Collins & Aikman Feeling the Pinch

---

Researched by Industrialinfo.com (Industrial Information Resources, Houston, Texas). Collins & Aikman (NYSE:CKC) (Troy, Michigan) announced last week that its disappointing economic figures for the first quarter have been even more disappointing than expected. So disappointing, in fact, that they've earmarked a dozen or more plants for closing in the near future, if they can't turn profitability around very quickly.

According to a report in Automotive News (5/19/03), the troubled plants account for eleven percent of Collins & Aikman's sales and $17.9 million in loses for the first quarter of 2003. The company cites a number of reasons, most prominent among them a 2-3 percent give-back demanded by certain customers (the so-called "pay-to-play" cost), better known as extortion among more plain-spoken folk, which amounted to a whopping $30 million for the quarter.

Also cited were oil price increases, which amounted to another $30 million; a change in the type of resin used, which caused problems with scrap and caused the company to have to pay premium freight costs in order to meet just-in-time delivery schedules; and damaged parts from defective shipping containers, necessitating excessive staffing and overtime. Not a good set of circumstances for the already struggling company.

Collins & Aikman has sent in teams of advisors to help the ailing plants correct manufacturing inefficiencies and improve cost controls. The unremitting pressure put on suppliers by OEMs, most notably the U.S. "Big 3," General Motors, Ford, and DaimlerChrysler, who are in a struggle of their own to fix their own bottom lines, has made the job of upgrading manufacturing processes and production control even more difficult for their suppliers than it would have been otherwise. It is one thing to have to upgrade manufacturing processes and technologies, slim down the organization, and otherwise cut the budget while maintaining product quality and plant safety, but it's a whole different ballgame to have to cut into an already sickly profit margin (more than likely these days a negative one) to pay to play with OEMs and the mega Tier I suppliers.

At least one mega supplier, Visteon, has recently decided to rescind its plan for demanding extortionary give-backs from its suppliers. Could the light have finally gone on in the automotive industry? Could it be possible that the big guys have finally, albeit grudgingly, accepted the fact that killing off their suppliers is like cutting off their noses to spite their faces? Can this be the beginning of a new "trickle-up" phenomenon, in which the mega suppliers show the OEMs how it works? Somebody needs to, and quickly - before U.S. OEMs choke to death from the pie on their faces. It probably won't happen on a grand scale, but it's a nice thought, anyway. The automotive industry is not famous either for moving quickly or for learning from others (such as Toyota, Honda, and other imports).

Among the ailing Collins & Aikman plants in the U.S. that face closure if they can't turn things around are the Nashville, Tennessee, plant, which alone accounted for $4.4 million in losses; an injection molding plant in Scarborough, Ontario; a plant in Havre de Grace, Maryland, which recently made $5 million worth of extensive improvements, but which depends heavily on only one product, the 2004 Dodge Durango; a plant in Manchester, Michigan, which supplies the Cadillac DeVille, and which already has underway cost-cutting measures and is instituting lean manufacturing processes; and a plant in El Paso, Texas. Two plants, O'Fallon, Missouri, and Marshall, Michigan, had already been closed not long ago in a restructuring effort.

Besides these ailing domestic plants, a plant in the Czech Republic, four in the U.K., and three in Brazil are also facing stringent measures. It won't be an easy task to accomplish, but Collins & Aikman President Jerry Mozingo is determined to return the company to profitability as soon as possible, and this writer hopes he succeeds in a big way. How do you spell "super-stress"?