We reported yesterday that Canada's Magna won a bid to build Boxsters for Porsche at it's Magna-Steyr plant in Austria. The Canadian Press [via News 1130] reports that Magna's exposure to the miserable American market trumped the Porker news, driving Magna's stock to a seven-year low. Some 53 percent of Magna's sales come from its supplier business with the D2.8; the OEM's misfortune is being passed down the supply chain. Higher gas is hurting Magna's business on the demand side, higher steel and plastic prices are hurting on the cost side, and there's no end to the hurting in sight. Magna's purchase of Plastech's exterior manufacturing business means even more D2.8 exposure, on top of the inevitable issues that come from buying a basketcase. Last week Magna cut 400 jobs from its St Thomas, Ont pickup frame manufacturing plant. There's not much else they can do besides weather the storm, and hope that their "most financially attractive offer" to Porsche wasn't a bridge too far. 

CTVNews.com reports that, starting in 2012, any production overflow of Porsche's Boxster and Cayman models will be handled by Magna-Steyr's automotive plant in Graz, Austria. Porsche AG chose Magna "because it submitted the most financially attractive offer, and because it is in a position to take on development tasks for Porsche sports cars." Porsche will continue to build the engines that go into these cars, but Magna will chip in where possible synergies can be found. CTV notes that Ontario-based Magna is already a major supplier to Porsche. Before you worry about Boxsters not feeling German, Porsche already has an agreement in place with Finnish company Valmet for Boxster/Cayman capacity (which expires in 2012). At least they speak German in Austria, right?

Does anybody need a reminder that the credit crisis is hurting our economies? Case in point: German car-industry supplier Schenk Plastic Solutions. Schenk is a small but basically healthy company that relies on Daimler for 60 percent of sales. They have a patented new product named SkinForm which was developed for premium car interiors. It's been reported that SkinForm is unique and has no real competition, since it offers superior quality at a super-low price. Mercedes wants Schenk to supply SkinForm for one million cars per year. In 2005, Schenk sold a majority interest to a private equity company named Argantis to finance their expansion plans. Surprise! Argantis is connected to IKB, a German bank which is basically bankrupt after investments in subprime U.S. real estate. So IKB pulls the plus on Argantis, which subsequently pulls the plug on Schenk. A great company with good products and healthy customers is forced to declare its insolvency. As these things go these days, the Indians come to the "rescue." Automobilwoche reports that the Ashok Minda Group, based in Uttar Pradesh, will be buying Schenk. Globalism wins, Daimler is happy and the West's industrial base is eroded a little bit more.

The Detroit Free Press confirms what we've been reporting: Chrysler is forcing a five percent price cut and change from Net 45 to Net 60 on their indirect suppliers. A "company document obtained by the Free Press" states Chrysler predicts they'll save $100m over the next 12 months by doing this. Chrysler wouldn't comment on the document, saying somewhat redundantly "The type of information described would be considered confidential. … We do not discuss confidential information on a public basis." The document acknowledges they'll piss off their suppliers: "It seems that this action is in direct conflict with Chrysler's desire to rebuild relations with suppliers… [but] Chrysler is committed to improving its relationships with suppliers through open, honest communication — no matter how difficult the subject." I don't know which school of management teaches this kind of logic, but common sense says the way to improve your relationship with someone you're buying stuff from is to pay them on time and at the agreed price, not name your own price and pay when you're jolly well ready. Just sayin'.

Just when Detroit thought it was safe to go back into the red ink-stained waters, the Teamster's union has stolen their swimsuits. (Or something like that.) Automotive News [sub] pinged-us with news of a strike at the nation's number two car delivery hauler: Performance Transportation Services (PTS). "The action comes after a bankruptcy court judge gave the suburban Detroit company permission to cut the pay of its union drivers by 15 percent. PTS is operating under Chapter 11 bankruptcy protection for the second time in three years." This time 'round, it ain't just The Big 2.8 who could get slammed by a strike. PTS delivers an unknown percentage of its four million cars shipped annually to Honda, Hyundai, Kia, Mercedes, Mitsubishi, Suzuki and Toyota dealers. 

