Finance Panel
Automotive News World Congress
William G. Diehl, BBK
Changing Supplier Industry Dynamics – North America
• Mature market
• No longer shared by few OEMs
• Current playing field uneven due to significant
cost factors:
– Legacy (pension & healthcare)
– Labor costs
– Overcapacity vs. undercapacity
• Supplier overcapacity exists in many
segments
– Current North American capacity
– Global Impact
All of this is creating turmoil in market
Effect?
• Substantial right-sizing must take place
– Will take years to accomplish
– Significant supply base consolidation
What does this mean for
suppliers?
“Strong will Survive”
The Days of “Bigger Means Better” are Over
• 2005 Chapter 11 Supplier Bankruptcies
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Amcast Industrial Corp
Delphi
Foamex International
Allied Holdings
Jernberg Industries
MetalForming Technologies
UniBoring
Collins & Aikman
Trim Trends, Inc.
Meridian Automotive Systems
Eagle Pitcher
BBi Enterprises
Tower Automotive
Source: Bankruptcydata.com and other publicly available sources.
12/01/05
10/9/05
9/19/05
7/31/05
6/29/05
6/16/05
6/9/05
5/17/05
5/17/05
4/26/05
4/11/05
3/4/05
2/2/05
Common Reasons for Distress – Why are suppliers failing?
– Lack of synergistic strategy
• “Jack of all trades, master of none”
– Narrow customer base
• No diversification
• Subject to volume declines
– Highly leveraged
• “No dry powder”
– Lack of manufacturing execution
• Product launch issues
– Uncompetitive cost structure
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Legacy costs
Unfavorable union contracts
Lack of performance improvement capability
Poor understanding of costs
– No long term strategy
• Are you buyer or seller?
What Does that Mean for Financing Trends?
• Creative Financing Alternatives Required
– Auto industry dynamics have limited
traditional financing
– Distressed suppliers are negatively impacted
by both macro and micro issues of auto
segment
• Financial Buyers vs. Strategic Buyers
– Definite shift from strategic
– Private equity/Hedge fund firms see
opportunity
How do you “Stay in the Game” & Succeed?
• Solid business plan:
– Clearly focus both team and resources on
core competency
– Maintain proper capital structure
– Concentrate on performance improvement
– Diversification of customer base, vehicle
platforms and product offerings
– Deal aggressively and realistically with market
challenges
Without a solid business plan, even
creative financing is unattainable