S&P predicts grim forecast for auto suppliers

S&P predicts grim forecast for auto suppliers

Lackluster sales for U.S. auto suppliers are projected by Standard & Poor’s Ratings Services for the rest of the year. This is also bad news for U.S. steel industry as diminishing auto sales mean flat or shrinking business conditions for the domestic automotive steel sector. Only two U.S. suppliers, Visteon Corp. and Accuride Corp., received positive reviews from S&P based on their capacity for debt relief. Visteon has enacted a restructuring plan which includes the release of its 24 North American plants to parent company Ford Motor Co. Visteon’s current investment grade is B- but S&P expects to raise Visteon’s rating to B+ after these changes take place. Accuride Corp. was the only supplier upgraded by S&P due to their acquisition of truck supplier Transportation Technologies Inc. On Friday, July 15, GKN Driveline, which produces drivelines for Cadillacs and four-wheel vehicles, announced it will close its South Carolina plant in fall 2006, eliminating 181 positions. GKN plant manager Bob Somers blames the decision on steel prices and stiff competition between other auto parts suppliers. Many parts suppliers predict the market will stabilize by year’s end and rebound slightly in 2006. The plunge in auto profits began in early 2005 after Ford and General Motors Corp. slashed production to accommodate lagging sales and burgeoning inventories. S&P analyst Robert Schulz remains skeptical of GM and Ford’s ability to regain the market share they have lost. Dwindling SUV sales prompted S&P to downgrade Ford and GM to “junk” status in May of 2005. Japanese auto profits have also diminished. Reuters reports Toyota Motor Corp’s cost savings are less than half what they were two years ago. Katsuaki Watanabe, Toyota’s new president, remains optimistic, stating Monday that Toyota will focus on securing steady earnings rather than being deterred by sharp rises. He went to admit that because of necessary capital spending, Toyota will probably not see profit growth for some time. Many of the industry’s woes are a result of surging steel prices in 2004 and early 2005 stemming from soaring energy, transportation, and raw material costs; as well as China’s growing demand for steel; and a stronger U.S. dollar.