Auto industry travels rocky road

Business First of Louisville

Tower, Budd struggles are in line with national trends

Rising steel prices, higher benefits costs and lower automobile production volumes are starting to catch up with the parent companies of area automotive stamping suppliers.

Novi, Mich.-based Tower Automotive, which has two plants near Louisville, filed for Chapter 11 protection in U.S. Bankruptcy Court on Feb. 2. In its filing, the company cited the rising steel costs and lower production volumes for its financial difficulties.

Tower estimated that the average per-ton cost of hot rolled-coil steel produced in the United States and used in auto-parts production increased 120 percent between October 2003 and October 2004.

The industry’s difficulties hit home again on Feb. 7, when about 800 UAW workers at Tower competitor ThyssenKrupp Budd Co. in Shelbyville went on strike, lobbying for a new contract.

ThyssenKrupp Budd asked workers for $10 million in concessions, including cutting pay by $5 an hour, a $160-a-month increase in health care premiums, and elimination of retiree health care benefits and cost-of-living adjustments, said Local 2383 President Dennis Wcisel.

Workers currently make $20 an hour, and they pay $40 a month for health insurance premiums.

Under a tentative agreement reached Feb. 8, the union did not give any concessions, Wcisel said. A ratification vote is scheduled for Feb. 13.

“I think you’re going to see the situation get worse before it gets better,” said Bill Rinna, manager of North American component forecasts for Detroit-based automotive forecasting and consulting company CSM Worldwide.

Rinna said ThyssenKrupp Budd is in a better position than Tower because it makes its own steel. But he believes both companies are traveling a rocky road.

Rinna explained that because the market is so competitive, automakers aren’t willing to pay more for suppliers’ components because that would increase vehicle prices. But the smaller suppliers need to charge more in order to offset the increased cost of raw materials.

“I think there are a few manufacturers who are starting to see the light at the end of the tunnel,” Rinna said. “But you’ll find that many of the steel-based and plastic manufacturers are struggling. So many of these costs are being passed on to these suppliers that it has them on the verge of bankruptcy.”

Suppliers expected to bounce back

Although the automotive industry is in flux, longtime observers, including Wcisel and Mazar, believe a correction is imminent, and CSM Worldwide data supports their prediction.

Rinna said an increase in new product offerings, higher consumer incomes, more affordable automobiles and an expanding driving population will help boost production over the next three or four years.

North American automobile production, which declined to 15.8 million units in 2004 from 15.9 million in 2005, is projected to increase to 16 million this year and peak at 17 million by 2008.

“I think the auto-stamping industry is very strong because a lot of transplants are coming into the country, and they need the services,” Wcisel said.

Even supplier production jobs that have been lost to Mexico and China over the past few years could follow new import automakers to the United States, Mazar speculated.

“They will run out of cheap labor and move production to the U.S., where it can be done largely through automation,” Mazar said. “Granted, that won’t produce as many jobs, but there will still be a need for skilled people. We haven’t seen conditions this bad in the industry before, but it still has a good future here.”

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