Auto supplier consolidation seen in 2010

By Jui Chakravorty Das

DETROIT (Reuters) - The auto supplier industry will see a wave of consolidations next year as federal bailouts for automakers and a recent uptick in sales provided only a temporary reprieve and simply postponed the inevitable, several executives told Reuters this week.

Speaking at the Reuters Autos Summit in Detroit, executives said the auto supplier base faces excess capacity but has been able to avoid the big wave of expected consolidation.

Auto sales have been hurt in the past year as customers tightened purse strings amid a weak economy, which came on the heels of already-slowing vehicle demand amid high gasoline prices last year. U.S. vehicle sales are expected to come in at just above 10 million units on an annualized basis in 2009, far below the levels of 17 million units just four years ago.

"There are too many suppliers," Earl Hesterberg, chief executive of auto retailer Group One (GPI.N), said at the summit. "The longer this market stays at 10, 11 even 12 million units, it will put financial pressure on suppliers and drive consolidation."

Hurt by weak auto sales and squeezed by demands for lower prices, many suppliers have been struggling to stay afloat. "Suppliers are very cash-sensitive," Hesterberg said.

Dura Automotive Systems Inc Chief Executive Tim Leuliette said liquidations are happening, but quietly. About 200 U.S. suppliers are going through quiet liquidation processes in which they are slowly selling assets to other suppliers or private equity companies, Leuliette said.

"We are seeing this more quiet, more cost-effective transition than a bankruptcy proceeding," he said, adding that falling valuations will drive more consolidation next year.

Dura is in talks to buy two suppliers -- one in Asia and another in Europe. "We are a buyer in this market because we're paying with 8 cents (on the) dollar or 12 cents (on the) dollar," Leuliette said, adding that it will consider more acquisitions next year as valuations drop even further.