A Special Background Report On Trends in Industry And Finance
AUTO SUPPLIERS suffer margin erosion, despite higher sales.</br></br>Profit margins of the companies that supply parts to auto makers slid to 6.5% last year from a peak of 8.2% in 1995, says Automotive Consulting Group Inc., Ann Arbor, Mich. (Still, suppliers are beating Ford and GM's margins of less than 5%.) The consultant studied the performance of 51 publicly traded suppliers from 1992 through 1997 -- a period when sales more than doubled as auto makers vastly expanded outsourcing of parts, systems and research and development.</br></br>So why are vendors suffering? An R&D burden means suppliers "spend a lot more money before they make money," says Dennis Virag, president. That, plus a push for lower-priced parts, has pressured profits. Chris Quilty, an analyst with Raymond James & Associates, St. Petersburg, Fla., agrees some vendors have been squeezed. Air bags, for instance, went from a high-margin, high-tech product to a lowercost commodity. Both men say vendors who can innovate will continue to thrive.</br></br>The UAW strike against GM may hurt suppliers now, but it could help them later if it leads to more outsourcing.</br></br>GUN `SAFETY' is advanced in one deft promotional shot by a safe company.