Half of top U.S. auto parts suppliers at risk of bankruptcy

bobdoering

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#1
DETROIT (Reuters) -- More than half of the top U.S. auto parts suppliers could file for bankruptcy protection in 2009 with at least one million job losses, according to a study by global consultants A.T. Kearney.

Those suppliers, which ship parts directly to automakers, are pressured from above by production cuts by the automakers and from below by increasingly fragile companies that supply them with components, the study found.

The survey encompassed 60 top North American auto parts suppliers, but did not name any of them. It was compiled through interviews with senior executives at suppliers in the United States.

Automotive News counts four suppliers that have filed for Chapter 11 this year: Checker Motors Corp., Contech LLC, Fluid Routing Solutions Inc. and Foamex International Inc. Lear Corp., the world's second-largest automotive seat maker, said this week that it may be forced to seek protection from creditors.

The U.S. government on Thursday pledged up to $5 billion to aid financially stressed suppliers that are crucial to General Motors and Chrysler LLC. The parts industry had sought $18.5 billion in rescue funds.

Chrysler, about 80 percent controlled by Cerberus Capital Management, and GM have accepted $17.4 billion of emergency government loans. A White House task force is scheduled to decide by March 31 if the companies merit an additional $22 billion in aid.

Ford Motor Co., which has not sought emergency government assistance, said on Thursday that it was not participating in the supplier relief program at this time.

50% scenario

"Absent significant financial assistance from the government, we are headed toward a scenario that is going to be 50 percent or more of the supply base going through bankruptcy," Doug Harvey, an A.T. Kearney partner in its automotive practice in Detroit, said in an interview.

A.T. Kearney looked at three scenarios for the supply base. The other two scenarios include a "soft landing," resulting in 35 percent of the companies restructuring in bankruptcy, and a "pessimistic" reading pushing that to 70 percent or more with many liquidations.

The "soft-landing scenario" looks more like "wishful thinking" at this point, with the industry heading more toward the middle ground and leaning toward pessimistic, Harvey said.

"To whatever extent the government provides relief to prevent them from going into bankruptcy, that number goes down," Harvey said.

In each scenario, the study found that suppliers faced increased risk of bankruptcy through 2010.

U.S. auto-parts makers have come under increasing financial pressure in recent months with steep production cuts by their customers starting toward the end of 2008 that have severely constrained revenue from the beginning of the year.

Auto sales have slumped for more than three years, but the declines accelerated as the recession deepened last year and monthly rates have plunged to the lowest levels in 27 years.

Chain reaction


The study found that the larger suppliers expect up to 23 percent of the smaller companies that supply them with parts to face financial distress within a year.

Most of those smaller companies are privately held and do not disclose their finances publicly, making it difficult to probe the depths of the stresses in the vast supply base.

Data from Sageworks, which compiles information on private companies, highlighted the stress on these smaller suppliers. Double-digit sales growth in the 2004 to 2005 period had all but disappeared by 2008, and a $15,600 profit per employee in 2005 turned to a $13,600 loss, according to Sageworks.

Harvey sees the Obama administration's announcement of support for suppliers, coming even before it makes recommendations on GM and Chrysler, as reinforcing the immediate needs of the supply sector to avoid mass bankruptcies.

"This is the lifeline to keep that from happening until a broader solution can emerge," Harvey said. "I don't expect we would see that until the complete analysis of the GM and Chrysler applications are complete."
 
