TRAVERSE CITY – Suppliers are going to fail in the next 45 days as production ramps up and they have no money to buy materials to make parts.
If the government would help loosen credit so the companies could get working capital, suppliers could take part in a dynamic future, says Linda Hasenfratz, CEO of Canada’s $2 billion Linamar Corp. and chairperson of the Original Equipment Suppliers Assn.
“I am concerned the actions (already taken for suppliers) are not enough to support the supply base,” she tells attendees at the CAR Management Briefing Seminars here.
“I’m very concerned that not allowing suppliers direct access to the funding they need has unnecessarily weakened the supply base, which as a result will not allow a rational consolidation of the industry. It could affect employment and technology for decades to come.”
Hope for a policy change likely is a wispy dream. The request for additional supplier money already has been ignored, and Ron Bloom, the government’s automotive task-force leader, tells the audience the White House will do nothing more for suppliers.
Bloom, usingCorp.’s ability to find financing for its bankruptcy, says suppliers are getting credit now, although it might be expensive.
But Hasenfratz knows from OSEA members that affordable credit isn’t really there. The group’s survey in May found 25% of its members already were breaking bank covenants, and another 25% said they would be in that boat by the end of the year.
“Production ramp-up is sure to create a huge issue for the supply base and more than likely trigger another wave of bankruptcies,” says Hasenfratz. The ramp-up, after a 50% drop in output in the year’s first half, is happening at the same time “we don’t have access to affordable credit.”
Many banks are not interested in renegotiation or extending the tenure or level of loans, Hasenfratz says. Those that are willing are charging exorbitant fees at a time when the supply base can’t afford additional cost. “The banking community is making the situation at the supply base much, much worse.”
The good news for suppliers is that production will rise, and Hasenfratz says the government should continue to encourage consumers to buy cars with incentives.
“We appear to have hit a trough,” she says, “and for those of us who survive…the trick is survival.”
Production is not likely to rise to the levels of the past, Hasenfratz warns.
The annual base market historically has been in the 15 million- to 17.5 million-unit range in the U.S. But it likely will fall to 13 million to 15 million in the future, as lifestyles change and consumers reject the nation’s overspending of the recent past.