 |  | Asahi Tec's Tim Leuliette says he isn't concerned about a potential sale of the Chrysler group. "Our contracts are still going to be in place," he says. "If somebody tried to re-source the product, it would take them years."
Photo credit: JOE WILSSENS |
Deal may affect current, future parts contracts
Brent Snavely | Automotive News / April 30, 2007 - 1:00 am /
| | ZF Group's Tom Gorman wonders how his company's bids made jointly for Mercedes and Chrysler would be affected.
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As the bidding war for the Chrysler group gathers steam, suppliers wonder how a new owner would influence existing contracts as well as competition for future ones.
DaimlerChrysler AG has been meeting with several groups interested in buying the Chrysler group. Bidders include Cerberus Capital Management, Blackstone Group, billionaire Kirk Kerkorian and Canadian parts maker Magna International Inc.
For suppliers, a sale of Chrysler raises major questions about the fate of contracts based on supplying common parts to Chrysler and Mercedes-Benz. Another concern centers on competitive issues that would arise if Chrysler were owned by Magna - a Tier 1 that, in many cases, is a direct competitor to those suppliers.
DaimlerChrysler's total annual purchasing budget is about $108.8 billion, and the Chrysler group's purchasing budget in 2005 was previously estimated to be about $29 billion. Chrysler does not disclose its total number of suppliers.
What will happen?Scott Dahl, director of marketing and product planning for Robert Bosch Corp.'s chassis division, said his division is bidding on two global programs that would supply Chrysler and Mercedes vehicles.
"If there is a sale," Dahl said, "what will happen to those programs?"
He said one program would serve four DaimlerChrysler platforms and the other five. But if Chrysler is sold, Dahl said, "The business case analysis would be significantly impacted."
The problem that Bosch and other suppliers potentially face is that pricing for the bids was based on expected production volumes that would differ if DaimlerChrysler is split up. And if the Chrysler group is sold, the two companies may not want to use the same product.
"The actual product design itself could change," Dahl said.
Tom Gorman, COO of ZF Group's North American car chassis technology division, also wonders how a sale of Chrysler would affect programs jointly bid on for Mercedes and Chrysler.
"The biggest question we are asking internally is with the Alabama M-class plants and the Grand Cherokee," Gorman said.
ZF Group supplies parts to Mercedes' Vance, Ala., assembly plant and is bidding on an axle program to support Mercedes' M-class vehicles.
"This is really the first time we've bid on something jointly" for Chrysler and Mercedes, Gorman said.
Sales to Chrysler and Mercedes represent about 20 percent of ZF Group's North American annual sales of $2.1 billion. ZF Group is part of ZF Friedrichshafen AG in Friedrichshafen, Germany.
Splitting joint bidsJohn Baumann, manager of business development for the suburban Detroit office of Mann+Hummel USA Inc., said splitting up jointly bid programs could be done with minimal disruption, as long as the total projected production volumes of the parts remained about the same.
"We are bidding on global platforms that are shared between Mercedes and Chrysler," Baumann said. "We are not overly concerned about that impact.
"Usually the end component differs enough that they would go respectfully to their own vehicles - at least with the components we develop."
Mary Beth Halprin, a spokeswoman for DaimlerChrysler, declined to comment.
ZF's Gorman and Mann+Hummel's Baumann said it makes little difference to them if Magna or a private equity firm buys the Chrysler group.
But some suppliers worry about competing with Magna if it acquires Chrysler, says Laurie Harbour-Felax, president of the Harbour-Felax Group consulting firm in suburban Detroit.
With $24.1 billion in annual sales, Magna is among the world's largest automotive suppliers and is widely viewed as one of the industry's best-managed companies.
"There's a lot of suppliers that have come to us and said 'we're worried' because they think they will lose out to Magna," Harbour-Felax says. "There are suppliers that are nervous, especially those that have first-time business with Chrysler.
Rules of engagement'Craig Fitzgerald, a partner and auto analyst at Plante & Moran PLLC in suburban Detroit, also predicted that if Magna bought Chrysler, it would set up rigorous bidding procedures to ensure fairness. But until then, Fitzgerald said, suppliers will be nervous.
"I would expect there to be substantial concern among Tier 1s, the issue being will the Chrysler-Magna tie-up give Magna competitive advantages relative to Chrysler work," Fitzgerald said.
"If the deal takes place, Magna and Chrysler will have to quickly develop the rules of engagement."
Tim Leuliette, co-chairman of Japanese supplier Asahi Tec Corp., parent company of powertrain and chassis manufacturer Metaldyne Corp., played down any potential competitive concerns.
"Our contracts are still going to be in place," Leuliette said. "If somebody tried to re-source the product, it would take them years."
But Metaldyne's annual statement, filed April 2, tells a different story. In that report, the company listed the potential sale of Chrysler as a risk factor and explained that automakers can terminate purchase orders even when contracts and letters of intent are in place.
Says Metaldyne's annual report: "Our risk of such terminations could be exacerbated if one of our competitors acquires the Chrysler unit of DaimlerChrysler." c
You may e-mail Brent Snavely at bsnavely@crain.com
List of concerns
Chrysler group suppliers have some concerns about the potential sale of the automaker. - Daimler and Chrysler could split contract bids on pending projects.
- New owner could change purchasing practices.
- New owner could cancel purchase orders even with contracts in place.
- A winning bid by Magna could mean competitor becomes the customer.
Source: Crain's Detroit Business, Metaldyne annual report |
