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Published in Manufacturing

Time of distress? Concerned auto suppliers seek turnaround help as challenges mount

BY Saturday, September 15, 2018 08:57pm

A turbulent period full of major disruptions for the automotive industry has translated into business doubling for Conway MacKenzie Inc., a Birmingham, Mich.-based turnaround firm.

Factors ranging from international trade conflicts, the struggle to find employees and the fast pace of technological change have led auto suppliers to ratchet up efforts to get out in front of current headwinds, experts say.  

Turnaround experts say automotive suppliers are no longer “waiting too long” to restructure or simply hoping their business improves. Instead, they’re seeking help now.

“It’s a little bit of an odd time in auto in that I would say we are about as busy as we’ve been in many, many years,” said Steve Wybo, senior managing director for Conway MacKenzie, which has an office in Grand Rapids. “We have a lot of auto clients right now, and it seems somewhat counter-cyclical or counter-intuitive in that we still have a very robust cycle going on in terms of sales and production units. … But if you look at what’s happening with Ford, Tesla (and) Adient, there are signs of problems in automotive.”

According to Wybo, who has clients in West Michigan, the number of automotive industry companies seeking turnaround help is up “significantly.”

“But it’s not liquidations and bankruptcies and companies going out of business, it’s more of business performance improvement,” Wybo told MiBiz. “‘Hey, we’ve got a lot of business here, but we are not running as efficiently as we should be.’ Thankfully, for the clients we are working with, (they) are being more proactive.”

The distressed situations come as most analysts expect automotive sales to stabilize around 17 million units, coming off a record of 17.5 million units in 2016.

“It’s definitely an odd time in auto because if you are not in the trenches, you’d be saying that everyone must be doing great. … How could OEs and suppliers be struggling?” Wybo said.

According to Mike Wall, director of automotive analysis at IHS Markit in Grand Rapids, industry executives’ concerns have ratcheted up in recent months and they’re taking steps to prepare their companies for worst-case scenarios.

“I would say there is a lot more caution in the air,” Wall told MiBiz. “There would be caution without the trade and tariff talks because of how far along in the cycle we are, but now there are disruptions with (those) trade talks.

“The suppliers I work with are still doing very well, but we are starting to see stress (emerge) and are hearing more about automotive distress. The turnaround firms, I am starting to hear some calls. People are getting extended.”

Because of this distress, auto suppliers are increasing their levels of preparedness, Wall said.

“Suppliers need to create as nimble and flexible an operation as possible to take advantage of current trends (and disruptions),” Wall said. “Your competitors are thinking about it. … Those suppliers who are taking a holistic look at product offerings will be better positioned to weather a storm or when the shakeout or evolution comes.”


As disruptions mount, Wall said suppliers need to be concerned about plateauing car volumes, trade challenges, and their ability to adapt to newer technologies.

“I think for suppliers right now, they are focusing on the trade and tariffs,” Wall said. “What that is going to do is create scenarios about preparing for the next downturn.”

To mitigate concerns, suppliers must start thinking about “alternative scenarios” several years ahead of schedule, he said.

“Strategic planning needs to be in the frame of reference as well,” Wall said. “The megatrends of electrification, autonomous driving — that’s going to foster changes in how we use vehicles. Companies need to look at (current) product lineups and segments that they serve, look to get in on electrified programs. What can I do to be in battery (vehicles), how can we expand our product offerings?”

According to industry data, the number of new car launches is expected to increase considerably in the next three years, from 38 new models last year to 44 models in 2018 and 61 models in 2021.

Wybo cites the example of one client that has almost doubled in size to service the new launches, but is “absolutely struggling because they’ve spent so much time in launching new business.”

“I know there’s some distress in the supply base right now because of new launches,” he said. “You’re going to spend all of this time and money on these new launches, then the industry is going to soften a bit, and if you chew through your capital and your revenues go down 5 to 10 percent, that could tip these companies over. We’re seeing that right now.”

Wybo assures that the automotive industry is not heading into a dire situation like what it faced during the Great Recession. Still, some companies could face stiff challenges even if the market retrenches only slightly.

“You will see some suppliers go out of business because they were under capitalized, they had a few hiccups in these launches, and they are forced to do a quick sale,” he said.


As a nationwide turnaround and restructuring firm, Conway MacKenzie helps companies with financials as well as operational and strategic actions, or “micro-managing” a company during a launch so “costs don’t get out of control,” Wybo said.  

For middle-market clients, Wybo is instructing suppliers to focus on margin and liquidity.   

“It’s great to get new business, but if you don’t have a sophisticated launch process, if you don’t monitor your profitability on a weekly basis relative to your quotes, and …  make sure you’re managing profits, these costs can get out of control very quickly,” he said. “The next thing you know, you are working Saturdays and Sundays, and double time and triple time because you get behind.”

Brendan Best, a partner at law firm Varnum LLP who works with auto suppliers across the state, said turnaround companies are “busier than they have been in years.”

“They are certainly reaching out to us on a more frequent basis with troubled situations with their supply base or customers,” Best said.

However, clients are “reacting and trying to get ahead of situations,” rather than waiting for problems to become more rampant in their operations, he said.

“They are very good at it,” Best said of clients acting now to get ahead of problems. “I would say our clients are always worried about everything, but there’s no panic.”

Read 8033 times Last modified on Sunday, 16 September 2018 20:00