As the Bush administration prepares to throw a life ring to Detroit automakers, industry parts suppliers fear they will be left to drown.
"We have suppliers in the very same shape as General Motors gm and Chrysler," warns Neil De Koker, president of the Original Equipment Suppliers Association. "They don't have access to capital."
Many of the companies in the $240 billion business are surviving by using IOUs from automakers for parts already delivered as collateral for bank loans, he says — IOUs they hope the automakers survive to pay. The White House may settle this week on an aid plan to get GM and Chrysler through the first quarter, but press secretary Dana Perino said Tuesday, "We are not going to be rushed into it."
With all automakers — domestic and foreign — slashing production to match falling sales, however, suppliers' 2009 revenue will shrink regardless. Their health, too, is vital to the industry, with as many as 300 suppliers contributing parts to a single vehicle. But the impact on the supplier base is already being felt:
•Bankruptcies. Key Plastics, a major supplier, filed a pre-packaged bankruptcy reorganization plan Tuesday "in the face of today's economic conditions," said COO Ralph Ralston in a statement.
A venture of Chrysler and supplier Getrag to make fuel-efficient transmissions in a new Tipton, Ind., plant filed for Chapter 11 reorganization last month after Chrysler canceled the contract.
•Offshoring. Norway-based Kongsberg Automotive cited the "global automotive market collapse" Saturday for a decision to close parts factories in Van Wert, Ohio, and Haysville, Kan., and move operations to Mexico. "These cuts are necessary to align our manufacturing to the new market realities," said Olav Volldal, CEO of its holding company.
•Earnings hits. BorgWarner bwa issued a profit warning last week, though only 12% of its business is from U.S. automakers. "The downward spiral of the auto industry continues to accelerate across the globe," said CEO Timothy Manganello in a statement.
Others have warned or abandoned guidance. And seven major suppliers, which have had 12-month stock slides of 50.1% to 89.3%, were put on credit watch last week by Fitch Ratings.
"This is an industry problem," says John Wilkerson, spokesman for auto safety systems maker TRW, trw which withdrew its earnings guidance earlier this month because of industry uncertainty.