Auto Suppliers: A Sinking Industry Could Mean Drastic Depletion

Companies on the ropes in wake of GM and Chrysler news

The cash reserve overall for auto suppliers aren’t typically as deep as healthier auto manufacturers, meaning if GM or Chrysler — which have already received $17.4 billion in federal aid — go bankrupt, so will many auto suppliers.
“There’s that fear that any company – supplier or [original equipment manufacturers] – could potentially go away,” says Leon Richardson, head of the National Association of Black Automotive Suppliers (NABAS), about the industry’s rocky state.

Auto parts manufacturers tend to depend on short-term loans for the 45 to 60 days it can take for automakers to pay for car components delivered. With vehicle sales down 40% this year and vehicle production drastically slowed, orders for various auto components ranging from seating to dashboards to navigation systems are on hold.

“Our business has a high fixed cost, so at some point, without the volume, the math just doesn’t work,” says Kirk Lewis, president of Bing Group, a Detroit-based, black-owned supplier that does about 98% of its metal business with GM and Ford Motor Co., the only domestic car company that has not asked for federal aid.

Lewis, who is also treasurer of NABAS, has attempted to rally support from Capitol Hill for struggling U.S. auto makers, conveying to lawmakers during past conversations the effect market conditions are having on suppliers, he said. “If our customers are weak then we’re going to be weak,” Lewis says.

Several weeks ago, Obama’s auto task force put forth a $5 billion supplier support program to help prop up weakened suppliers. The program, which was $20 billion short of what was requested and draws funds from the Treasury Department’s Troubled Asset Relief Program (TARP), does not include specific language aimed at minority-owned businesses.

GM and Chrysler will handle the funds and decide which suppliers can participate. The program is still being tweaked, insiders say.

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