Monday, June 15, 2009

Auto Suppliers Attempt Reinvention

By TIMOTHY AEPPEL The auto-industry meltdown is forcing a transformation among automotive suppliers, which are slowly diversifying into more-promising markets such as medical devices and green energy. The shift to nonautomotive products is under way at Abbott Workholding Products Inc. The Manhattan, Kan., company, whose industrial tools are used by the auto industry, now makes tools used to craft artificial knees and bone reinforcements. Elsewhere, Delphi Corp. is considering adapting its electric-car batteries for use in residential energy systems. "If you're really tied to auto, you're sweating bullets," says Abbott Chief Executive Carl Reed. "Those are the guys desperately trying to find something else." Bloomberg News Delphi auto parts lined the shelf of a New Jersey warehouse last year. Many auto suppliers, however, won't be able to make the change. A wave of bankruptcy filings is already swamping the sector, and some industry experts predict that as many as 20% of the industry's 1,700 core suppliers could go under this year. That figure doesn't include the far larger number of smaller businesses further down the supply chain, many of which are also under financial stress. Moving into new markets often requires adapting the production process to serve a new type of customer. "It's not as easy as it sounds," says Cliff Waldman, an economist with the Manufacturers Alliance/MAPI, an Arlington, Va., trade association. "The cost of that transition to a small business may be tougher than the benefit they'll get over the long term." Even larger companies are finding the transition difficult. Take Delphi, which recently tried to use its electronics expertise to make high-efficiency, industrial light bulbs at one of its factories in Indiana. The Troy, Mich., company abandoned that effort a few months ago before making a single bulb. The problem, Delphi found, was that its production system was geared toward long-term contracts for high-volume products, whereas the light bulbs were to be made in lower volumes and under short-term contracts to better respond to the marketplace. "We're used to a steady flow, which gives the best cost position -- versus spasmodic orders," says Paul Ainslie, who heads the small team of Delphi engineers looking for ways to adapt the company's electronics for other markets. Abbott is seeking opportunities in the alternative-energy industry and the medical market. The company recently sold a set of six, 7-foot-tall, 8-foot-wide tooling columns, aluminum structures used in the manufacture of solar panels. Mr. Reed, Abbott's CEO, says he isn't trying to reduce his exposure to autos, but rather focus on developing other sectors. The key is picking the right sectors. Die-Matic Corp., a metal stamper based in Brooklyn Heights, Ohio, had 65% of its business tied up in autos and has the rest in construction, mining and small appliances. While those latter businesses have done better than the auto sector, the company is looking for higher-growth markets such as the medical industry. Bill Shepard, sales manager for Die-Matic, says it will have to change the way finished products are handled and shipped. Medical companies want parts shipped clean. Many auto parts are shipping with a coating of oil, which means Die-Matic would have to set up a system for washing the parts. "They also want parts protected more and in smaller boxes," he says. The transformation is possible. WJG Enterprise Co., a 55-employee plastics company in Charlotte, Mich., was 100%-oriented toward selling to the auto industry until late last year. It made parts for air conditioners, decorative trim pieces for doors, and speaker housings. The company has since developed a business making plastics for medical devices -- including pieces used on X-ray machines and magnetic-resonance imaging equipment, and measuring cups used in medical settings. William Grice, the company's founder and CEO, says the only equipment he had to invest in were seven new molds, which cost a total of $1.2 million. The new molds run in his existing machines. He expects automotive to represent only 46% of his business by year end. Some suppliers are sticking to autos, rather than risk a potentially costly and unsuccessful foray into other markets. Pittsburgh Glass Works LLC is one of them. The auto-glass maker's strategy is to shrink its business to fit the smaller demand of the U.S. auto sector. "Our focus has been on our footprint -- with plant closures and right-sizing," says Joe Stas, a spokesman for Pittsburgh Glass Works. "We see a smaller market, but possibly a more-profitable one going forward." Write to Timothy Aeppel at

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