Auto industry suppliers have been stuck between a rock (penny-squeezing OEMs) and a hard place (volatile commodity prices) for some time now. And though the Detroit Three argue relentlessly that their own bankruptcy would doom them in the eyes of consumers, bankruptcy protection has practically become the norm for their suppliers. Which is why supplier firms need a bailout of their own in order to give Detroit’s bailout a chance. Chrysler’s endless winter break, GM’s half-sized Q1 production plan and general industry turmoil is about to cause exactly what the bailout was supposed to prevent: cascading supplier bankruptcies. Bloomberg documents the doom in detail, concluding with American Axle’s Dick Dauch’s assessment that “there’s a shakeout occurring.” Unless…
you guessed it! Automotive News [sub] squawks that suppliers are “hatching” bailout plans of their own. As soon as Obama appoints a Czar of Car, the suppliers are going to approach on bended knee claims Neil De Koker, president of the Original Equipment Suppliers Association. With TARP in his sights, the OEMSA has met with Treasury officials to scare them with tales of suppliers “hanging on with their fingernails.” After all, De Koker’s poll of 54 OEMSA CEO and CFOs showed that half admit to “struggling to the extent that they may need TARP loans.”
This blogger would be curious to see how that question would poll in the general public. Anyway, suppliers will have to file individually so there’s still no word on the bottom line. Or, more specifically, how much room suppliers will take up at the TARP trough. Meanwhile, Michigan has approved $355m in tax credits for battery suppliers. Remember to file by April 15!
No comments on this one? Surely this is the impending storm which will make the job losses at the auto makers themselves seem like a side-show.
All a supplier has to do is show that if they go under (chapter 7 or even 11), one of the debt3 also goes under. Instant cash from uncle sugar.
“This blogger would be curious to see how that question would poll in the general public.”
Considering that the general has absolutely no clue that the Big 3 don’t manufacture cars (they only assembly them using components from thousands of suppliers), I don’t think it’d be possible to conduct an accurate polling exercise.
IMO (a very biased opinion, considering my employer), the bailout money should be used to keep viable suppliers afloat as the Big 3 go through the bankruptcy process. The problem in the industry, though, is that many non-viable suppliers got huge payouts (ransom?) from the OEMs in the past several years so that they could stay in business and avoid a disruptive liquidation. That means that the supply chain is filled with zombies, and those living-dead companies need to go away so that the remaining viable suppliers can get back to making reasonable amounts of money.
@Eric Bryant:
So it’s once again a case of “if you’re going to screw up, screw up reaaaaaally big”?
The bailout of Detroit will be chump change compared to the bailout of States. Left coast first dibs California. Crown jewel of the USA Progressive vision.
Need some updates here. Delphi is getting ready to cut not only the health care they announced but . . . additional engineering jobs. Besides closing bathrooms and turning down the heat, they are looking at removing half the bulbs from the 4 bulb lighting fixtures, time to bail.