Chrysler is no longer "asking" suppliers for a five percent cost cut across the board– they're just taking it. More ominously, they've changed their payment terms. We just received this information from a reader (independently confirmed) who wishes to keep his name and company confidential for obvious reasons:

On June 3 we received revised purchase orders (PO's) indicating Chrysler will now be taking five percent off all PO's and will take 60 days to pay instead of 45. The trouble is they are doing it to all existing orders, not just future orders. I was told by Chrysler purchasing they were trying to keep their cash flow together and there was nothing they could do about the PO changes. I think that might be all for Chrysler unfortunately. They also told me the new rules were going to include PO's shipped after June 1 even if they hadn't bothered to change the order.

If Chrysler's cash flow is so precarious that they have to shortchange suppliers and take longer to do it, it doesn't bode well for the company's short-term prospects. It looks like the only thing that will pull them out of this death spiral is a healthy infusion of cash from Cerberus' deep pockets; the private equity firm isn't known for throwing good money after bad. Look for Chrysler to file for C11 before the end of August, when the statute of limitations expires for suing Daimler for false conveyance.

Tata Consultantcy Services may regret their contract to take over Chrysler's information technology (IT) services. Automotive News [sub] reports that Chrysler "asked its non-production suppliers for a 5 percent across the board cost reduction" effective June 1 and effective for one year. "Non-production suppliers" are those providing IT, administrative, custodial and other support services not directly involved with producing automobiles. A statement from Chrysler explained their "recent decision to enact a 5 percent cost reduction on non-production materials and services is part of Chrysler's ongoing efforts to reduce its cost footprint in a highly competitive marketplace." From what we've seen, these "ongoing efforts" also include stiffing delaying payments to some suppliers and asking others to take a 25 percent cost cut. Some of these beleaguered suppliers can't take beatings like this much longer before they follow Plastech into Chapter 11. But maybe that's what Cerberus wants, because it would give them an excuse to take Chrysler in the same direction. 

This year's trend towards– let's face it folks– inflation continues. Just as our bodies are 75 percent water, the average modern car contains 2400 lbs. of steel; the average SUV is comprised of 3000 lbs. of the stuff. In late 2007, steel was selling for $535 a ton. Today? How's $1,035 per ton grab you? It's grabbing steel execs you know where. No, there. According to Automotive News, tensions are rising as steel makers tear up contracts. They're demanding more money from automakers, who are of course resisting. Regardless, ArcelorMittal, the world's largest steel maker, is about to impose a $250 per ton surcharge. That's about 20 to 40 percent over what current contracts stipulate. Long story short, look for the price of your next car to be about $500 higher. Also, this might be a great time to invest in carbon fiber futures.

American Axle CEO Dick Dauch hung tough against the United Auto Workers (UAW) for 87 days. As the smoke clears, it's clear Dick Dastardly came out on top. The new union contract cuts the company's average hourly labor costs from $73 to about $40. The Detroit News reports that DD also sliced some 2k workers from AA's 3,650-member North American workforce. All in all, the parts maker will realize some $300m in annual savings. To help show these workers the door, AA secured some $215m worth of OPM from GM. That's roughly half the $450 to $500m tab. Meanwhile, AA shed some $370m in lost sales. Put those numbers against each other, and it looks like AA recovers its strike expenses in less than a year (excluding lost sales), and powers on from there. Meanwhile, Automotive News (sub) reports that AA has a $1.4b in backlogged orders to be filled between now and 2013. Mr Dauch celebrated the good news today by promoting his son, David Dauch, to the position of President.

TTAC has confirmation from three trusted, independent sources that Chrysler is delaying payments to its suppliers– to the point where certain suppliers have refused to ship parts until the embattled American automaker settles its bill. Even so, we are filing this report as Wild Ass Rumor because none of these sources will go on record. (Hardly surprising consider the economic self-interest involved.) It is equally true that there's no way for TTAC to accurately gauge the full extent of Chrysler's delayed payment situation. IF, as we suspect, Chrysler's owner Cerberus is readying to file for C11 during its company-wide summer holiday, or, as some suggest, preparing for the long-delayed "strip and flip," delayed payments would indicate, at best, ChryCo cash flow problems. We invite both Chrysler and its suppliers (guaranteed anonymity) to use the comments section below or contact us via email to clarify this issue.

