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Ford to halve number of part suppliers by 2010…

June 26, 2009

In a report today by Reuters, Ford Motor Co. is planning to halve the number of its suppliers by the end of 2009 in a bid to save mega $$$. Keep on reading for the report…

Ford part supplier

Ford Motor Co (F.N) aims to cut the number of its parts suppliers by almost half by the end of 2009 as the only U.S. automaker to avoid bankruptcy attempts to shore up its supply base at a time of deep financial stress for the industry.

Tony Brown, Ford’s group vice president of global purchasing, told reporters that the company expected to identify 850 suppliers eligible for its future business by the end of this year, down from 1,683 suppliers last year.

“We’ve accelerated our efforts in this regard to try to rationalize the supply base in order to get to profitable growth for all,” Brown said. “There is simply too much capacity in the system. We don’t need that capacity.”

The No. 2 U.S. automaker, whose purchasing budget runs to about $90 billion annually, said it wants to work with a smaller number of healthier suppliers and plans to reduce its supply base to 750 companies in the long term.

A massive failure of major suppliers could cause havoc for all major automakers manufacturing in North America, including Ford, Toyota Motor Corp (7203.T) and Honda Motor Co (7267.T), due to the interlocking chain of the U.S. supply base.

Suppliers account for more than three-quarters of auto sector employment in the United States, according to a Chicago Federal Reserve study, which estimates that the supply sector employed more than 600,000 people as of 2008.

Ford estimates the number of bankrupt or financially distressed suppliers in North America has doubled in the last year as U.S. auto sales tumbled to their lowest levels in nearly three decades.

Parts suppliers are facing a deeper crisis because of the extensive production shutdowns associated with the bankruptcies of General Motors Corp (GMGMQ.PK) and Chrysler.

Earlier this month, a group led by Fiat SpA (FIA.MI) bought most of the assets of Chrysler, which had been in bankruptcy.

GM filed for bankruptcy on June 1 and hopes to complete a similar sale process to a new company funded by the U.S. government by the end of August.

“The next three to four months are going to be critical as GM and Chrysler try to come back up,” Brown said. “As to whether the supplier base will be able to effectively respond to that … we’ve got a critical window here.”

The Obama administration, which made $5 billion available to guarantee payments owed to auto parts suppliers earlier this year, rejected a new request this month by suppliers for up to $10 billion in additional financing.

But Ford’s Brown said he expected that the U.S. government would intervene if failures in the parts sector jeopardized production for major automakers.

“I believe the government understands the importance of the supply base, and a major failure can take down the industry,” Brown said. “I believe in recognizing that, should something like that begin to occur, they will take action, and I think action will be appropriate.”

Earlier this month, Ford also agreed to provide at least $125 million of financing to support former parts unit Visteon Corp’s (VSTN.PK) restructuring under Chapter 11 bankruptcy protection to ensure a continued supply of parts.

Ford is Visteon’s biggest customer and accounted for about 31 percent of its $1.35 billion of sales in the first quarter.

“Visteon is one of our strategically important suppliers and they remain in that group to this day. Just as we’re committed to supporting other suppliers on that list, we’re committed to supporting Visteon,” Brown said.

“There’s a limit, it’s not unconditional, it’s not ‘no matter what,’ but within the business framework that makes sense for us, we’re prepared to work with them, he said.

Ford shares were up 22 cents or 4 percent at $5.75 on the New York Stock Exchange on Wednesday afternoon.

(Reporting by Soyoung Kim; Editing by Lisa Von Ahn and Matthew Lewis)

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