Many Auto Suppliers Already on the Brink ... get ready for the domino effect

[RedEarth]

GM and Chrysler have been stretching payables, which means that many auto parts suppliers are in dire cash flow straits. And if auto parts makers fail, it doesn't hurt just the Detroit car makers, but the foreign transplants as well.

From the New York Times:

With Congress failing to agree on a bailout for Detroit, the odds that General Motors and Chrysler will be insolvent by year’s end are growing rapidly...

As a result, the hypotheticals about the domino effect of the companies’ troubles through the vast network of auto supplier firms — which employ more than twice as many workers as the carmakers — are becoming real.

General Motors and Chrysler, for example, owe their suppliers a total of roughly $10 billion for parts that have been delivered. G.M. has held off paying them for weeks, and Chrysler is paying in small increments. But the cash shortages at G.M. and Chrysler are getting more severe, according to their top executives and other officials....

Many of their suppliers are teetering on the verge of bankruptcy themselves, and do not have the luxury of extending credit much longer.

“I don’t think that suppliers will be able to get through the month without continued payments on their receivables,” said Neil De Koker, chief executive of the Original Equipment Suppliers Association in Troy, Mich., a trade group.

When suppliers big and small start failing, the flow of parts to every automaker in the country will be disrupted because as suppliers typically sell their products to both American and foreign brands with plants in the United States.

“There’s no question it will hit Toyota, Honda and Nissan too,” said John Casesa, principal in the auto consulting firm Casesa Shapiro Group.

“Many of the small suppliers will simply liquidate because they don’t have the resources to go reorganize in Chapter 11 bankruptcy,” Mr. Casesa said. “They’ll just go away.”

..........

The Big Three, along with their foreign competitors, are what most people think make up the entire auto industry. But the car manufacturers are just the top of the pyramid.

While G.M., Ford and Chrysler employ 239,000 people in the United States, the country’s 3,000 or so auto suppliers have more than 600,000 workers...

Like the Big Three, most of the bigger suppliers have been restructuring their operations drastically to match the shrinking demand for new vehicles...

“Most of the suppliers are not highly waged; they have no big pensions,” Mr. Timothy] Leuliette said. “People affected by all this are just the average Joes. Washington has a myopic view of the auto industry. They just think of the Big Three and don’t think of us.”



http://www.nakedcapitalism.com/2008/12/many-auto-suppliers-already-on-brink.html

[randr]

1. I hope all the people who become affected by this repugnant action

take a long look at how they personally have been voting the last 40 years.

[Citizen Number 9]

4. Not a chance. Haven't you noticed?

Guns, protection of life, voting for someone just like you and someone else's idea of "family values" are w-a-a-a-y-y more important than the economy or good management of government.

If you voted Bush either once or twice and you're a member of the lowest 4 income quintiles, your reward is coming....

[CanonRay]

2. My brother's job is toast.

He works for a parts supplier, and their biggest customer is GM. I hope I have enough to help him keep the house.

[sarcasmo]

5. GM shutting down many plants here in Michigan the first half of the first quarter.

Which would be mid February.

[fumsm]

3. It is amazing..

...how little the American people really know. I work with the auto suppliers, and the chemical co's. These guys really are teetering on the edge. I don't expect it can last much longer. A month, maybe, but doubtful. Everyone is worried, and everyone of them supplies the implants as well. It will be devastating. I hope the media and the repugs know they are responsible for the collapse into depression. Maybe it's coming anyway, but for sure they will hasten the timing.