Smart Suppliers Are Hitching a Ride on GM's Bandwagon

General Motors
General Motors

What's good for General Motors (GM) is good for its suppliers? That hadn't been the case for the past several years, but it sure seems that way now. Fresh from its hugely successful initial public offering, GM is profitable again and growing, with third-quarter net income of $2.2 billion. That brings its earnings for 2010's first nine months to $4.8 billion.

The capital and confidence that come along with GM's IPO are also boosting growth prospects for GM's suppliers, which are expecting GM's resurgence to help them. Here are some examples:

  • DuPont (DD) The auto industry makes up about 20% DuPont's global sales, and GM (and its other suppliers) are a big part of that total, according to Plastics News. GM won a Society of Plastics Engineers Automotive Innovation award for the engine cover on its 2010 Cadillac CTS sedan, using DuPont's Zytel Plus resin. GM is working with DuPont and other suppliers on more programs that will replace metal parts with plastic to lighten its vehicles and improve fuel efficiency.

  • TRW (TRW). Its stock has more than doubled in 2010, up to $48.34 as of Nov. 22's close. TRW has benefited from demand from GM, and that's likely to continue, according to Crain's Detroit Business.

  • Borg Warner (BWA) and Johnson Controls (JCI). These two GM suppliers have been outperforming expectations in the last two quarters, and GM's revival can only help their businesses. Their stock prices rose 4.5% and 4%, respectively on the day of the IPO.

  • American Axle & Manufacturing Holdings (AXL). With at least 75% of its business going to GM, according to Crain's, American Axle continues to benefit from GM's survival and growth. In 2009, American Axle closed a deal with GM that gave American Axle $110 million in cash, a $100 million line of credit and 10-day payment terms into 2011 in exchange for allowing GM to buy 20% of American Axle's common stock.

  • Avon Automotive. Avon's CEO told 9&10 News: "We're seeing continued expansion of the business, continued growth." In 2009, reports 9&10, the Avon plant was empty, but in November 2010 it's producing over 2.5 million parts a week.

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No doubt, some of GM's suppliers will have to retool so they can sell more to the new GM, and those that can't raise the capital or lack the know-how to make that transition will be left behind.

For the roughly 1 million workers in the auto industry, the bailout of GM (and Wall Street) has been the right thing to do. Their investors are also feeling much better. But American taxpayers still have a long wait before they'll get all their money back. Although GM and its suppliers are off to a good restart, they must continue to innovate and adapt to achieve the profitable growth needed for such a payback.

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