SCDigest editorial staff

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Last week, autoparts giant Delphi, formerly a subsidiary of General Motors, filed for Chapter 11 bankruptcy protection, and is now promising massive layoffs, plant closings and wage/benefit reductions.

While the largest and most prominent, Delphi’s filing was just the latest in a series in the industry, as earlier companies such as Collins & Aikman and others had met a similar fate. Parts suppliers are pressured by their own legacy cost structures, foreign competition, rising commodity prices, and financially unhealthy OEMs which continue to beat vendors down to prices that don’t allow profit.

A recent Business Week article (see link above) says this presages a massive restructuring of the entire industry.

“In a few years, many of today's 10,000 parts makers may be gone. Those that survive will collectively have fewer plants -- and should be running a lot closer to full tilt,” Business Week writes. “More production will move overseas. Eventually, say analysts and investors, the industry will start making serious money.”

"Half of the supplier names will not be around in five years," BW quotes Craig Fitzgerald, a partner at management consulting firm Plante & Moran, as saying. "The remaining companies will be bigger, better capitalized, and healthier."

But that will also mean much of the formerly U.S. production will move overseas. Last year, for example, Chinese auto suppliers sent an estimated $3 billion worth of auto parts to the U.S., nearly triple the level of 2001. That growth is expected to continue. Many autoparts-focused companies are also now finally looking to other markets, such as aerospace, as a means of survival.

Is there hope with this jolting industry restructuring that the often antagonistic relationships between suppliers and OEM’s can improve? That’s hard to say, but something better has to come out of the other end.

Do you see any hope for the U.S. autoparts industry? Will reducing cost structures help, or is most production going offshore regardless of what happens to wages and benefits here? Will we ever see more collaborative relationships between OEMs and suppliers?