How does a company with $1.3b in 2007 sales disappear by the second quarter of 2008? By trying to supply parts for the D3. The Detroit News reports that bankrupt parts supplier Plastech is extinct. The company will sell its manufacturing operations to Johnson Controls (JCI) and auction off the rest. Plastech will close plants in Ontario, Ohio, Indiana, Tennessee, Louisiana and Michigan, laying off some 1500 employees. Global Insight analyst Aaron Bragman says The Big 2.8 are "breathing a sigh of relief" at the decision: "they will be much happier to deal with JCI over Plastech." As to who will scarf-up Plastech's assets, Bragman expects a "Chinese or Russian buyer." "The root cause of these problems," says IRN's Merkle, "is that [the Big 2.8] will take a company out of business to squeeze 3 or 4 percent out of the price rather than looking at long-term interests." Look for more short term thinking as Chrysler works to slice 25 percent out of its supplier costs.

The following was posted anonymously on a UAW website. The facts of the matter have not been substantiated. I'm re-publishing it for two reasons. First, no one is talking about the potential (or actual) quality problems created by the squeeze on domestic suppliers, or the QC impact of recent and ongoing union strikes and stoppages, or the ongoing threat to auto workers' collective skills posed by job reclassification and employee buyouts, or (as in this case) the piss-poor corporate culture that still lingers within The Big 2.8's empires. Second, I'm inviting our front line readers to come into the light and tell it like it is. If you want to drop the dime/let the chips fall where they may, I guarantee your anonymity.

"We had a fire extinguisher get backed into by a forklift blowing up and covering light bars. So they make us clean them off with water still leaving the residue on there not notifying chrysler this problem even happened. Then friday morning someone forgot to lock parts on a truck going to chrysler so here we go all the parts fly of the trailer to the ground about a 5 foot fall these were break calipers rotors and a couple other parts not notifying chrysler of the damage.. just thought u want to know.. I wouldnt buy a car from this plant i see to many bad parts going over to chrysler and half the time it is not good.  so Ill update u with any other foul ups we have. What they dont know wont hurt them as the motto goes."

With the nastiest auto biz strike of the year (so far) almost, not quite behind it, American Axle is looking away from its eponymous home country for future business. Automotive News (sub) reports that the axle supplier has already established itself in developing markets like Brazil, China, Mexico and Poland, and is looking to expand in Thailand and India. Thailand is the second largest pickup market after the U.S., and American Axle is looking to take over axle supply there for locally produced Chevy Colorado pickups. While company officials declined comment, GM is AA's biggest customer, and as AN points out, "the company does not build foreign plants without the promise of future business." With the Thai pickup market set to increase seven percent this year, and American truck and SUV sales already down 28 percent on the year, this has "inevitability" written all over it. In India, AA's first plant is just coming online, and there's already talk of a second. AAM Sona Axle Private Ltd, the joint venture with Sona Koyo is building a new corporate headquarters in Pune, India and there's talk of building a greenfield plant to supply Tata Motors. With at least two U.S. plants set to shut down in the wake of the the AA-UAW agreement, the American Axle name is beginning to develop a bitterly ironic ring. Is a generic supplier name-change (Visteon, Delphi, etc) in the offing?

United Auto Workers (UAW) at American Axle are set to ratify vote on their new contract. You know– the one that cuts their wages from about $28/hour to $14.35-18.50 per hour after an 11-week strike. The one where UAW Prez Big Ron Gettelfinger said he didn't want GM's involvement. Yeah… that one. The Detroit Free Press reports a lot of the workers are unhappy with the proposed settlement. However, most feel they don't have a choice (as if). For its part AA management is hoping most UAW members will opt for buyouts or early retirement; it would be a shame to waste the extra $18m GM kicked in at the last minute to sweeten the pot (bringing their "involvement" ito $218m). Where GM wll get the money is anyone's guess. Perhaps those money trees at RenCen are producing a bumper crop this year. And well they should– they're being fertilized with the highest-quality corporate bullshit in the world. Just sayin'.