Delphi's bankruptcy puts suppliers in financial bind

A consultant estimates that half of Delphi's suppliers will fail.
By DON SHILLING
VINDICATOR BUSINESS EDITOR
Auto parts suppliers are checking their finances to determine if they can survive the Delphi Corp. bankruptcy.
"Some vendors may not be able to recover from this," said Joe Ledford, a principal at Hill, Barth & amp; King, a Boardman-based accounting firm.
The firm's clients who are Delphi suppliers aren't at risk of closing, but Ledford said he has heard of others that are.
Jim McTevia, a consultant in Bingham Farms, Mich., estimates that half of Delphi's 2,200 suppliers will not survive Delphi's restructuring.
Some shutdowns will occur because suppliers can't operate without money they are owed by Delphi. Others will come as Delphi closes plants and needs fewer suppliers, said McTevia, managing member of McTevia & amp; Associates.
Steve Miller, Delphi chief executive, told Automotive News this week that cutbacks at Delphi shouldn't affect many suppliers. They just will do business with companies that take over Delphi's business, he said.
McTevia said the transition won't be that simple.
Another problem
Many suppliers are owed money for materials delivered before the bankruptcy filing. How much of that debt they will receive won't be determined until Delphi's final reorganization plan is approved, which is expected in 2007.
McTevia said some suppliers can't survive without those payments because they must repay loans that were needed to buy equipment. Many smaller suppliers are financially unstable because automakers and large suppliers have forced them to operate on thin profit margins, he said.
Also, some lenders aren't interested in providing new loans for companies that do business with Delphi, even though Delphi is paying for shipments made after the bankruptcy filing, he said.
Craig Fitzgerald, a partner in the Plane & amp; Moran accounting firm in Southfield, Mich., said shutdowns won't show up until early next year. Right now, suppliers are meeting with banks to determine if they can rework loan agreements, he said.
An executive at one Ohio-based bank told him that suppliers it deals with aren't in bad shape.
Ledford said suppliers have been working through issues to see where they stand with Delphi.
One client of Hill, Barth & amp; King, for example, thought it would be reimbursed by Delphi because it ships parts to a plant in Mexico. Even though Delphi's Mexican operations aren't involved in the bankruptcy, no payment was made to the supplier because the contract was handled by a Delphi office in Texas.
How things appear
The survival of suppliers depends largely on what plants Delphi closes, Fitzgerald said. The Delphi bankruptcy is "very scary" for companies that supply Delphi plants that are considered to be troubled, he said.
Suppliers of Delphi's electronics and safety division, however, are at little risk if they can survive the initial cash-flow problems, he said. News reports indicate that Delphi intends to grow this part of its business.
"This is very plant-specific and very product-specific," Fitzgerald said.
Delphi hasn't disclosed plans for Warren-based Delphi Packard Electric Systems, but it is part of the electronics and safety division.
Even those suppliers that survive will have to upgrade their businesses, Ledford said.
Profits won't be there for companies that only stamp out parts, he said. Instead, they have to become involved in "value-added work," such as product design and assembly, he said.
The problem is that doing such work takes investments in people and equipment, he said.
shilling@vindy.com