US automotive parts manufacturers, under pressure from carmakers to match the lowest prices of global rivals, expect to reduce domestic production in the next several years as they open more factories abroad.

According to Reuters, suppliers are following their customers to emerging markets not just because of cheaper labour, but also because of rapidly growing consumer demand for cars in these markets.

US parts makers see no letup in the shift of manufacturing capacity and jobs away from the United States, according to a soon-to-be-released study by Roland Berger Strategy Consultants in conjunction with the Original Equipment Suppliers Association, cited by the news agency.

"Suppliers feel increasingly pressured to move manufacturing abroad," Antonio Benecchi, a Roland Berger partner and study author, told Reuters. The consultants surveyed more than 70 parts makers, with combined annual sales of about $US72 billion.

Excluding Mexico, where more vehicle components are expected to be produced due to the country's lower labour costs, suppliers in the study forecast a 17% drop in North American parts manufacturing capacity by 2010 while production in the Midwest is seen falling faster, down 22% by 2010.

Smaller manufacturers will follow the lead of larger, top tier suppliers that have already set up shop in Mexico.

"There will be a second wave pulling the small and medium-size companies into Mexico as they follow their customers," Benecchi said in an interview with Reuters.

The report said the Roland Berger study found companies are also looking beyond the sizzling China market, where many larger manufacturers first established themselves in the early 1980s, to expand in India, Thailand and Vietnam. In Europe, factory jobs will migrate to Eastern Europe as trade restrictions ease.

Production of components that require more labour and less sophisticated technology will grow fastest abroad, the study suggested. Examples include batteries, wheels, plastics, electronics and some powertrain components.

Reuters noted that carmakers are turning up the heat on their suppliers to reduce costs.

Ford, aiming to return its vehicle business to profitability, has asked suppliers to shave another 3.5% off the price of components this year while General Motors in October began inserting a clause in its long-term vendor contracts that gives a supplier 30 days to match a competitor's lower price or risk losing GM's business.

"The automobile manufacturers still need to reduce price to stay competitive with the foreign transplants," Richard Hilgert, equities analyst with Oppenheimer & Co., told Reuters

Some analysts reportedly said that, while Mexico offers an obvious labour cost advantage to manufacturers, China's lure is its booming domestic market and not necessarily the promise of low-cost exports because of its distance from the United States.

"What the automakers are doing is they are using the threat of China to exert more price reductions from their suppliers in North America," David Leiker, equities analyst with Robert W. Baird & Co, told Reuters.

Benecchi reportedly said global shifts in production location ultimately should reduce worldwide industry overcapacity, but he predicted a lag in which the rush to create capacity outside of the United States will outstrip the reduction of excess capacity there.