Recent financial reports by major U.S. automakers ought to be enough to prove that the industry is in big trouble. Yet a new report by global trade-credit insurer Euler Hermes ACI bolsters that view. Author Tony Clary, risk vice president with Euler Hermes, says the U.S. automotive industry remained "one of the toughest business segments" this year. He notes challenges in four distinct areas: parts suppliers, parts retailers, tire manufacturers and auto manufacturers. On the parts-supplier side, Detroit's Big Three-Ford, General Motors and DaimlerChrysler-continue to cut back on vehicle production in North America (while, ironically, foreign automakers are boosting their production levels). Coupled with rising raw-materials costs, that trend is putting suppliers in a bind. For those tied to domestic manufacturers, the outlook "remains bleak," Clary says. As for parts retailers, they are getting squeezed by high fuel prices. While their outlook remains mixed, they are one of the auto industry's more stable sectors. Tire manufacturers have also been hit hard by rising fuel prices, since nearly 60 percent of a tire's cost is related to oil. And U.S. auto manufacturers face a saturated market with intensifying competition. Nevertheless, notes Clary, sales in North America in 2006 "have remained favorable compared with historic levels." The outlook for U.S. automakers, he adds, "remains tough, requiring more progress in the companies' restructuring efforts." For foreign manufacturers, the outlook remains positive.

Visit www.eulerhermes.com/usa