Emboldened By Bankruptcy, Parts Makers Finally Telling Detroit 'No'

Detroit's part makers are starting to push back - and the timing can't be worse for the Big 3 automakers. The Wall Street Journal reports Navistar International Transportation Corp., which has made diesel engines for Ford Motor Co. for 30 years, cut off all engine shipments to its single biggest customer, the result of a monetary dispute. For years the Big 3 have been squeezing the parts makers when they needed to trim their own costs; now those days are ending as many of the parts makers have been driven into bankruptcy by money-losing contracts. Of the 10 parts makers mentioned in the WSJ piece, six are in Chapter 11 and a seventh is being kept out of bankruptcy by Ford. The non-bankrupt parts makers have stayed afloat through other businesses. There are several reasons the parts makers are in an improved bargaining position: bankruptcy has forced the Big 3 to back off on their demands for fear of losing additional supply sources; some, like Delphi Corp., have sought bankruptcy reorganization, in order to dump unprofitable contracts and excess labor/factories; private equity has intervened in some cases and said 'no' to unprofitable contracts for the sake of keeping up volume; finally, growing steel industry demand has given many parts makers additional pricing power when facing off against the Big 3.

Sources: Wall Street Journal
Commentary: Chinese Auto Parts Now Top Quality And Taking Market Share • Highland Capital Challenges Delphi's Current Reorganization Plan • Tough Times for Auto Parts Makers Should Continue
Stocks/ETFs to watch: Ford (F), General Motors (GM), DaimlerChrysler (DCX), Delphi Corporation (DPHIQ.PK), Magna International (MGA), Lear Corporation (LEA), Visteon Corporation (VC), Johnson Controls (JCI)

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