Auto woes filter down to suppliers

Alisa Roth Jul 7, 2009

Auto woes filter down to suppliers

Alisa Roth Jul 7, 2009


Kai Ryssdal: Given all the hoopla about how fast General Motors is working its way through bankruptcy proceedings, a different Chapter 11 filing today might have escaped your notice. Lear, it’s the company that makes car seats, said today it has gone broke. Lear’s just one of hundreds of smaller outfits that supply parts to the Big Three. One of hundreds that have been having a rough time since their biggest customers cut way back. But Marketplace’s Alisa Roth reports, it could have been a whole lot worse.

ALISA ROTH: Trouble for carmakers means trouble for suppliers. And so on, all the way down the chain. More than 20 suppliers have already gone bankrupt this year.

Neil DeKoker’s in charge of the Original Equipment Suppliers Association, a trade group for parts-makers.

Neil DeKoker: Sales volumes are half of what they have been.

He says that means carmakers are buying half as many parts.

DeKoker: And to operate at that level, most suppliers are operating far below their break even points.

Which they can’t keep doing forever.

It’s bad. But DeKoker says it’s actually better than most people had expected. He was worried that one of the Big Three would go under suddenly. And that could have caused the whole parts business to implode.

Instead, the carmakers, even GM and Chrysler, have been able to help their suppliers by passing on some of the rescue money they’ve gotten from the government.

But plenty of suppliers are barely making it. One analyst told me he hears from about a company a week who’s in real trouble.

Mark Gardner is in charge of the auto business at Deloitte, the consulting company. He says things could still get a lot worse.

MARK GARDNER: The fear is that as volumes start to pick up in the industry, we could see even more failures of suppliers.

That’s because to increase their output suppliers will need more cash. But with so much uncertainty in the entire auto business, banks may not want to lend to such risky clients.

In New York, I’m Alisa Roth for Marketplace.

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