As GM headed for Chapter 11, fears over the adverse consequences for suppliers grew. While there can be little doubt that more supplier pain lies ahead, GM has taken important steps to assist its suppliers, as SupplierBusiness reports.
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For years, the assumption was that the day General Motors filed for bankruptcy the North American supply chain would collapse in a heap.
Indeed, that was the foregone conclusion as recently as four months ago. GM accounts for more than 30 percent of the revenue at more than 600 suppliers. Among the most vulnerable include TRW Automotive, American Axle, and Lear.
But that bit of conventional wisdom may have shifted. Bo Andersson’s tough love approach to parts manufacturers may not win him the top ranking in supplier relations poll, but General Motors’ purchasing chief is looking out for his partners as GM enters bankruptcy.
Parts makers with outstanding receivables who were not covered by the US$2bn pre-petition payment by General Motors will likely be paid, even after last week’s bankruptcy filing.
Andersson cheered suppliers shortly before the filing when he said a “critical vendor” motion with GM’s petition would include production parts for components already shipped.
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By GlobalDataStill, suppliers struggling with reduced production, crushing debt and rising commodity prices face increased risk as a result of General Motors’ filing. Cash-strapped GM suppliers will be further squeezed.
GM, which paid out US$50bn to 11,500 vendors last year, will reduce the number of Tier One suppliers it uses in North America from 1,400 to 1,100 by the end of 2011.
No one doubts that the fallout will come from the twin US bankruptcies.
“The greater a supplier’s exposure to U.S.-based companies, the greater the impact on its performance,” Standard & Poor’s analyst Ephraim Levy in a note to investors.
“Although some U.S.-based auto parts makers have exited or are progressing toward exiting bankruptcy proceedings, others – especially relatively smaller companies are under duress and risk entering bankruptcy, in our view, if they do not get support from parts and vehicle manufacturing customers,” Levy said.
The GM suppliers with the biggest claims are Delphi, Robert Bosch, Lear, Johnson Controls, Denso, TRW Automotive, Magna International, American Axle Hewlett Packard and Continental.
As a result of the GM filing, Lear will delay about US$38m interest payments as it works out a deal with its lenders. Lear will try to restructure out of bankruptcy.
But Delphi last week pulled out of Chapter 11 after nearly 4 years. Delphi has reached a deal to sell the bulk of its assets to a private-equity firm — Parnassus Holdings II, an affiliate of Platinum Equity.
GM, which spun off Delphi in 1999, will take back some of the company’s North American plants, including its global steering business, and four U.S. factories.
Delphi’s other “noncore” operations will be sold or shut. A hearing on the plan is set for July 23.
This article was supplied to just-auto by SupplierBusiness, an IHS Global Insight company.
