Automotive Supplier Woes Mount
April 16, 2008

After a brief respite last year, concern is again mounting about the financial health of hundreds – if not thousands – of component and services suppliers squeezed between falling orders from their carmaker customers, high raw material prices and tightening credit conditions, the Financial Times reported Wednesday.

J.P. Mortgan cut earnings estimates this week of several of the world's biggest Tier One automotive suppliers. They include American Axle -– against which workers have been striking for seven weeks now -- Lear, Magna International, TRW, Visteon and Tenneco. Lehman Brothers singles out American Axle, Lear and Tenneco as most vulnerable among General Motors' Tier One suppliers.

Other signs of trouble cited by the Financial Times:

* stock prices have slid. The share price for Magna, a long-time investor favorite, fell to $69.63 on Tuesday from more than $80 early last month. Shares of Martinrea, a mid-sized Toronto-based supplier, have lost more than a third of their value since early February;

* private equity firm Appaloosa withdrew its planned help earlier this month from the restructuring of Delphi Corp., North America’s biggest supplier which has been in bankruptcy since fall 2005. Delphi's emergence from bankruptcy appears a long way off;

* automakers are scrutinizing -- and some are cutting -- their production schedules as the sales slump lingers in the U.S. and spreads to overseas markets. Particularly hurtful to suppliers is the nosedive of pickup truck and SUV sales, which provided hefty profits to the companies.

The paper notes the stress is even greater on smaller Tier Two and Tier Three suppliers who make parts for the Tier One suppliers. Gerald Fedchun, president of Canada’s Automotive Parts Manufacturers’ Association, told the paper a lot have closed -- just selling their machinery, paying severance and closing the doors. But, he added, “they didn’t make the newspaper."

Posted by Michelle Krebs at 5:56 AM under Analysis , Companies | Comments (0) | digg this | Seed Newsvine