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Jim Wynne

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#2
Re: Half of top U.S. suppliers at risk of bankruptcy

I think you should change the title of this thread to "Half of top U.S. suppliers not at risk of bankruptcy." :tg:
 

bobdoering

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#3
Re: Half of top U.S. suppliers at risk of bankruptcy

I think you should change the title of this thread to "Half of top U.S. suppliers not at risk of bankruptcy." :tg:
Yeah, that's like saying 24% of the accidents are caused by drunk drivers - so get the sober one's off the road to get the biggest bang for the buck. :tg:
 

Jim Wynne

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#4
Re: Half of top U.S. suppliers at risk of bankruptcy

Yeah, that's like saying 24% of the accidents are caused by drunk drivers - so get the sober one's off the road to get the biggest bang for the buck. :tg:
It makes perfect sense to me. It reminds me of the story about two men on a commuter train. One of them is reading a newspaper and says to the other, "It says here that most casualties in train accidents occur to people riding in the last car." The other one says, "Why don't they just leave the last car off?"
 
R

Rebecca Bowes - 2010

#5
Re: Half of top U.S. suppliers at risk of bankruptcy

I agree, too many people are looking at things no negatively. Yes it is bad, but are good things happening. People shouldn't always look at the bad...
 

Marc

Hunkered Down for the Duration with a Mask on...
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#6
Re: Half of top U.S. suppliers at risk of bankruptcy

I think you should change the title of this thread to "Half of top U.S. suppliers not at risk of bankruptcy." :tg:
Not to mention this is a world wide phenomena... Maybe "Half of top auto parts suppliers world wide at risk of bankruptcy."

I'm wondering how this will affect small nations like Sweden: Sweden says no to saving Saab. Of course in this case, GM took over Saab, destroyed the name and now wants to dump it, if I understand the situation correctly.

NOTE: I retitled the thread. It's not " Half of top U.S. suppliers at risk of bankruptcy", but rather "Half of top U.S. auto parts suppliers at risk of bankruptcy". Not that this will not (is not?) going to apply to fields outside of automotive as other consumer product and services are affected by this recession, depression, or whatever it is (or will become over the next few years or more) that's occurring.
 
C

Craig H.

#7
Re: Half of top U.S. suppliers at risk of bankruptcy

I agree, too many people are looking at things no negatively. Yes it is bad, but are good things happening. People shouldn't always look at the bad...
There is one "good" thing about this, especially for the auto industry. There is pent up demand that is growing every day, with the rate of growth likely increasing (I know, no data). When we pull out, it will be "Katie, bar the door" at the dealerships. It is just a question of who will be standing and ready to take advantage.

Wouldn't it be nice to be in an auto company that is able to take their excess human talent and put it toward developing some revolutionary manufacturing techniques and car designs? The sad part is I suspect that some companies are doing just that, while others are just trying to hang on, making their chance of recovery when things do change that much worse.
 
R

Rebecca Bowes - 2010

#8
Re: Half of top U.S. suppliers at risk of bankruptcy

I think the suppliers that remain after this situation are going to be exceedingly strong when the crises is over.
 

Marc

Hunkered Down for the Duration with a Mask on...
Staff member
Admin
#9
Re: Half of top U.S. suppliers at risk of bankruptcy

There is one "good" thing about this, especially for the auto industry. There is pent up demand that is growing every day, with the rate of growth likely increasing (I know, no data). When we pull out, it will be "Katie, bar the door" at the dealerships. It is just a question of who will be standing and ready to take advantage.
I hope you're right, but I'm a bit more pessimistic. I think so many people have lost so much money through investments, retirement funds and such over the last couple of years that the money just isn't there for people to spend. Not to mention how many people who are OK financially will think twice about taking on debt (or outright spending the cash for people who can pay cash).

I can say personally I have revised my budget over the last few years and am putting more cash aside and am putting off or have canceled many major purchases/services that just 3 years ago I wouldn't have thought of not doing. Taking a look at my budget history, I've cut my budget from 3 years ago over 30%.

An example of a planned improvement is I planned to get the house exterior painted last year. It's aluminum siding that is as old as the house (built 1967) and really looks pretty shabby. I decided not to paint it. It's functionally fine. This said, the only thing in all of what is happening that has affected me is the drop in the value of my property. People are changing their spending habits whether they are in financial hot water or not. Even Tiffany is having problems: Upscale shoppers cutting back in the face of recession
 
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