Restructuring expert says 500 US auto suppliers at 'high risk' of failure

By Ryan Beene, Crain's Detroit Business

About 500 US auto parts suppliers face a "high risk" of failure because of plunging auto production and uncertain prospects for federal aid, a restructuring expert said.

A collapse of the supply base poses the "most imminent and pervasive threat to the economy," said Laura Marcero, partner in corporate advisory and restructuring services at Grant Thornton LLP in suburban Detroit. Suppliers, automakers, banks and the government must drive an orderly consolidation of the supply chain to reduce the sector's strain, she said.

"Suppliers struggled to make money when industry volumes were almost double what they are today, and consolidation that has occurred has been happening mostly among smaller companies at the lower tiers," she said in a statement after an address to the Automotive Press Association12 March. "We are at a tipping point where the scale and scope of supplier failures at all levels will increase dramatically."

About 30 percent to 40 percent of all parts makers are at risk as the industry shrinks to match projections of 12 million to 14 million annual US sales. The US average this decade through last year was 16.4 million, and the seasonally adjusted rate so far this year is below 10 million.

"Without a structured approach of consolidation to benefit the entire supply chain, the industry may lose critical partners with the technology, scale and geographic footprint that are linchpins in the viability equation," she said.

The Original Equipment Suppliers Association trade group has requested $18.5 billion (Euro 14.3 million) in federal aid to shore up its members and prevent further bankruptcies.

So far this year, Automotive News has documented four Tier 1 US suppliers that have filed for bankruptcy protection. Over the last decade, more than 60 suppliers have filed for protection - including seven businesses that have filed twice, according to Automotive News research. But these statistics do not include many more small Tier 2 and Tier 3 suppliers.

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Staff report from Crain's Detroit Business