Auto parts supplier base teetering in downturn

DETROIT -- While the big U.S. automakers lobby the government for some form of bailout, industry watchers are bracing for a major failure of the auto supply base if one or more of the Detroit 3 seek bankruptcy court protection.

Already fragile suppliers would be forced also to seek protection or simply liquidate, as some have done this year. The Center for Automotive Research says a bankruptcy filing by one or more domestic automakers could result in the loss of 2 million jobs.

"It would take the industry down," says David Cole, chairman of the Center for Automotive Research, who advocates that the government step in to assist the automakers. "An ounce of prevention is worth a pound of cure. … (A bailout) is a teeny amount compared with the overall consequences if this thing gets away from us."

On Monday, White House spokeswoman Dana Perino would not rule in or out new aid for automakers. She said their financial units might be eligible for help through the $700 billion federal financial system rescue, which is buying troubled assets and has bought stakes in banks.

Perino also said the Department of Energy is working "as quickly as possible" on rules for providing $25 billion in loans appropriated last month to help automakers retool to meet new fuel economy standards.

DOE spokeswoman Healy Baumgardner said, however, "We're still writing the rules. … To discuss time or any amount of money is speculatory and premature."

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Meanwhile, companies supplying the automakers have seen profit margins dwindle from 3% in 2007 to 0.95% in 2008, according to Sageworks, a data firm that tracks privately held companies.

"Any softness with the major auto manufacturers is not going to be good for these types of smaller companies," says Sageworks CEO Brian Hamilton.

If one of the Detroit 3 files for bankruptcy protection, the other two will follow, says Jim Gillette, an analyst at CSM Worldwide. A bankruptcy filing would let an automaker renegotiate labor and supplier contracts, and if one got better prices, the other two would have to file to keep up.