TOLEDO, Ohio (AP) — 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 on Detroit's Big Three 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 creating a two-tier wage system. It also shifted retiree health care costs to a union-controlled trust fund.
The company expects to save more than $100 million in labor costs per year. And private equity firm Centerbridge Capital Partners LP has agreed to invest as much as $500 million in the company.
Dana Chairman and Chief Executive Michael Burns said the changes have been fundamental and provide a solid foundation.
Troy, Mich.-based Delphi Corp. also is preparing to exit bankruptcy before the end of March. It's plan is to shift manufacturing overseas and eliminate thousands of jobs in the U.S.
Still, the question is will it 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 and Ford Motor Co., said Erich Merkle, an auto analyst for the consulting firm IRN Inc. in Grand Rapids, Mich.
''Take a look at any of them in Chapter 11 and it’s because they're heavily dependent on one or two of the Big Three,'' he said.
He thinks more layoffs and bankruptcies are coming for parts suppliers this year because auto production is expected to drop.
U.S. auto sales are predicted to fall as low as 15 million vehicles in 2008. That's on top of last year's sluggish sales of about 16.1 million vehicles, the lowest since 1998.
''As long as we have these automakers that need to transform themselves, it makes it very difficult for the supplier,'' Merkle said.
