Credit Vice Tightening for Suppliers

SOUTHFIELD, MI – U.S. automotive suppliers need help from the government – and quickly, Dura Automotive Systems Inc. CEO Timothy D. Leuliette says.

The stimulus package President Obama signed into law earlier this month may provide long-term economic relief, but there’s nothing in the measure that will furnish suppliers with much-needed access to financing, he says.

And the credit market isn’t likely to loosen up until lenders are convinced of the long-term viability of the Detroit auto makers, Leuliette adds.

“The next 60 days will be difficult for suppliers,” he says following a speech here to Michigan-based automotive lobby group MICHauto. “Those that have a lot of debt are going to have problems.”

Leuliette says parts-maker trade groups such as the Motor & Equipment Manufacturers Assn. and the Original Equipment Suppliers Assn. have done a good job delivering the message to Washington, but government action remains lacking.

The two groups jointly have been pressuring the U.S. Treasury to provide direct financial assistance to suppliers, saying payments by General Motors Corp., Ford Motor Co. and Chrysler LLC are projected to total $2.4 billion in March, down from an average of $8.4 billion per month in 2008’s depressed fourth quarter.

Leuliette: Credit could loosen April 1, if GM and Ford get needed help.

That income drain is leaving suppliers short on liquidity, Leuliette says, with banks unwilling to provide the capital because of uncertainty over the auto industry’s viability. The issue is the same in Europe, he says, where Saab Automobile already has filed for bankruptcy and Germany’s Adam Opel GmbH openly has discussed a similar path.

“Do you think any bank is going to loan me money if they think one of our biggest customers is going to go bankrupt and not pay?” he says. “Only until the OEMs are sound and physically stable in the eyes of the investment community will (the banks) talk to suppliers.”

Some progress has been made in recent weeks in convincing Washington suppliers are a key part of the auto industry equation, Leuliette admits.

In scenarios surrounding a potential pre-packaged bankruptcy for GM, for example, the government now is calling for the process to be engineered in a way that would “keep suppliers whole,” he says.

“Instead of a few bucks (for suppliers), there’s a lot more bucks, because now there’s an understanding in Washington…if GM goes bankrupt and doesn’t pay people for 30 days, that means something to everybody else. And therefore, any part of this process has to protect suppliers.

“Back in November, that was off the radar. (Lawmakers) didn’t have any understanding of that. Now they understand that. The question is can something be pulled together quick enough to resolve the challenges we see out there in the marketplace?”

Leuliette says the credit market could loosen up as soon as April 1, if GM and Chrysler get the financial help they need and lenders are convinced of their long-term survival.

“It can happen that quickly if it is a broad and definitive (financial) package that leaves no wiggle room,” he says. “Every time someone says, ‘If (GM and Chrysler) can’t deliver, we’ll let them go bankrupt,’ then everyone else says, ‘OK, we’ll wait.’

“(The financial package has) got to be definitive; it’s got to be closed. It’s got to have some stability to it.”

A failure of either GM or Chrysler would have a devastating effect on suppliers, Leuliette says.

“We focus on GM (a lot), but let’s put it this way: Chrysler’s troubles to a fragile supplier community could be devastating. So let’s not say Chrysler’s in any different a boat than GM. They’re both very fundamental, very critical.

“If you’re a supplier and you’ve got 20% of your business with Chrysler or 10%, and they don’t pay, that could be enough for a number of suppliers.”

The crisis is “too easy to fix,” he adds. “And the cost of not fixing it is much greater.”

Leuliette downplays the effects of the economic conditions on Dura, which recently emerged from bankruptcy, saying his company is in a better position with liquidity than many of its competitors.

Although contract activity is about one-third the normal pace, Dura has “won some good stuff in Europe over the past couple of weeks,” he says. It also has begun to reacquire business that had gone to now-failing competitors.

“That’s like winning new business, because you lost it a year ago to this guy and, whoops, now you’re going to get it back,” he says. “We’re starting to see a realignment and a consolidation going on.”

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