Owings Mills, MD (PRWEB) March 9, 2006
The fourth major bankruptcy to hit the U.S. automotive industry in the past 13 months has sent additional shockwaves through an already troubled sector that is in “chronic crisis,” according to industry analysis from global trade credit insurer Euler Hermes ACI.
Dana Corp., an auto parts supplier with $9 billion in revenue, filed for Chapter 11 bankruptcy March 3, marking the fourth major automotive industry insolvency since February 2005. Previous insolvencies were Tower Automotive (February 2005, $3.2 billion in revenue), Collins & Aikman (May 2005, $4 billion in revenue), and Delphi Corp. (October 2005, $29 billion in revenue). Euler Hermes ACI Risk VP and Automotive Risk Industry Manager Tony Clary said the Dana insolvency again confirms that the auto industry is one of the most challenged in the U.S. marketplace. "This bankruptcy happened even quicker than the Delphi bankruptcy, so it took a lot of people by surprise,” Clary said. “Six months ago Dana was still an investment grade company, and just two months ago they released information showing $42 million net income, which was considered good in a weak industry. This just goes to show how quickly events can turn within a troubled sector.”
In 2005, automotive companies had “a challenging year,” Clary added. “Along with the increase in competition among the auto makers, the tastes of the U.S. consumer are continuing to change in response to economic pressures, such as the rising cost of gasoline. Consumers are now looking for specific products – shifting from the larger SUVs and trucks to cars that are more fuel efficient – and this has forced most manufacturers to take a hard look at their product lines.”
Euler Hermes ACI Chief Economist Dan North said the automotive industry continues to be hurt by the nation’s weakened economy. “A key issue with the automotive industry is that unit labor costs are continuing to rise, but auto makers cannot raise prices because of increased competition,” said North. “That means profit margins are being squeezed even tighter than in the past, which is hurting everyone down the supply chain.”
The recent instability and volatility of the automotive sector highlights the important role that trade credit insurance can play within the business environment, said Euler Hermes ACI Vice President of Marketing Keith Sherman. “A Euler Hermes ACI credit insurance program provides a valuable extension to a company’s credit management practices – a second pair of objective eyes when approving buyers, as well as an early warning system should things begin to decline so that exposure can be effectively managed,” he said. “And, ultimately, should an unexpected loss occur, the trade credit insurance policy provides indemnification, thus protecting the policyholder’s revenue and bottom line.” Euler Hermes ACI utilizes a proprietary database that monitors the credit worthiness of more than 40 million companies worldwide; this provides advance warning for policyholders and allows losses to be minimized in the event of a large corporate insolvency.
Looking forward, the outlook for the automotive industry will be one of continued restructuring. The rise of new production zones in South America for the Americas will be the only way mass production will be able to resist pressure from Asia and – in the longer term – from China. By 2011, it is expected that global auto production will have grown by more than 23% compared to 2004, with 80% of the increase coming from emerging countries. “It is difficult for an industry to turn things around when the economy is doing well, let alone when things are not at their best,” concluded Clary. “The automotive industry will continue to be under our microscope for many months to come.”
For more information about Euler Hermes ACI products and services, visit http://www.eulerhermes.com/usa.
Euler Hermes is the worldwide leader in credit insurance and one of the leaders in bonding and guarantees. With 5,400 employees in 41 countries, Euler Hermes offers a complete range of services for the management of customer receivables. The North American subsidiary (Euler Hermes ACI) is headquartered in Owings Mills, MD. For more information visit http://www.eulerhermes.com/usa.
Euler Hermes, a subsidiary of AGF and a member of Allianz, is listed on Euronext Paris. Standard & Poor’s rates the group and its principal credit insurance subsidiaries AA-.
Euler Hermes ACI Public Relations and Communications Specialist
Phone: (410) 753-0652
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