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Auto woes contagious for metals suppliers.

Article Excerpt
The following was excerpted from Forging Ahead: PricewaterhouseCoopers' quarterly analysis of mergers and acquisitions in the global metals industry. In its first-quarter 2009 analysis, the consulting firm reports that the auto industry slowdown continues to weigh heavily on the metals sector and may spur new deal making aimed at diversification.

THE AUTOMOBILE INDUSTRY is one sector that has had a dramatic upstream impact on the metals industry during the economic downturn. What is unique about automotive's effect is the uncertainty of the industry's structure following a global economic recovery, particularly in North America.

Companies that are major direct or indirect suppliers to certain distressed automobile manufacturers may find their market positions fundamentally changed going forward. The impact on each metals company will be very different, depending on which makes and models they supply.

Although all automakers have realized significant reductions in volumes, as year-to-date U.S. sales are down 38 percent compared with 2008, General Motors and Chrysler are the only companies that have accepted federal loans. These two companies are under considerable pressure to make changes that position them to succeed and most certainly will be more aggressive in their efforts to restructure than other automakers.

Many of PricewaterhouseCoopers' metals sector clients are saying their exposure to the automobile industry has proved greater than they realized and that the structural changes within the industry are imposing corresponding structural changes upstream in the supply chain that endanger a large swath of the industry. And that process could accelerate.

For example, consider the impact that a so-called surgical bankruptcy of GM, would...

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