By Sharon Terlep Of DOW JONES NEWSWIRES DETROIT -(Dow Jones)- The nation's vast network of auto-parts suppliers is getting hit hard as the financial community - from investors to credit insurers - loses confidence in Detroit's Big Three auto makers.
As concerns mount that one of more U.S. auto maker is headed for bankruptcy, parts makers are having a tougher time securing funding and, in at least one case, suppliers to General Motors Corp. (GM) and Ford Motor Co. (F) have been refused credit insurance to cover their risk.
The problems add stress to suppliers already plagued by tight credit markets, declining demand and high commodities costs.
They also further strain U.S. auto makers by threatening to create more volatility in the supply base. Financially stressed parts suppliers could create costly work stoppages for the auto makers. And parts makers, if they fear an auto maker won't make good on a payment, may tighten their payment policies to ensure they get paid.
"Banks are rightfully looking to protect themselves and are going to be very stingy to have anything to do with these firms," said Jim Gillette, director of supplier analysis for CSM Worldwide in Northville, Mich. "Any part of the chain that requires collecting cash from one of the auto makers is close to being shut down."
A tough situation for suppliers worsened Friday after Ford and GM said they are losing billions and are rapidly burning cash. GM, which burned through $6.9 billion in the third quarter, said it risks running out of money by the first half of 2009.
GM Chief Operating Officer Fritz Henderson on Friday held a conference call with the auto maker's top 300 suppliers, in which he worked to assure the companies that GM is capable of paying its bills, according to sources familiar with the call. Bo Andersson, vice president of global purchasing, also was on the call. "As a course of normal business, GM regularly communicates with its suppliers to discuss a variety of business issues," GM spokesman Dan Flores said. He declined to give any specifics.
GM, in a regulatory filing on Friday, said it feared the auto maker's own liquidity problems could lead suppliers to tighten payment terms. If that happened, the company said, "our need for cash would be intensified and we may be unable to make payments to our suppliers as they become due."
Shares of several of the large parts makers plunged on Monday alongside GM, which saw its stock price hit a 62-year low on a string of bad news that included a Deutsche Bank report that said the auto maker's shares may be worthless in a year.
GM shares fell 23% to $3.36. Among the suppliers, Lear Corp. (LEA) led the decliners with a 16% drop, while shares of Dana Holding Corp. (DAN) slid 13% and shares of American Axle and Manufacturing Holdings Inc. (AXL) retreated 10%.
"Nearly every supplier has exposure to the U.S. Big Three, and every supplier will have to deal with unprecedented distress," Deutsche Bank analyst Rod Lache wrote in a research note Monday. "The near-term implications for nearly all auto makers and suppliers is negative, since aggregate U.S. auto demand is likely to decline even further."
Worsening matters, jittery banks and insurers appear to be losing faith in suppliers' ability to collect from auto makers and other parts maker they feed.
French credit insurer Euler Hermes has canceled insurance protection for suppliers to GM and Ford, two people familiar with the matter told Dow Jones Newswires Monday. According to the sources, deliveries from the suppliers weren't covered by insurance in the last two weeks, as the risk of the car makers failing to pay them for deliveries is too high.
Meantime, some banks have begun to refuse to lend to suppliers for Chrysler LLC receivables, said Craig Fitzgerald, an automotive analyst with Plante & Moran in Southfield, Mich., some of whose clients have been affected.
Parts payments are still flowing from GM and Ford, according to three people in the supplier sector who asked not to be identified. There is a growing unease, however, over whether some companies will start demanding cash upon delivery on GM, thereby forcing the auto maker to burn through more cash, the people said.
Currently, suppliers are paid anywhere from 30 to 90 days after parts are received, providing auto makers some financial breathing room. Suppliers, the people said, are concerned that they may not get paid if GM seeks bankruptcy protection.
-By Sharon Terlep, Dow Jones Newswires; 248-204-5532; sharon.terlep@dowjones.com.
(Katharina Becker and Jeff Bennett contributed to this report.)
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(END) Dow Jones Newswires
November 10, 2008 17:08 ET (22:08 GMT)

Publié le 10 novembre 2008 Copyright © 2008 Dowjones