Challenges await Dana after Chapter 11
By JOHN SEEWER, Associated Press Writer
31 minutes ago
Auto parts maker Dana Corp. is about to step out of bankruptcy and into an uncertain future.
Worries about the economy and an expected slowdown in U.S. vehicle production this year will make it tough on Dana and other parts suppliers that depend heavily on Detroit's automakers.
Dana is on track to emerge from Chapter 11 protection as early as this week.
It's hoping that moving manufacturing to lower-cost countries and cutting labor costs will help it avoid the huge losses it had before entering bankruptcy nearly two years ago.
Since then, Dana has shed three businesses, moved to sell eight plants and struck a deal with unions to create a two-tier wage system. It also shifted retiree health care costs to a union-controlled trust fund, eliminating $1.1 billion in liabilities.
The company expects to save up to $475 million per year, including $100 million in labor costs. And private equity firm Centerbridge Capital Partners LP has agreed to invest as much as $500 million in the company.
"That alone makes us a stronger, more competitive company," Dana spokesman Chuck Hartlage said.
Troy, Mich.-based Delphi Corp. also is preparing to exit bankruptcy before the end of March. Its plan is to shift manufacturing overseas and eliminate thousands of jobs in the U.S.
Still, the question is whether it will all be enough.
Industry analysts say parts suppliers, especially those with strong ties to one or two American automakers, will continue to be squeezed by car companies looking to cut costs.
"It's a terrible market for suppliers," said Sean Egan, managing director of independent ratings firm Egan-Jones Ratings Co. "Unfortunately, there are few places to hide."
Cutting labor costs in half isn't enough, he said. "The future for the auto supply industry happens to be in the heart of China," Egan said.
The industry has gone through a wave of bankruptcies over the last few years amid pressure from big car makers to sell parts at lower prices.
Parts suppliers must find new and diversified customers and move beyond General Motors Corp. and Ford Motor Co., said Erich Merkle, an auto analyst for the consulting company IRN Inc. in Grand Rapids, Mich.
"Take a look at any of them in Chapter 11 and its because they're heavily dependent on one or two of the Big Three," he said.
He thinks more layoffs and bankruptcies are coming for more parts suppliers this year because auto production is expected to drop.
Two years ago, half of Dana's revenue came from outside of the U.S. and nearly 40 percent of its sales were tied to GM, Ford and Chrysler.
Dana since has been expanding operations in South America and Asia. "We're moving to where the vehicles are produced," Hartlage said.
U.S. auto sales are predicted to fall as low as 15 million vehicles in 2008. That's down from last year's sluggish sales of about 16.1 million vehicles, the lowest total since 1998.
"As long as we have these automakers that need to transform themselves, it makes it very difficult for the supplier," Merkle said.
Toledo-based Dana, which sells brakes, axles and other parts to most major automakers, filed for bankruptcy in March 2006. It said that its U.S. operations lost $2 billion in just five years.
On the Net:
Dana Corp.: http://www.dana.com
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