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Old 06-23-2009, 09:59 AM   #1
Tea cups
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Default Detroit 3 to be outproduced by Asian and European Automakers on U.S. soil by 2012



http://www.autoblog.com/2009/06/23/a...nsplants-on-u/

Quote:
If you think life can't get any worse for the bloodied and battered Detroit three automakers and their suppliers, you're wrong - at least according to a new study from Grant Thornton LLP's Corporate Advisory and Restructuring Service. The Accounting and management consulting firm forecasts that U.S. automakers will produce fewer vehicles on U.S. soil than Asian and European automakers by the year 2012 despite an expected return to profitability.

Included in these projections are a 35% reduction in U.S. manufacturing by domestic automakers and a 20% increase from import automakers like Volkswagen, BMW, Toyota, Honda, Nissan and Hyundai. The end result would be a total of 7.5 million units from Chrysler, Ford and General Motors and eight million from all other automakers combined.

With that in mind, Grand Thornton has some advice for North American suppliers that manage to make it through the next few years but still find themselves tied too closely to domestic automakers: diversify now or face the consequences.
Quote:
PRESS RELEASE

Grant Thornton LLP Says Transplant Manufacturers Will Out-Build Detroit in 2012, Creating New Opportunities for North American Suppliers

SOUTHFIELD, Mich., June 22 /PRNewswire/ -- The U.S. government's estimated $140 billion investment in the domestic auto industry may begin to pay off by 2012 with all three domestic automakers predicting a return to profitability. But for traditional suppliers to the "Detroit Three," the path to long-term viability will require securing more business from European and Asian transplants, who are expected to build more vehicles in North America than the Detroit-based companies, according to Grant Thornton LLP's Corporate Advisory and Restructuring Service.

"A new order is emerging where the Detroit companies may no longer be the volume leaders in their home market," said Grant Thornton Principal Kimberly Rodriguez, co-leader of the firm's global automotive practice. "Suppliers largely dependent on Detroit OEMs will have to present a new value equation to potential customers from Europe and Asia if they want to participate in the accelerated shift that is coming."

The reordering of the North American auto industry will be far-reaching. By 2012, the domestic manufacturers are expected to reduce assembly capacity in North America by more than 4 million units, to 7.5 million units, a 35 percent reduction compared with 2008. All other automakers combined will increase capacity by about 20 percent, to more than 8 million units, an increase of 1.5 million.

* Volkswagen and BMW will nearly double their combined capacity, increasing their output capability to approximately 1 million units.
* Toyota, Honda, Nissan and Hyundai will expand their combined capacity by 20 percent, or nearly 1 million units.
* Other market participants will add about 200,000 units of capacity.
* Capacity utilization in North America should approach 90 percent, up from the 75 percent historical rate, assuming an annual sales rate of 15 million units in the United States for 2012.

According to Rodriguez, there will be a strong bias among Asian and European automakers investing in North America to source locally, but the rules of the game for these OEMs are different.

What will matter most in 2012 will no longer be historical relationships or being the lowest-cost supplier. There are opportunities, but suppliers must be flexible and meet a challenging set of criteria, including:

* Low financial risk, including a strong balance sheet and cash flow.
* A well-diversified customer mix, geographic footprint and product offerings, while having the requisite proximity to manufacturing centers.
* Proven design and development capabilities at both the component and systems levels, while balancing the right technology mix to meet consumer and regulatory demands.
* Demonstrated high quality and customer service.

Only a limited number of North American suppliers meet these criteria today. However there are steps companies can take to improve their ability to compete. Among the options:

* Become a consolidator -- Leading companies should actively seek to acquire key technologies and product lines through mergers and acquisitions, including strategic acquisitions from distressed or bankrupt competitors.
* Become a consolidatee -- A company that lacks the resources to compete effectively for new orders may find that selling all or part of its business, or repositioning itself within the supply chain, may be the best strategy for maximizing stakeholder value.
* Aggressively deleverage -- The expected recovery in consumer demand and vehicle production may not be enough to address the balance-sheet and liquidity issues many suppliers face. Furthermore, a number of industry trends will require significant reinvestment in the business in coming years, especially in the areas of R&D, flexibility and innovation. These critical investments may not be affordable if interest expense is too high.

Public companies may be able to swap debt for new equity, especially as the economy recovers. However, many suppliers may need to use bankruptcy to fix their balance sheets, assuming debtor-in-possession financing can be secured from a financial institution, customers or another source.

"At the end of the day, the European and Asian automakers will be looking for stable, proactive, long-term partners who offer good value," Rodriguez said. "Domestic OEMs are seeking the same type of long-term partners and are working toward those goals, but the immediate expectations of the transplant companies are more challenging. In light of the dramatic restructurings that will occur over the next several years, North American suppliers have important strategic decisions to make, and the strategy must be defined and implemented quickly."
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Old 06-23-2009, 11:40 AM   #2
rypt
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When buying American doesn't actually benefit America
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