The domestic automotive business has been beaten and torn by foreign competition for several years now, forcing many auto-parts producers, such as Tower Automotive Inc. and Delphi Corp. (OTC: DPHIQ) into bankruptcy proceedings. A growing number of auto-part manufacturers are leaving the U.S. automobile industry altogether, divesting auto-related businesses and diversifying into other, more profitable industries. The Wall Street Journal highlighted the latest companies [subscription required] trying to make the switch to stay alive:
- SPX Corp (NYSE: SPW), a North Carolina auto manufacturer that once earned 90% of its revenue from auto-related businesses, now earns less than 3% from auto-related businesses after multiple divestitures and acquisitions. SPX Corp is now an infrastructure-related products and service manufacturer for the global power market.
- Pittsburgh-based glass and coatings manufacturer PPG Industries Inc (NYSE: PPG) has put its windshield business up for sale. The company instead will rely on its high-tech coatings business and optical & specialty material segments that offer long-term growth potential.
- Eaton Corp (NYSE: ETN), of Cleveland, has been very successful in expanding into the aerospace business. To reduce its exposure to the auto-parts industry, the company recently sold its automotive mirror controls business for $111M to Englefield Capital LLD. Eaton also acquired a host of electrical businesses including Marina Power Lightening, Senyuan Int'l Holdings in China and selective assets of Catalytica Energy Systems.
Not all companies want out, though. Johnson Controls Inc (NYSE: JCI) reaffirmed its commitment to their automotive segment, despite the fact that it's other two business segments, building efficiency and power solutions, are more profitable. Johnson Control's automotive segment provides seating, instrument panel, overhead, floor console and doors systems for passenger cars and trucks, and accounted for 57% of the company's consolidated net sales last year.
In the long term who's right and who's wrong will be determined by the strength of the domestic automotive business. If the "Big Three" could somehow be resurrected from the dead, the auto-parts space could start to feel a pulse again. However, the likelihood of domestic autos returning to its former glory is quite slim, especially with their dwindling balance sheets and "big-car" mentality when the rest of the world is searching for small, economical designs.
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Reader Comments (Page 1 of 1)
7-30-2007 @ 9:40PM
Jim said...
JCI does substantial business with foreign auto companies, including those that manufacture in the US. So it doesn't depend on just the "big 3" to make money from the auto end. They are also involved in research into batteries for hybrids, etc., which could be important for future earnings in this sector.