General Motors Corp. and Chrysler LLC's plans to the government call for either cutting the number of suppliers or demanding more price cuts.
Both would mean a hit for suppliers already pressured by price cuts and falling production.
GM plans to shed 480 suppliers, or 30% of its 1,600 parts suppliers in North America, as it tries to send more business to healthier suppliers. GM's plan also paints a dire picture for the pension plans of Delphi Corp.
Chrysler seeks a 3% price reduction from its suppliers starting April 1 and through other measures is looking for a total of $150 million in savings through supplier concessions in 2009.
Both automakers acknowledge that their supply bases are in financial trouble.
For that reason, both automakers support some sort of government-funded plan to help suppliers survive the next few months.
"That's very, very important because the car companies cannot function without the suppliers," said Wilbur Ross, chairman of International Automotive Components Group, a Dearborn-based automotive interiors supplier.
Typically, automotive supplies don't get paid for the parts they deliver for at least 45 days. That, Ross said, in an interview with the Free Press, means about 15% of a supplier's annual revenue is outstanding at any time and forces suppliers to pay for production with loans or credit lines that are difficult to get in a frozen credit market.
A failing supply base, where each supplier sells to several automakers, could derail restructurings at GM and Chrysler. "If they do have a good plan with the bondholders, and if they do have a good plan with the labor, the one thing that could screw them up is suppliers," Ross said.
As for Delphi, GM's largest supplier, the automaker plans to buy some factories back from its former parts arm. But GM said it's not responsible for taking on Delphi's salaried pension plan or, in most cases, the hourly pension plans.
"Delphi is unlikely to be able to support these underfunded pension plans going forward and may need to terminate these plans, which would impact the PBGC," GM said in its restructuring plan. (The Pension Benefit Guaranty Corp. is a government agency that picks up a portion of pensions if a company defaults.)
Delphi spokesman Lindsey Williams said, "We continue to work toward preserving the accumulated pension benefits of our employees."
http://www.freep.com/article/20090218/BUSINESS01/902180432/1002/NLETTER01/Auto+suppliers+face+a+lose-lose+situation?source=nletter-business
