Thirty three percent of automotive suppliers operating in the US are significantly more pessimistic about the general outlook of their businesses over the next year than they were at the beginning of 2009, according to a recent Original Equipment Suppliers Association (OESA) survey.
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Thirty one percent of respondents to an earlier OESA survey in late February 2009 indicated that severe financial distress or bankruptcy at their companies was likely before the end of next June. The likelihood of severe financial distress or bankruptcy this year was 62%.
Suppliers indicated that key contributors to the ongoing uncertainty included frozen credit markets, risk of customer bankruptcy and concern that the economic stimulus package would not spur new vehicle sales.
One respondent said: “If conditions don’t improve from this dismal level of sales, liquidity will run out because banks are not in the mode of increasing available credit, even if debt levels would not be high after exhausting available credit.”
Another added: “While we will be significantly affected by GM or Chrysler filing for bankruptcy, it is the effect it will have on the supply base – which makes up a majority of our customer base – that will really hurt us.”
The significant pessimism felt throughout the supply chain was reflected in the comment: “Eventually, a 50% to 60% drop in sales can no longer be offset by staff and other expense reductions without destroying the infrastructure of an organisation.”
“Automotive suppliers, which make up the largest manufacturing sector in the US, are in dire financial straits,” said OESA president and CEO Neil De Koker in a statement.
“Due to a non-functioning credit market, the sector is facing imminent financial hardship. This puts the entire US auto industry at risk and makes the efforts to restore the US economy much more challenging.”
