Suppliers Hit Hard

Many Ford Motor Co. suppliers were braced for the 21%, or 168,000-unit, fourth-quarter production cut announced by the beleaguered auto maker on Aug. 18.

So says David Andrea, vice president-business development for the Original Equipment Suppliers Assn. That's because market forecasts conducted by these suppliers eased the impact.

“Some suppliers may not need to (make the full cuts) that Ford announced because they (already) were looking at inventory buildup and market place pressures,” he says.

Andrea points to a poll conducted by OESA in August that reveals 37% of suppliers surveyed are expecting industry production cuts of more than 5% over the next 12 months, compared with the previous 12 months.

“Of the 37%, 13% were looking at cuts of over 10%,” Andrea says. “So, there (already) had been pressure on production schedules.”

Nevertheless, not all the suppliers were prepared, he says. And even among those that were, it is unlikely they could have foreseen a cutback of such magnitude.

Ford declines to define how it will assist suppliers in adjusting their output. “It's being handled case by case, supplier by supplier and plant by plant,” a Ford spokesman says.

The production cuts could serve as a “big bang” that forces a handful of struggling suppliers into bankruptcy and prolongs Chapter 11 filings for many suppliers already in bankruptcy, says Jim Gillette, director-supplier analysis at CSM Worldwide.

Gillette listened to a speech recently by private-equity investor Wilbur Ross, who is attempting to acquire and consolidate auto suppliers.

“If Wilbur Ross is correct that 2007 will be a really bad year, that could be good news for the stronger suppliers out there,” Gillette says. “Yes, it could be a bloodbath, but once and for all we would get rid of some of the excess capacity in the supply chain.”

The new round of cuts also means further trouble on Wall Street for Ford and its key suppliers. Visteon Corp., which was spun off from Ford in 2000 as an independent entity, especially is hard hit by the cutbacks.