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Thursday, November 02, 2006

Car Parts Suppliers Take Out The Crying Towel

Stocks: (TRW)(DCX)(F)(GM)

The head of TRW, which is one of the major car parts suppliers, said that the company is under real pressure from the Big Three as they cut their production. Earnings at TRW dropped 50% in the most recent quarter.

Companies in the car parts business are already going bankrupt left and right. Delphi, Dana, and Collins & Aikman are among those who have taken protection under the wings of the courts.

There is not good solution to the problems at the parts suppliers. Delphi is trying to cut as many UAW jobs as it can so that it can move production to less expensive off-shore facilities. And, the company is beginning to meet with some real resistance from the union.

Although there is some interest from hedge funds, some of the car parts companies may not make it out of Chapter 11. The pressure to bring down prices for the car companies, coupled with falling auto production, may just be too much to take.

It may be that the car parts supply industry has too many companies chasing too little business. As times become more desperate, it won’t take long for the weak players to exit the stage.

Douglas A. McIntyre can be reached at He does not own securities in companies that he writes about.

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