief operating officer of Getrag Transmissions Corp., says his company has escaped damage from the light-truck downturn because “we are passenger-car people. We’ve stayed away very consciously from trucks.”

GTC is the North American arm of Germany’s Getrag GmbH & Cie KG, a global supplier of transmissions, axles and powertrain components. It has plants in Newton, NC, and Charleston, SC, and is building a new plant in Tifton, IN.

With an eye on the expanding small-car market in the U.S., Getrag is betting big as a supplier of dual-clutch transmissions that offer the performance of traditional hydraulic automatic transmissions but do not require energy-consuming torque converters.

Getrag DCTs basically combine two manual transmissions, of which it has been a long-time major suppler, into a single unit requiring no shifting by the driver.

Strasser says DCTs can boost fuel economy 18% to 20% in small cars. “DCTs are coming on with a bang,” he says, strengthening Getrag’s position as small cars gain ground.

As a key Ford of Europe transmission supplier, Strasser says Getrag has formed a joint venture in Mexico to produce DCTs for the Fiesta, scheduled for production there.

Pierburg Inc., a North American unit of Kolbenschmidt Pierberg AG of Dusseldorf, Germany, sees growing opportunities from the shift to small cars equipped with 4-cyl. engines, for which Pierburg is a leading supplier of pistons and exhaust-gas recirculation valves.

However, Peter Hradowy, Pierburg vice president-engineering and program management, says the slump in V-8 sales has suppliers of the bigger engines “going after the 4-cyl. market,” and thus sparking new competition.

Pierburg also supplies solenoids and valves for turbochargers, which also are gaining popularity as a way to boost performance of 4-cyl. engines in smaller cars.

And the dollar’s weakness vs. the euro also is providing new opportunities. “We are doing validation and testing that was being done in Europe because we can do it cheaper,” Hradowy says.

TI Automotive also is relatively unharmed by the shift to smaller cars.

Bill Kozyra, chairman and CEO, says only 17% of its business is dependent on light trucks and SUVs. “It’s more luck than anything else,” he says. TI supplies plastic fuel tanks and fluid-handling systems such as brake and fuel tubing.

GKN plc “is uniquely positioned to move from large trucks and SUVs to crossovers and cars,” says Brad Murphy, business development director-Americas Torque Technology Group.

The U.K.-based supplier of half-shaft, final-drive units and prop shafts is benefiting from the shift from live to independent axles and the growth in all-wheel-drive vehicle sales, he says.

As a key supplier to Ford and Volkswagen AG, GKN seemingly is well positioned to win contracts from both companies for the small cars they plan for North American production.