• 18
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 used data from CSM worldwide that forecasts 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. Hit the jump for the press release.

[Source: Grand Thornton]


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."

I'm reporting this comment as:

Reported comments and users are reviewed by Autoblog staff 24 hours a day, seven days a week to determine whether they violate Community Guideline. Accounts are penalized for Community Guidelines violations and serious or repeated violations can lead to account termination.

    • 1 Second Ago
      • 6 Years Ago
      I work for Grant. Cool to see them on Autoblog, even if it isn't a happy article.

      Oh, and you guys might want to fix the paragraph 3 and the source, you have it as Grand Thornton instead of Grant Thornton.
        • 6 Years Ago
        Seminole, awesome reply!
        • 6 Years Ago
        "I work for Grant."---Bean Counter?
        • 6 Years Ago
        Auditor. Contrary to popular belief I have never counted beans.
      • 6 Years Ago
      Although the Thornton LLP report actually says North America in the first paragraph, I'm actually somewhat surprised to see that the total cars manufactured on "US soil" is about the total sold in the US market. Given the impression that so many cars imported, that's a pleasant surprise.
      • 6 Years Ago
      With all the woes of the domestic (U.S.) auto industry, this report comes as news to who? The foreign automakers have been able to weather the storm a little better than Detroit's Big 3. As a result, it's only logical to expect them to gain a foothold in both sales and manufacturing here in the 'States.

      There's no drama here.
      • 6 Years Ago
      It's a global economy. Why does this matter? So long as the locals can acquire gainful employment, who cares under what name the corporate profits are filed? The sooner we break down the us-vs.-them philosophy, the sooner a decent standard of living is attained for everyone in the world willing to trade fairly.
      • 6 Years Ago
      Who provides more US jobs though? Just curious.
        • 6 Years Ago
        Ooor, it could be just that the foreigners have optimized and automated their producion to the max... Coz USA is not china and people expect a certain amount of money for their work. I've heard stories where in china it is cheaper to hire a 100 people for some years, than buy one assembly robot line... which needs maintenance. Sad but true, there will be less and less jobs for hard-working people if any industry wants to stay competitive
      • 6 Years Ago
      Who cares?

      The goal shouldn't be to make more than anyone else. The goal should be to make profitable, reliable, desireable vehicles. Growth will come with success.
        • 6 Years Ago
        ford is number one? at what?
        • 6 Years Ago
        Exactly. Look at what happened to GM when they forged ahead to be the hugest, and then look at what's happening to Toyota, since THEY tried to be the hugest. While Toyotas used to be very good cars with low warranty issues, they've become appliances with big time issues, all in the sake of churning out as many as possible, just to be numero uno.

        Heck, right now, Ford's number one, and they're not even TRYING to be! Why? Because they're making great cars, while GM is mired in bankruptcy and Toyota makes crapboxes that are shells of their former selves.
        • 6 Years Ago
        Ford is the number one selling brand in the United States. But General Motors is still the number one selling company in the United States. And Toyota has never been the number one selling car company in the United States.
      • 6 Years Ago
      Another bogus study to make it look like the domestic auto manufacturers are going to fade into the sunset. With GM and Ford adding market share, just as the car buying public begins to go back to the showrooms, I can't see the transplants surpassing the domestics anytime soon. But remember, there are only three domestic manufacturers against over a dozen imports, so even if it happens, its not a big deal. I'll take increasing market share. And if GM wants to build a car in China and send it over, more power to them. Every other manufacturer of anything(GE, Sylvania, RCA, Whirlpool, etc.)that I can think of is already doing it.
      • 6 Years Ago
      So how many of "The Big Three's" models are actually made here? They all have certain models made in other countries. Seems "Buy American" ain't so cut and dry these days.
      • 6 Years Ago
      So 10 manufacturers combined make more cars than 3 manufacturers combined? Who knew!?!

      Another case of skewed headline-writing.
    • Load More Comments