Auto parts maker BorgWarner Inc. Friday said it would slash 13 percent of its North American work force and cut its 2006 earnings forecast, becoming the latest U.S. supplier to warn that a slump in orders from Detroit-based automakers would hurt results.
People used to mock the economic reality of "trickle down". Bet they're not laughing now.
It really was only a matter of time.
Several U.S. parts suppliers have warned that cuts at General Motors Corp., Ford Motor Co. and DaimlerChrysler AG’s Chrysler Group would hurt results, and BorgWarner is not likely to be the last, analysts said.
This could continue like the proverbial ripple effect. Still, some are trying to put a good face on it.
“Despite the short-term pressures, BorgWarner remain well-positioned for the long-term,” Morningstar analyst John Novak said. “We expect more of these announcements from the large suppliers and significantly more instability in the Tier II and Tier III supply base over the coming quarters.”
Am I reading that right? It almost seems like he's saying that BorgWarner will be ok because other suppliers will begin to suffer too. Geez, talk about misery loving company.
BorgWarner’s cuts are similar to North American restructuring efforts by Johnson Controls Inc. and Lear, J.P. Morgan analyst Himanshu Patel said in a note.
It looks like the whole industry is scrambling.
Patel expects more warnings in coming weeks from large U.S. suppliers, naming American Axle & Manufacturing Holdings Inc., Visteon Corp., Johnson Controls, ArvinMeritor Inc. and Gentex Corp. as most at risk.
Lear Thursday warned that U.S. carmakers’ production cuts would hurt results, which followed warnings by suppliers TRW Automotive Holdings Inc. and Navistar International Corp.
This is not welcome news. We'll just have to see if this puts a damper on the general economic outlook. Ultimately the reigns are in the hands of the consumer.
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