ArvinMeritor Building Axle Plant in China

ArvinMeritor Inc. (USA; NYSE: ARM) announced it is building a facility in China dedicated to manufacturing heavy-duty trailer axles and suspension systems. The plant, under construction in Wuxi, Jiangsu province, will produce axles and suspensions for both the Chinese domestic OEM market and export to OEM customers in Europe and North America. Sergio Carvalho, VP/GM of Trailer Products and Suspensions, said: "As the country's infrastructure improves, tractor-trailer configurations are expected to rise exponentially, and we will be ready to support both current and future market needs with advanced technology." The 300,000 square foot Wuxi plant is expected to cost USD $35 million by the time it comes online in 2007. The company indicated it would lean toward local sourcing for components, but declined to comment if the trailer axle bearings would be sourced in China, from an affiliated manufacturer, or import bearings from Europe or North America. ArvinMeritor, like most other industry suppliers, is under intense pressure to meet cost-cutting goals set by its customers, while at the same time dealing with lower volumes. Shifting some production to China is part of that strategy. North American market intrusion by more axles from China may impact Timken, Barden and other heavy-duty North American axle bearing producers, while also hitting Tier 2 customers such as American Axle. Companies which may benefit include General Bearing and several joint venture manufacturing ventures in China, including those run by Timken, INA/FAG and SKF. Separately, Standard & Poor's recently announced it may cut ArvinMeritor's credit ratings -- currently BB, the second-highest junk rating -- saying it has, "weak credit in a worsening industry." In a statement, S&P said: "In addition, we remain concerned about prospective raw material challenges and the widely expected weakening of the commercial truck segment in 2007."