Sounding the Alarm for Ailing Automotive Suppliers
By Michelle Krebs November 24, 2008Carmakers around the globe are raising the alarm about the declining health of auto suppliers, whose problems they fear could ricochet back to hurt them.
Many suppliers that make parts for General Motors, Ford and Chrysler also supply their foreign-owned plants operating in North America and elsewhere. Rating agencies are warning about tightening credit conditions, falling orders, and the possible failure of a Detroit carmaker, which could bankrupt some auto suppliers and in turn hurt even relatively healthy carmakers' businesses, the Financial Times reported.
Friedrich Eichiner, a member of BMW's board of management, told the Financial Times the collapse of one of the Detroit auto companies could pose a threat to BMW via its suppliers. "If a supplier is losing a lot of volume, his business is at risk," Eichiner said. Ecohing Eichiner's comment, Bob Carter, head of Toyota's U.S. sales arm, said "suppliers are all co-mingled and intertwined. This is not manufacturer A versus manufacturer B."
What's more, more automakers announced further staff and production cutbacks on Thursday, signalling further trouble ahead for suppliers. Peugeot said it was cutting 2,700 jobs in France. GM suspended production in Thailand for two months. Mazda and Isuzu are cutting a combined 2,700 temporary and part-time jobs in Japan.
Standard & Poor's last week placed the ratings of 15 North American auto supply companies on watch for a possible downgrade because of their exposure to Detroit. It also lowered the long-term corporate credit ratings of Dana, which already has gone through bankruptcy, and Magna; both are major suppliers of Chrysler.
"If the downturn stays as difficult as it has been, I think we'll see a lot of failure in the supply industry," Don Walker, Magna's chief executive, said earlier this month as the group reported its first loss since 1991.
Rating agency Fitch warned that an increase of distressed suppliers could hurt both carmakers and larger supply groups, which might be forced to provide smaller groups with financial support to avoid disruptions further up the chain.
Getrag, the privately held German gearbox producer, said one of its U.S. affiliates had filed for Chapter 11 protection after Chrysler cancelled an agreement to build and operate a dual clutch transmission plant.
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