Auto-parts suppliers should look outside

Beleaguered UK automotive component suppliers have been urged to look outside the car market for customers or face going bust as the European and US motor industry struggles.

Beleaguered automotive suppliers in the UK, hoping the sale of MG Rover will bring them new business, have been urged to look outside the car market for customers or face going bust themselves as the European and US motor industry struggles.

Global credit insurer Atradius says the collapse of MG Rover is the most recent of problems faced by automotive firms in Europe and the US.

In its latest Industry Risk Index, Atradius says that giant carmakers such as GM and Ford are seeing sales and profits fall as they attempt to cut costs, while equipment suppliers and component manufacturers are being undercut by imports from China and India.

In fact the only real bright spot in the current automotive market is the growing demand for accessories such as alloy wheels and in-car sound systems by 'boy-racers' souping up their suburban hatchbacks.

But rather than hoping that MG Rover's new Chinese owners, Nanjing, will restart production in the UK, Atradius says suppliers should explore other industry sectors for new business.

Will Clark, Atradius' regional director for UK and Ireland, NAFTA and Australasia, explains: "The interest shown in MG Rover by buyers from China reflects the growing presence in the automotive sector of developing countries.

The European and US dominance of the motor industry is coming to an end and suppliers need to wake up to this and develop new products for new customers in other industries." MG Rover went bust owing millions of pounds to suppliers across the UK.

But despite being bought by Nanjing for around GBP 60 million, Atradius says creditors will have to wait many months to see any money and are unlikely to be reimbursed in full.

Suppliers hardest hit by the collapse were those that had the car maker as their major customer and subsequently could not offset loses against other income streams.

Atradius had advised its credit insurance customers to reduce their exposure to MG Rover or spread their risk by finding other customers.

Consequently, when the company collapsed, Atradius' clients suffered fewer losses.

However, Atradius warns that other suppliers could fall into the same trap by focussing all their sales on other automotive manufacturers that are also going through tough times.

Clark adds: "The motor industry is struggling worldwide.

Dealers are slashing price tags to sell cars, so makers are being forced to cut their own prices, whilst coping with high labour and manufacturing costs.

"As a result, car companies are turning to component makers and original equipment manufacturers in China, India and the Far East to save money, which puts the squeeze on firms here and in Europe.

In fact the only real growth areas in the automotive industry are specialist suppliers and the booming after-sales market selling bolt-on equipment for drivers souping up their cars." The Atradius Automotive Industry Risk Index has been published to help firms in the auto industry identify the potential trading and cash flow problems they face.

Atradius says that in such volatile times, companies must apply stringent credit management, insuring themselves against bad debt, credit checking customers and ensuring prompt payment of invoices.

The key points of the latest Industry Risk Index include: * Vehicle manufacturers - the collapse of MG Rover marked the end of British owned high volume car making in the UK, although production has also ended of the now Ford-owned Jaguar marque at its birthplace in Coventry.

Poor sales of the Jaguar brand are adding to Ford's woes, particularly in the US where its share of the market has fallen from nearly 26% to less than 20% in the last decade.

However GM sales have suffered even further, with its market share slipping from almost 33% in 1995 to less than 26% this year.

Those declines have been matched by growing sales of foreign car makers in the US, particularly by Toyota, Nissan and Honda.

* Car sales - new UK car registrations fell by just 0.5% in 2004 over record highs in 2003 of 2.6 million vehicles.

However, only the big car dealerships such as Reg Vardy, Lookers and Pendragon have really benefited, as they are able to use their massive buying power to cut deals with the manufacturers and incentivise customers with offers.

* Component and original equipment manufacturers (OEMs) - cheap imports are doing the greatest damage to UK and European suppliers - a UK-produced car battery costs GBP 9.95 compared with a product imported from South Korea for GBP 3.50.

A number of UK component makers went to the wall after the collapse of MG Rover, a trend that could continue as more manufacturers source their castings and trims from India and China.

Ford, for example, now gets 50% of it supplies from low-cost countries.

* After market - the traditional parts market for DIY mechanics is in demise as the increasing complexity of car design means that motorists can no longer work on their own cars.

However the so-called 'boy-racer' market is booming as owners, mostly young men, spend thousands of pounds on alloy wheels, audio systems and lighting in an attempt to make their 'bog-standard' (bog-standard equals 'standard' - Ed) hatchbacks look fashionable.

* Niche firms - specialist niche firms provide an industry bright spot, often supplying the small but lucrative market of low-volume high-performance cars and motor sport derived vehicles.

These suppliers usually have the ability to take products from prototype to final product quickly and efficiently.

The full Atradius Automotive Risk Index will be available to download from our website during the first part of August.

Atradius credit insurance not only covers customers for up to 90% of any bad debt, it also carries out initial credit checks on new customers and provides market intelligence on over 45 million individual businesses, industry sectors and markets around the world, with offices in 40 countries providing direct local experience and knowledge.

Credit insurance is ideal for any size of business, from multi-nationals through to SMEs and start-up businesses, and policies are available to cover trading risks in the UK and internationally.

Atradius also provides debt collection services in the UK and overseas, securing repayment in the most efficient and effective way possible.