Auto struggles drive parts makers down

TEXT OF STORY

BOB MOON: Chrysler re-opens several U.S. assembly plants today. But that may come too late for many U.S. auto suppliers. Lear, which makes car seats and electrical components, is in default on a loan and has until tomorrow to come up with a $38 million payment. There’s talk the company could file Chapter 11 as early as today. As Tamara Keith reports, this isn’t a surprise — a lot of people have been predicting a shakeout among parts makers.

TAMARA KEITH: For years automakers — particularly the Big 3 — have cut costs by squeezing the margins of their suppliers says Susan Helper. She’s a professor of economics at Case Western Reserve University in Cleveland.

SUSAN HELPER: There was a fairly explicit strategy at GM that if you’re not sending a couple suppliers into bankruptcy then you’re leaving money on the table.

Helper has been studying the automotive supply chain for 25 years. She says far fewer cars are being built now, which means fewer parts need to be made.

HELPER: If we have now two suppliers that are working at say 40 percent of capacity, they could each go out of business. Whereas there’s actually business to support one supplier relatively well if you combined the demand of the two companies.

A question for the industry is whether it can contract in an orderly manner or whether more parts makers will fold than really need to.

In Washington, I’m Tamara Keith for Marketplace.