Auto Suppliers: A Sinking Industry Could Mean Drastic Depletion

Business became more complex in the U.S. auto supplier world after General Motors Corp. and Chrysler L.L.C.’s comeback plans failed to impress the U.S. government this week, making the notion of a bankruptcy for the American automakers an even more likely outcome.

Auto suppliers are reeling from current market conditions. An A.T. Kearney study released in March found current market conditions could cause more than half of the country’s major auto parts makers to file for bankruptcy this year. That would result in one million job losses.

The study reported fallen auto sales, raw material price increases, and high fixed cost and excess capacity were cited as top factors.

“We are facing a situation where 50% of all black-owned businesses could be out of business a year from now,” says Louis Green, president of the Michigan Minority Business Development Council in Detroit. “We are looking at a high likelihood that we may lose half of all of our black automotive suppliers.”

In the state of Michigan alone, home to the domestic auto companies and some of the largest black-owned auto suppliers, the ramifications could be bleak. The effect on black-owned auto parts businesses could be even more severe as these businesses have operated for only a fraction of the auto industry’s century-long existence and many have not diversified their businesses or customer base fast enough to cushion the blow.

Before GM and Chrysler’s recovery plans were rejected by the government, the industry was expected to shed close to 30% of all supplier businesses based on market conditions. “But things have been a lot more dire, I think, than anyone would have suspected,” Green says. “When you look at things like potential bankruptcies, very few businesses are equipped to handle that.”

Suppliers trying to stay afloat have been burning through cash as they keep their facilities open to produce very few parts. “The industry is so complex and so massive that there is no escaping the serious amount of pain that will be felt,” Green adds.