The big story of 2008 was the continued economic struggle of an automotive industry hit hard by deepening economic recession, like so many industries. Automotive parts suppliers continued to experience heavy debt and overcapacity caused by production cuts by automakers, especially the Detroit 3 (Ford Motor Company, General Motors, and Chrysler). Suppliers have also been pressed by higher energy and input materials’ costs. Industry analysts reported automotive companies that collectively accounted for more than $72 billion in sales have filed for Chapter 11 protection between 2001- early 2008.1 Over 40 suppliers filed for Chapter 11 protection in 2008. The number of bankruptcies in the automotive parts industry will continue to grow in 2009. Dana Corporation managed to exit bankruptcy in 2008, but Delphi, although it had hoped to exit Chapter 11 in 2008, continues to work on restructuring. Since it would have serious negative impacts on the financial viability of GM, GM raised the prospects that Delphi may be unable to procure adequate exit funding in GM’s restructuring submission to Treasury.
The Detroit 3 lost U.S. market share to U.S.-affiliates of foreign-based manufacturers and imports in 2008 and dropped below 50 percent market share. Most U.S. parts suppliers are dependent on the Detroit 3 whose purchases traditionally account for nearly 3 of every 4 of U.S. original equipment sales.3 U.S. suppliers also find difficult to enter transplant automakers’ supply chains, in part because transplants have long-established relationships with home-market (foreign) suppliers and have had foreign suppliers colocate nearby their U.S. operations, or have already established long-term relationships with other U.S. suppliers.
U.S. automotive parts exports declined 7.2 percent to $57 billion in 2008 compared to a record $62 billion worth of automotive parts in 2007. Most of the exports (85 precent) went to Canada, Mexico, European Union 154 (EU-15), and Japan in 2008. Automotive parts imports were $90.6 billion in 2008, down 9.6 percent from a record high $100 billion in 2007. Combined, Mexico, Canada, Japan, Germany, and China accounted for $71.8 billion, or 79 percent of total U.S. imports of automotive parts. Imports from China grew to $9 billion in 2008, up 4.8 percent from 2007. Nonetheless, the U.S. trade deficit in automotive parts decreased 13.4 percent from 2007 levels to $33.1 billion in 2008.
The entire automotive industry is suffering as a result of the global economic recession. As vehicle production and sales decrease, parts production and sales concurrently decrease because most parts are destined for new vehicle production. The value of automotive parts production will decline deeper than total vehicle sales because consumers also are shifting from high-content trucks and SUVs to lower-content passenger cars. Industry analysts suggest that suppliers need to run at least 80 percent capacity to make a profit but expect suppliers to be running at only 50-60 percent capacity in 2009. Therefore, further restructuring and downsizing of the North American auto parts industry will likely occur and the industry can expect more bankruptcies and job eliminations in the coming year.