Supplier woes put auto industry in serious danger, experts warn
NEW YORK (AP) — The financial woes of U.S. 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, Mich.-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.
“Either they deal with the liquidity issues at the lower tier, or these problems have the potential to just devastate the Detroit OEMs and the other automakers,” Fitzgerald said, referring to so-called original equipment manufacturers GM, Ford and Chrysler. “It’s an issue equal to what’s going on at the Big Three, they just don’t have the heft, so it doesn’t get quite the play.”
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.
“The fragility of the whole thing is very much like a house of cards,” said Bob Viswanathan, an assistant professor of operations management at the University at Buffalo School of Management. “Everybody knows that the finance markets are so interconnected, but the auto industry is worse.”
Tom Wiethorn, co-owner of Craig Assembly, said orders for his St. Clair, Mich., 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 has cut its work force by 20 percent to about 60 people and is worried that it could end up violating its debt agreements.