May 31, 2005

By Tim Gwozdz
MiBiz Network

MUSKEGON — Dr. David E. Cole, chairman of the Center for Automotive Research has said the automotive industry is trapped in a perfect storm as a number of diverse factors converge to rock its foundation.

Cole told those gathered at a Muskegon Manufacturing Week luncheon that it is a brutal period for automotive suppliers, but the pricing pressures from the original equipment manufacturers will be easing.

“The OEMs are going to be backing off because the supply base is really not functional. There are a few exceptions, but profitability is very, very low and there’s just nothing more to give,” Cole told MiBiz. “I think the OEMs realize that this is not a situation that is possible to continue.”

Cole remarked that the OEMs and tier one suppliers are trying to reduce the number of suppliers with which they work in an attempt to mimic the lean supply chain practices of Toyota Motor Co. and the other Japanese automakers. Like the situation with Toyota, it is hoped the end result will be one of cooperative relationships between the OEMs and their supply chain.

He views projects like the agreement between General Motors Corp. and DaimlerChrysler AG to develop hybrid engines and DaimlerChrysler’s $2.2 million Toledo Jeep plant and the active role key suppliers will play in the assembly process as the wave of the future. Collaborative ventures like those being experimented with by the Big Three are what must be done to lower the cost of risk and boost industry profitability, stated Cole.

“We need to change how we do things, change our business plan. The industry is going to remain turbulent for a long time, so we need to adjust to a world without stability and an era of continuing change.”

As supplier giants like Meridian Automotive slip below the waves of the perfect storm and file chapter 11 bankruptcy, Cole says it is simply a part of business in these tumultuous times.

“Suppliers are filing chapter 11. Some will recover; others won’t,” he said. “You have to remember that chapter 11 is for breathing space. It is one of the ways a market economy heals itself.”

As for the distress signals being sent by GM and Ford Motor Co., Cole says he is pleased to see a crisis is here.

“This industry has needed a crisis. It had to happen to get things going again.”

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This article appeared in the May 31, 2005 issue of MiBiz, read by upper management executives in West and Southwest Michigan. Print subscriptions are free to qualified individuals who do business in West and Southwest Michigan. For further information about MiBiz Network, visit www.mibiz.com.