Auto suppliers are preparing to head to Washington to ask for government help in surviving a deep slump in car sales that has slashed the production of new cars and trucks to the lowest level in a generation.
“We’re formulating our position and the scope of what a potential ask might be,” said David Andrea, vice president of Original Equipment Supplier Association, which is expected to handle the petition for the supplier companies.
Suppliers had already asked for help in November when the US Congress was considering a bailout of cash-strapped General Motors and Chrysler, who were granted US$13.4 billion in loans. Since then, the situation has worsened as US production was slashed by 36 percent in December and is expected to be down even more in the first quarter after GM, Ford and Chrysler halted nearly all production last month.
To top it all off, Chrysler said it is seeking price cuts from suppliers as part of the viability plan it has to submit to the US Treasury Department on Feb. 17.
Dozens of suppliers could be on the verge of collapse, warned Linda Hasenfratz, president of the Original Equipment Suppliers Association.
“There is no production. So there is no cash coming in,” said Hasenfratz, who is also the chief executive officer of Linamar Corp of Guelph, Canada.
But there are no easy fixes and the industry is headed for months of major restructuring and consolidation, warned Juergen Reers, managing partner for Roland Berger Strategy Consultants.
“There are a large number of suppliers that have entered into the crisis with a relatively weak balance sheet,” Reers said.
“They’ve had no revenues in recent weeks, which is putting further pressure on their liquidity. A lot of suppliers are cash constrained. Smaller and weaker suppliers are becoming insolvent,” he said.
Gerald Meyers, a professor at the Ross School of Business at the University of Michigan, said nobody knows when the economy will improve.
“The supplier system is being dismembered,” he said.
Hundreds of suppliers employ an estimated 735,000 people and service not only the Detroit Three but also foreign transplants like Toyota, Honda, Hyundai, Kia, Mercedes and BMW.
Two of the largest US-based suppliers — Lear Corp and American Axle Holdings Corp — last week gave stark assessments as they posted huge losses for last year.
“The US automotive industry has been pushed to the verge of collapse due to numerous adverse market, economic and competitive forces,” American Axle chairman Richard Dauch said on Friday after his company posted a US$1.2 billion loss for last year.
“These sharp declines in automotive production in North America and globally dramatically impacted our financial results,” said Bob Rossiter chairman of Lear, which posted a US$688 million loss for the fourth quarter on Thursday.
One of the major suppliers considered most at risk is former Ford subsidiary Visteon Corp, which Ford said last week it has no plans to rescue.
Visteon spokesman Jim Fisher would not comment on rumors of an impending bankruptcy, but said government rescue package is critical.
“We know the money is available,” Fisher said.
The list of companies cutting production also continues to grow.
Mitsubishi announced it was closing its assembly plant in Illinois until May and Nissan, Honda and Toyota have all ordered cuts in production at their US plants until they are reasonably sure that inventory won’t pile up on dealer lots.