Car suppliers under pressure

Many car companies source components from local firms

So far this year has not been a good one for the UK car industry.

Job losses at Dagenham, fears of Rover closure, and Nissan's threat to leave the UK have all reinforced the impression of an industry under fire.

But tough times at the car factories are only part of the story. Crunch time is now nearing for the component companies that supply them.

News that Toyota wants its suppliers to settle in euro will eat into their revenues, a blow that some may not recover from.

They will source components where they get them cheapest. You are exporting components manufacturing overseas

Al Clarke, SMMT

Some large global players, such as GKN and Visteon, can absorb this or choose to supply their UK customers with components they import from a site in Euroland.

The smaller ones can do nothing but sit back and watch their profits fall.

Passing the buck

The UK motor component industry has a turnover of £12bn a year, according to the Society of Motor Manufacturers and Traders (SMMT). About 7,000 companies employ about 150,000 people.

To many of these companies, the news will not be a shock.

"It hasn't come as any great surprise to companies who are supplying the automotive industry," Edward Roberts, the chief executive of Peterson Springs, said.

"What we are seeing is that companies like Toyota are merely passing the risk down to their supplier...For some small and medium sized companies, it is perhaps a greater risk and certainly it is another burden which we are going to have to manage."

In general, the biggest costs for suppliers are labour and raw materials. Now the suppliers' suppliers will have to accept payments in euro, Mr Roberts said, or lose business to competitors in euroland.

"My raw material suppliers will have to start to accept payment in euro from us as we receive euro from our customers," he said.

About half of his top ten customers are already talking about charging them in euro.

Buying in Euroland

About 90% of component companies are small and medium-sized firms, Al Clarke at the SMMT said.

Suppliers typically build their factories close to the car company, signing a long-term agreement with the manufacturer. Proximity to the manufacturer cuts the cost of delivery and transport.

"Their biggest client is that factory. If they are told to do business in euros, and reduce their prices by 20%, there is nothing they can do. A bigger company can source components overseas. They can build windscreens in Spain and import them," he said.

The future could be a that car manufacturers choose to make cars in the UK but import their components.

"If you can't make a profit with locally sourced components, there are two options, close the factory or source overseas," he added. "They will source components where they get them cheapest. You are exporting components manufacturing overseas."

Some component companies have tried to diversify but for companies involved in a particularly specialist area, such as plastic formation, it can be hard to refocus the business or find a fresh market.

Typically, components industry is divided into two areas of business.

Some parts are supplied directly to the car makers for assembly, known as original equipment.

Others are for replacement fit, in what is typically referred to as the aftermarket.