Chrysler warns: Supplier risk is rising

By Bradford Wernle, Automotive News

Detroit, Michigan - A number of Chrysler LLC suppliers are at risk of financial collapse within “days if not weeks,” the company's senior procurement officials said last week.

The supplier liquidity problem at Chrysler is “becoming more significant by the day,” Scott Garberding, Chrysler's chief procurement officer, said in an interview. “We've been having multiple instances arise each week for the last few weeks where we've had suppliers let us know they were out of cash.”

Chrysler is working with those suppliers to negotiate acceptable payment terms and so far has not had a major disruption.

Sig Huber, supplier relations chief, said: “The number of suppliers ranked high-risk has tripled since the end of December.

“We have roughly 45 suppliers in the high-risk category.”

That represents 23 percent of Chrysler's purchasing volume. The company spent $38 billion (Euro 29 000 million) on production and non-production material in 2008.

Huber's team is responsible for working with suppliers to solve their problems. In the viability plan it submitted to the Treasury Department 17 Feb, Chrysler said it hoped to receive 3 percent price cuts from suppliers.

In practice, that's not exactly how it's happening.

“We are not applying an across-the-board number to our whole supply base,” Garberding said. “We are having individual discussions.”

Huber said lack of liquidity is destroying trust in the supply chain.

“Suppliers are losing faith in each other,” he said. “We're starting to see some sporadic disruptions intermittently further down the supply chain. That would be suppliers refusing to ship to other suppliers because they're worried about getting paid. As a result, confidence is starting to erode from the entire system.”

Garberding warned that a larger disruption before Chrysler's 31 March federal viability plan deadline is not outside the realm of possibility.

“I can't say we won't have a crisis before 31 March,” he said. “There are certain suppliers that affect everyone in the industry. If the wrong set of events happen in the wrong place, the dominoes could fall pretty quickly.

“Our fear is that with no action whatsoever, we could end up with a situation where the industry could more or less grind to a halt, which could be catastrophic for the economy.”

Grant Thornton analyst and restructuring specialist Kimberly Rodriguez warned the issue of supplier survival has reached the critical stage, and not just at Chrysler.

Rodriguez is concerned the federal automotive task force might not move quickly enough to avert the kind of disorderly collapse that concerns Garberding.

“Does the task force understand the immediacy of the liquidity issue? Is the task force willing and capable of moving quickly enough to forestall the problems we all see looming?” she asked.

“Without supplier intervention, they might as well take the money they gave to Chrysler and GM and light a match to it.”

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