Auto suppliers in trouble

Rubber & Plastics News

Detroit, Michigan - More than half the US's Tier 1 auto parts suppliers could file for bankruptcy protection this year, causing another 1 million in job losses and slicing income tax revenue by $9 billion (Euro 6 600 million), according to a study by global consultant A.T. Kearney.

Production cuts by the auto makers are causing a ripple effect among their suppliers, Kearny said.

The survey of 60 top North American auto parts suppliers was complied via interviews with senior executives in the US.

Already this year four automotive suppliers have filed for Chapter 11: brake hose maker Fluid Routing Solutions Inc., polyurethane foam producer Foamex International Inc., Checker Motors Corp. and Contech L.L.C. Automotive seat maker Lear Corp. said it may be forced to seek protection from creditors.

The US government last week pledged up to $5 billion to aid financially stressed suppliers that are crucial to General Motors Corp. 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 last week it is not participating in the supplier relief program at this time.

The decline in auto sales volumes, increases in raw material prices and high fixed cost and excess capacity are hammering suppliers, the consultant company said.

“The recent, extremely weak auto sales figures are the third blow to the industry this year with consumer confidence driven to new lows from falling home prices, a declining stock market and an uncertain economic future, said Doug Harvey, an AT Kearney Automotive partner, who led the study. “There is some panic in the industry, as car companies and their suppliers realize that sales demand volume is not bouncing back anytime soon.”

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Staff report from Rubber & Plastics News (a Crain publication)