Time Short for Zombie Companies, Ross Warns

It's time to drive a stake through the hearts of the industry's walking dead, supply-chain guru Wilbur Ross says.

Following a year that only can be likened to a horror movie, the chairman of International Automotive Components Group warns auto makers are less forgiving than they were in 2007, when U.S. sales breached the 17 million-unit mark.

Referring to the time-honored OEM practice of supporting struggling suppliers to maintain a steady parts flow, auto makers are “less willing to continue subsidizing ‘zombie companies,’” Ross says.

“Subsidizing for a little while so you can make a transition is one thing, but why do it forever?” he tells reporters during the Automotive News World Congress.

This attitude is exacerbated by the tenuous positions of General Motors Co. and Chrysler Group LLC.

Last year, some 60 suppliers went bankrupt in the U.S., while 200 permanently closed their doors, says Ross, who expects a similar trend in coming months.

“More capacity elimination is needed, and we believe that more suppliers will fail in 2010 and others will be distressed sellers,” he says, adding business fundamentals such as adequate scale are critical. This is best achieved through prudent sector management.

“If you're one inch deep and a thousand miles wide, that's not the same scale as being a thousand miles deep,” Ross says.