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Saturday, October 21, 2006

Weekend Edition: Sharp Elbows In The Car Industry As Hedge Funds Eat Detroit (F)

It is not enough that the Big Three have to deal with unions like the UAW to cut their bloated personnel costs. Or, that they have to work with bankrupt suppliers like Delphi whose workers could strike and cripple car production.

Now the fight has moved to a battle between the car industry and suppliers, and it is likely to be a long one.

The car companies have been squeezing suppliers for years to make up from rising labor costs. But, now the suppliers are squeezing back. Collins & Aikman simply stopped sending Ford parts, causing the No.2 US car maker to shut production in its Mexican plants.

And, why not? If the suppliers can't make a buck, they may have to continue to operate in Chapter 11 like Delphi, Tower, and Collins & Aikmam do now. Ford says it will not do future business with Collins & Aikman, but the supplier may have set an example for other firms: push us too hard and we will close you down.

Oddly enough, it is hedge funds that have invested in the bankrupt parts suppliers who are pushing the hard line with car companies. They want their money back, and cut rate parts prices will not get them there.

Of course, Ford is trying to improve North American operations so that it does not have to consider Chapter 11 itself. That may allow it to skip paying back bills to its suppliers like Collins & Aikman.

Sounds like a big circle, doesn't it?

Douglas A. McIntyre
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