Half of Biggest U.S. Suppliers at Risk of Bankruptcy

It seems the bad news about the automotive industry doesn’t stop these days. A study by global consultants A.T. Kearney shows more than 50 percent of the top U.S. auto parts suppliers could file for bankruptcy in 2009.

The study found that if the suppliers do file for bankruptcy protection, at least one million job losses are expected. The scenario gets worse as you realize that suppliers directly affect the increasingly fragile automotive companies. The suppliers are also affected by automaker’s production cuts as well as by the companies that supply them with components.

On Thursday, the U.S. government pledged $5 billion to troubled suppliers. The $5 billion pledged is far less than the $18.5 billion the parts industry initially wanted. In addition to only receiving a fraction of the money requested, only certain parts suppliers deemed absolutely crucial to Chrysler and GM will be eligible to receive government funds. Ford will not participate in the supplier relief program at this time.

Automotive News counts at least four suppliers that have filed for Chapter Eleven this year, including: Checker Motors Corp., Contech LLC, Fluid Routing Solutions Inc., and Foamex International Inc. Lear Corp. said that it may have to file for bankruptcy protection against creditors. Lear Corp. is the world’s second-biggest automotive seat maker.

A.T. Kearney looked at two other scenarios with a “soft-landing scenario” of 35 percent of suppliers filing for bankruptcy and a “pessimistic scenario” with 70 percent of supplier filing for bankruptcy. Doug Harvey, an A.T. Kearney partner in its automotive practice in Detroit, said that the “soft-landing” scenario looks more like “wishful thinking” right now, with the industry heading more towards middle ground and leaning toward pessimistic. In all three scenarios, the study found suppliers face increased risk of bankruptcy through 2010.

Source: Automotive News

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