More and more suppliers of the collapsing auto industry are at the brink of collapse.
Visteon Corp. said on Monday it expects its auditors to question its ability to continue as a going concern due to the US auto industry downturn and the auto parts maker’s cash position, Reuters reports. The parts maker said that this warning could trigger a default under Visteon’s principal US senior secured credit facilities.
Visteon, spun off by Ford Motor Co in 2000, warned in February that it was uncertain of staying in compliance with its debt covenants. The auto parts maker still relies on Ford for one-third of its annual revenue.
US auto parts makers face increasing financial pressure due to sharp production cuts by automaker customers that started toward the end of 2008 and now weigh on revenue.
With US auto sales running at the lowest monthly rates in 27 years, production is expected to remain at low levels at least through the first half of the year.
Visteon is not the first and likely not the last parts maker to receive a going concern warning. Auto parts maker Lear Corp. expects a similar warning. On Friday, auditors for American Axle & Manufacturing Holdings Inc. warned that the problems at top customers General Motors Corp and Chrysler threatened its ability to continue operating as a going concern. Asbury Automotive Group Inc. posted a fourth-quarter net loss on Monday and said its auditors had raised doubt about its ability to continue as a going concern. GM has also received a going concern notice from auditors.
Supplier Dana Holding Corp. said today that it would cut its global work force this year by more than 5,800 people, up from 5,000 announced last November. Dana, which emerged from two years of bankruptcy protection on Feb. 1, announced the job cuts after disclosing a net loss of $264 million during the fourth quarter.
Scott Garberding, Chrysler’s chief procurement officer said that a number of Chrysler LLC suppliers are at risk of financial collapse within “days if not weeks,” Automotive News [sub] reports. The supplier liquidity problem at Chrysler is “becoming more significant by the day,” Garberding said in an interview. “We’ve been having multiple instances arise each week for the last few weeks where we’ve had suppliers let us know they were out of cash.”
Sig Huber, supplier relations chief, said: “The number of suppliers ranked high-risk has tripled since the end of December. We have roughly 45 suppliers in the high-risk category.”
What I see here is the beginning of the end of strictly automotive supply companies. There will be consolidation as the weak go belly up and the strong take on the now-free contracts.
The diversified, companies such as Johnson Controls, are the ones that can roll with the punches when the automotive industry tanks as it is doing now.
This would have happened much faster and more abruptly with a GM/Chrysler C11 bankruptcy, but it appears that it is happening anyway.
Delphi?
Delphi?
Delphi?
/BenStein
Being a supplier to an auto company is a thankless job.
Their prices are constantly being driven down by the customer and then they are made to wait upwards of 120 days from delivery or more for their payment. Why any company would want to be 100% beholding to the big 2.68745 is way beyond me. Surely a plastic manufacturer could find some other customers in a less volatile field.
If the likes of Viseton has not diversified by now it’s only a matter of time until their funeral.
This means even more work for China I suspect.
@John Horner: Less. Visteon is heavily engaged in China.
This was a perfect storm brewing for a long time. Most of these parts were made in house by the domestic three. They pushed these divisions off the cliff and started them as independent concerns. The reason being, they couldn’t make any money making parts. So you buy your parts from your new ugy stepchild, but you then start to push for lower prices. (prices the detroit makers of cars couldn’t make the parts for in house) The parts company had to build parts at a loss and presto we are now at the only end game possible. The parts companies cannot continue unless they can get or make more money making parts. We all know this answer has to come from the printing presses in Washington as no one in their right mind would loan these dinousours a dime.