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30. July 2007

Fiat makes offer for its stricken parts supplier TK Aluminum

In a late night press release FIAT informed that they  made an offer to buy TK Aluminum, another of its components suppliers which is in deep financial difficulty and whose failure could disrupt car production at the Italian industrial group.

The Italian carmaker  may learn as early as today if its offer has been accepted. If so, it will be the third supplier that it has taken over or helped to bail out in a year, reflecting changing trends in the supply chain of the car industry.

Car companies facing rising raw materials prices have been successful in recent years in reducing their number of suppliers, holding down costs and improving delivery schedules. But suppliers have traditionally borne the brunt of the cost-cutting, most dramatically in the US, where financial problems at General Motors, Ford and Chrysler have pushed Delphi and several leading parts suppliers into bankruptcy.

"The very blunt way of trying to get your supplier costs down has backfired across the industry," said John Lawson, car analyst at Citigroup in London. "It's a softer approach now."

One or two lost days of deliveries can imperil an entire production line, as highlighted by Toyota's recent stoppages stemming from an earthquake in Japan (see FOUNDRY PLANET original report from                 Japan on 23rd July 07) . Last year, a strike prompted by financial problems at CF Gomma, a rubber group, stopped production of Fiat's new Punto, its most successful launch for years.

CF Gomma was recapitalised with strategic help from Fiat, people close to the companies say, and is now run by former Fiat executives. Fiat also this year bought ITCA, a bodymaker and welder which was in trouble.

Car groups are also buying back suppliers they used to own as they seek to recapture what they have reclassified as core areas of activity. Fiat sold TK Aluminum to Questor, a US investment group, in 2002 in a deal worth €460m ($628m). TK had revenues of about €1bn in 2005 but in the nine months to the end of September 2006, the last released quarterly report, its losses had more than tripled from the year before to €67m.

The deal had not been concluded yesterday, people close to the talks said. Fiat is waiting to hear from 15 investment groups involved with Questor. The price is likely to be very low given TK's financial peril.

None of the groups involved has commented on the talks. Any agreement would need regulatory consent, the people said.

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