Twenty two percent of some of the largest global automotive suppliers are in jeopardy of becoming significantly distressed financially within the next 12 months, according to a study by BBK, an international business advisory firm.
BBK CEO William G. Diehl announced today the results of the study in a speech at the Automotive News Manufacturing Conference in Nashville.
“It is absolutely critical for OEMs and Tier 1 suppliers to take a comprehensive proactive approach to carefully monitor both the operational and financial health of their suppliers,” said Diehl.
“If these companies are not proactively monitoring the health of their suppliers, they risk suffering a significant and costly disruption to their supply chain.”
BBK conducted its study on 80 of the top 150 global automotive suppliers, based on 2006 revenues, using its proprietary BBK Ratings model, a tool that is used to evaluate both public company and private company financial data to determine the overall financial strength of a company.
BBK Ratings assigns a grade from “A” to “F” depending on the potential for distress over the next 12 months. A
company is considered distressed if it earns a “C,” “D” or “F” rating.
Approximately 33 percent of North American suppliers in the study were at various levels of financial distress including 11 companies that received an “F” rating.
Asian suppliers were the healthiest with zero companies in distress while 14 percent of European suppliers were distressed.
The average rating for Asian suppliers was “A,” followed by European suppliers at “B+” and North American suppliers at “B-.”
Since BBK’s first Ratings study for fiscal year 2002, the number of “A” and “F” ratings have increased, indicating that there is little “middle ground” in the industry – suppliers are either healthy or severely distressed.
“Over the next few years, consolidation of the supply base will allow suppliers to leverage economies of scale and drive costs down,” said Diehl.
“The suppliers who find the right balance between outsourcing to lower-cost countries and looking for cost-effective ways to improve efficiency will be well poised for a healthy and sustainable future.”
BBK Ratings was developed in conjunction with Northeastern University Finance Professors Harlan and Marjorie Platt, who are renowned for their expertise in developing analytical models that predict corporate distress.
For 2006, ratings were performed on 80 of the top global OEM automotive parts suppliers based on revenue, according to the annual list of “The Top 150 Suppliers to North America” published by Automotive News.
Ratings were performed on 79 of the top suppliers for the fiscal years 2002, 2003, 2004 and 2005.
Of the 80 suppliers evaluated in 2006, 42 are headquartered in North America, 21 in Europe and 17 in Asia.
Together they represent 11 countries: Australia, Canada, France, Germany, Great Britain, Japan, Mexico, South Korea, Sweden, Switzerland and the United States.
BBK, an international business advisory firm established in 1977, provides financial and operational services that enhance the growth, profits and stability of its clients.
BBK has an extensive network of professionals throughout the United States, Europe and Asia, and has completed thousands of engagements for a variety of clients, including Fortune 500 corporations, mid- sized companies, financial institutions, law firms and private equity firms.
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