The Auto Writer

The problem has been brewing for many months now — years even — as the financial fortunes of car parts suppliers is intrinsically woven with the rest of the auto industry. As Chrysler, Ford and General Motors have been reporting heavy losses over the past several years, suppliers have been experiencing similar problems too, with some sinking under the weight of bankruptcy.

Money For Two of the Big Three

When General Motors and Chrysler learned that they would receive bail out money from the federal government in December, a collective sigh of relief was heard all across the country as suppliers realized that they would probably get paid, at least for the next month or two.

But, that move hasn’t halted the perilous slide that some suppliers are experiencing, as enough of a threat is looming for them that the entire industry could still collapse.  The impact of widespread shutdowns could cripple the Big Three and other domestic producers who rely on a web of American based auto parts suppliers.

MEMA Speaks Out

The Motoring & Equipment Manufacturing Association of America (MEMA) is a trade group that represents manufacturers of motor vehicle components and systems for the original equipment (OE) and aftermarket segments of the light vehicle and heavy duty industries. This group says that suppliers count on monies (receivables) from the automakers, cash that comes in the second Tuesday of each month.

During normal months, fifteen billion dollars is received on parts that were delivered 45 to 75 days earlier, but starting in February that amount will drop to five to seven billion dollars monthly due to manufacturing cutbacks which kicked in late last year. That loss in income from Ford, Chrysler, General Motors and others could push several companies over the edge, forcing them into bankruptcy.

Along with the drop in sales, parts suppliers aren’t sure that automakers will be able to pay on time. Most manufacturers went through an extended holiday shut down and have little revenue to show for it.  Chrysler and General Motors are seeking additional cash from the federal government for themselves, monies which could be used to pay suppliers.

Banks Reject Questionable Collateral

One other area of concern for suppliers involves banks. Typically, a bank will lend companies money based on their receivables, considering those unpaid funds as collateral. However, with General Motors and Chrysler both threatening bankruptcy, some banks aren’t willing to lend money based on those receivables, as they would have trouble collecting what is owed them if one or both filed for bankruptcy protection.

President Obama has promised to appoint a “car czar” to oversee the entire U.S. auto industry, but that person has yet to be named nor has his or her duties been clearly defined.

Source: Bloomberg News