By David Bailey
DETROIT (Reuters) - There are too many small companies producing auto interiors, leaving the industry with overcapacity and putting pressure on larger, healthier companies, the head of the automotive practice at investment bank Jefferies & Co Inc said on Tuesday.
"I see too much capacity in the U.S. and that is causing problems in terms of providing proper margins for those suppliers that are healthy," Justin Mirro told the Reuters Autos Summit in Detroit.
Mirro's remarks echoed those of billionaire investor Wilbur Ross, who told the summit earlier this week that the auto parts industry was running at only about 70 percent of capacity. That is making it much harder to generate profits than if it was running at 80 percent to 85 percent.
Ross has been building the International Automotive Components Group, combining factories from liquidated interiors supplier Collins & Aikman Corp and the interiors business of parts maker Lear Corp (LEA.N: Quote, Profile, Research, Stock Buzz).
Cutting industry capacity may prove difficult with some 500 to 600 small U.S. interiors suppliers competing for business and few companies seeking to take excess equipment off-line as was done in the railroad and aerospace sectors, Mirro said.
"You can go on eBay today and buy a $2 million plastic injection molding machine for $200,000," Mirro said. "It's ridiculous. There is just so much plastic injection molding capacity out there."
"If you are a mom-and-pop shop you can go and buy some equipment, a $200,000 injection molding machine, and get a small shoot-and-ship program that you underprice versus the big guys out there and make some decent money at it," Mirro said. "As long as that occurs, there is always going to be a problem."
Competitors that have cut costs, reduced debt and negotiated supply agreements with automakers while in bankruptcy are also a threat to those who didn't go through such a restructuring, Mirro said.
(For summit blog: summitnotebook.reuters.com/)
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