Rough Times Ahead For NA Suppliers

by Edward Niedermeyer

Published: August 15th, 2008

The decline of the US auto market is bad news for OEMs, but as usual shit flows downhill and auto suppliers could take the brunt of the impact. Sven Gustafson blogs an A.T. Kearney survey at MLive.com which says North American auto suppliers could lose up to $50b between 2008 and 2011. Caught between weakening demand for new vehicles and rising commodity costs, the survey estimates that the supplier sector will need $38b in incremental capital over the next five years. Another report by Grant Thornton LLC estimates that the hard times could put a full third of suppliers at risk of bankruptcy. Unsurprisingly, firms in the SUV supply chains face the highest risks thanks to their reliance on weak US sales. "The full impact of very low truck and SUV production in the second half of the year and any new production cutbacks this fall – something we believe is likely – will only make supplier cash flow problems more difficult to manage," saiys Grant Thornton principal Kimberly Rodriguez. And in the past these woes could have been turned around by acquisitions or mergers, but now the key to survival seems to be diversification beyond the auto industry. With credit tight, massive retoolings and turnaround plans also aren't in the cards for many suppliers who have little choice but to focus on successful core business to survive the rough patch. "I'd say things are being looked at very carefully," says Doug Grimm, CEO of supplier Citation Corp. "I think everybody's wondering if we've seen the bottom yet."

Edward Niedermeyer

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4 of 6 comments

AJ on Aug 15, 2008
No, because the nature of their business determines that they will have very few clients. All businesses have have to deal with a limited number of customers. Business is tough no matter what the industry is.

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Pch101 on Aug 15, 2008
All businesses have have to deal with a limited number of customers. Are you trying to say that McDonald's and Starbucks have as few customers to choose from than a firm that makes seats for General Motors? There is no comparison. These suppliers used customized equipment meant to serve the needs of specific customers. They can't simply go find other customers to replace the loss of existing businesses, or ramp up new custom parts in a matter of days. These firms are essentially beholden to the auto making oligopoly. They are going to have find completely different work out of the auto industry to avoid this, but if everyone were to do that, the automakers would end up with no suppliers.

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50merc on Aug 16, 2008

It's a cyclical business. Always has been. But having been bled white by desperate automakers, suppliers have no cushion for the lean(er) years.

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Interesting on Aug 16, 2008

Car quality will nose-dive. QA departments inside these companies will get cut-back; resulting in problems that ordinarily would be caught prior to shipments. Many of these suppliers were able to survive the onslaught of out-sourcing to China over the past several years. It's too bad; much of this is outside their control.

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