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Stock Strategist Industry Reports

Sorting Out the Wreckage among Auto Suppliers

Despite the Detroit Three's struggles, some auto suppliers remain well positioned.

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Automotive suppliers of both high and low quality enjoyed the early part of the decade, when automotive original-equipment manufacturers thrived on profitable light trucks and SUVs. With the belief that record sales volumes of nearly 17 million vehicles were sustainable, the automotive manufacturing base exploded.

However, when the credit crisis struck in the fall of 2008, vehicle sales plummeted. In response, OEMs slashed production at unprecedented rates in an attempt to combat expanding inventories. Adding to the problems,  General Motors (GMGMQ) and Chrysler extended scheduled plant shutdowns as they entered bankruptcy, depriving many North American suppliers of their main revenue sources. Reflective of these challenges, three Tier 1 suppliers (firms that supply OEMs)--Hayes-Lemmerz (HAYZQ), Metaldyne, and Visteon (VSTN)--along with numerous smaller suppliers recently filed for bankruptcy. With much of the supplier network coping with severe financial distress, the outlook for the industry as a whole may appear dim, but we'll highlight several firms we think are positioned to emerge from the downturn on top.

David Manger has a position in the following securities mentioned above: SRI, TEN. Find out about Morningstar’s editorial policies.