New York: The financial woes of US automakers have grabbed Washington’s attention, but similar problems at auto suppliers have the potential to set off a cataclysmic chain of events in the industry if key parts makers run out of cash and fail.
As with the automakers, auto suppliers’ sales have tumbled this year because of the steep drop in demand for new vehicles.
That has forced suppliers to burn through their cash reserves and slash their costs to stay in business, said Craig Fitzgerald, an automotive analyst with Southfield, Michfield-based Plante & Moran PLLP, which advises about 400 small and midsize auto suppliers.
Meanwhile, banks and other credit providers have become dead-set against lending to any company in the faltering automotive industry, making it difficult and expensive for suppliers to get needed financing.
But if the companies at the bottom of the supply chain don’t find a way to recapitalize, Fitzgerald warned, numerous bankruptcies and liquidations among the small companies will set off a string of parts shortages that could reach all the way to the vehicle assembly line.
The resulting disruptions could negate any help the government might give General Motors Corp., Ford Motor Co. and Chrysler LLC.
In most cases, auto suppliers have their own suppliers, who in turn receive their parts from other companies, meaning that many automotive components pass through a chain of several companies before they’re sold to an automaker.
Tom Wiethorn, co-owner of Craig Assembly, said orders for his St. Clair, Michigan, company’s hose connectors used in radiators that end up in GM and Ford vehicles have fallen significantly in recent months.
As a result the company, which has $12 million in annual sales, has cut its work force by 20% to about 60 people and is worried that it could end up violating its debt agreements.
The Motor & Equipment Manufacturers Association is hoping to win a piece of a proposed rescue package that would use $25 billion of the $700 billion financial industry bailout to help GM, Ford and Chrysler.
Top Republicans, however, have said the Wall Street money should not be used for the auto industry and would only postpone its demise. Sen. Richard Shelby of Alabama on Sunday called the industry “a dinosaur.”
Yet even foreign automakers that build cars and trucks in the United States could be affected. Companies like Toyota Motor Corp., Nissan Motor Co. and Honda Motor Co., with plants scattered throughout the South and Midwest, get their parts from the vast, multilayered network of US suppliers that employs about 800,000 people.
Dave Andrea, vice president of industry analysis and economics for the Original Equipment Suppliers Association, a division of the Motor & Equipment Manufacturers Association, said that’s why lawmakers need to be looking at the US auto industry as a whole.
Automakers generally only have a one- to two-shift supply of some key parts, Andrea said, making them very susceptible to supply chain disruptions.
The nearly 3-month-long strike at American Axle and Manufacturing Holdings Inc. this spring crippled truck production at GM, showing how fast a parts shortage can shut down assembly lines.
GM’s production cuts led to millions in lost sales at other suppliers such as Lear Corp., Superior Industries International Inc. and Magna International Inc.