Global Fastener News

March 31, 1995 FIN – As automakers continue to reduce the number of suppliers, fastener firms have survived by growing leaner, consolidating or pursuing non-automotive business.

That is the implication of a survey conducted by Coopers & Lybrand Consulting for the Automotive Industry Fasteners Group (AIFG).

About 30 AIFG firms sold more than $1 billion in steel fasteners to OEMs in 1993, but the survey rated the automotive fastener industry as “not highly profitable as a whole.”

Charles O’Brien, president of Ring Screw Works and chairman of AIFG, said the most significant finding was that, on average, the fastener industry is not generating sufficient cash flow.
“Overall profitability is low, and we are not generating enough revenues to invest in badly needed facilities and equipment,” O’Brien responded.

David Eisenhart, a partner in the Automotive Consulting Practice in Coopers & Lybrand, rated most of the fastener firms “at a critical stage. They have three choices: Invest in productivity technologies and partner with their own suppliers to reduce costs; position themselves for acquisitions; or get out of the auto business. It’s that simple.”

AIFG commissioned the survey to identify trends that many affect customer service and satisfaction. A total of 22 AIFG firms opened financial records for 1989 to 1993 to Coopers & Lybrand auditors.

Sales Rebound Since 1991 Low

According to statistics from the study, the automotive fastener firms showed a 4.7% compound annual sales growth rate from 1989 to 1993 and a 28% sales jump from 1991 to 1993. Productivity, measured by sales per employee, rose from $135,000 in 1989 to $167,000 in 1993.
However, the increase in sales failed to yield higher profits. Gross profit margins dropped 1.1% during the period, the survey showed.

Costs Increasing

O’Brien said the sales gains “have been more than offset by cost increases – including direct labor, overhead and subcontracting – and price concessions.”

• Investments in plants, property and equipment (PP&E) rose four times faster than sales, O’Brien pointed out.
• White-collar costs remained constant in the survey.
• The industry cost of sales, as a percentage of net sales, grew from 83.8% to 84.9%. Those figures translate to a 5.1% rise in the annual cost of sales versus a sales growth rate of 4.7% per year.
• The survey suggested that the more profitable companies invested in PP&E more heavily per employee. The average investment was $10,900 per worker in 1993.

O’Brien warned that if one of the AIFG companies “has to pull out of the auto business, other members may not be able to make up the difference. Fasteners for seating are different than fasteners for engines. This puts everybody at risk: the automakers, fastener companies and other OEM suppliers who need fasteners.

Inventory Turns Lag

AIFG inventory turns – at 4.7 in 1993 – “lag behind other automotive suppliers who are at 9 to 12 turns,” according to Coopers & Lybrand.
Since industry turns steadily increased from 3.8 in 1989, “the upward trend is good,” the report stated.

OEM stocking requirements make higher inventory turns more difficult, all types of inventory have been decreasing, and there is opportunity for materials management improvement in the next few years, according to the report.

Goals and Recommendations

Automotive fastener firms should aim for $200,000 in sales for employees; 10 or more inventory turns; “smart investments in new equipment, eliminating waste; and lowering material and subcontractor costs and raw material inventories by partnering with suppliers.

Firms which struggled during 1990-91 and have not lowered their cost structure, are below $40 million in savings and have not invested in PP&E, “should consider and exit strategy,” the report counseled.

“Investing in productivity technology is the key for future growth, profitability and vendor consolidation by the automakers.”
• The big three automakers “are continuing pressure to consolidate supplier base and deal with larger, more sophisticated, suppliers.
• The up-trend in auto sales will peak in 1995.
• “Companies that struggled in 1990-91 may not survive the 1996-97 downturn.”
• “The current up-trend is an opportunity for smaller companies to improve position as acquisition candidates.

The data was collected by Coopers & Lybrand, a consultant and advisor to automotive clients, between August and September 1994. Twenty-two of 29 member firms participated for a 76% response rate. Each firm submitted five years of financial statements. ©1995/2010 Fastener Industry News

Scroll down for information on the 1993 founding of AIFG.

1993 FIN � IFI Forms Automotive Group
December 20, 1993 FIN – The Industrial Fasteners Institute announced the formation of an adjunct organization known as the Automotive Industry Fastener Group.
AIFG is comprised of 25 North American fastener manufacturers having significant involvement in supplying product to automotive manufacturers.

The object of AIFG is threefold: 1. To develop a better understanding among AIFG customers and suppliers of the industry, regarding automotive fasteners and their application, and efficient utilization.
2. To discuss, develope and promote solutions to AIFG customer needs in non-proprietary areas, such as packaging, plating, electronic data interchange, etc.
3. To serve as a spokesman to AIFG customers, suppliers and government agencies on issues important to the automotive fastener industry.

The IFI at present has more than 90 member companies along with about 45 associate member companies. AIFG members do not have to be IFI members. ©1993/2010 Fastener Industry News