We’ve been hearing the news for month: the U.S. Big Three automakers are in trouble. Suppliers to the automakers are also struggling.
According to a recent article at Forbes.com, even if the government bailouts succeed in heading off failure for Chrysler, GM and even Ford (though it says it doesn’t need any bailout money yet), the industry may fail "from the bottom up" if suppliers don’t receive help as well.
The author writes:
"With credit markets all but frozen, bankrupt suppliers wouldn’t be likely to obtain debtor-in-possession financing to stay in business during bankruptcy reorganization. Instead, many would be forced to liquidate. That would put the carmakers in a jam, because they can’t easily get the missing parts from other suppliers. It can take up to a year to shift tooling and re-certify critical components. The result, analysts say: U.S. vehicle production would grind to a halt."
And if the suppliers fail, even the foreign car companies such as Toyota and Honda will feel the strain.
The article states: The Motor & Equipment Manufacturers Association says two-thirds of all suppliers are in imminent financial distress or will be by the end of the month, putting 1 million jobs at risk.”
In December, I wrote about the “ripple effect” that would be caused if one (or more) of the automakers shut down (read Distributors Weather Auto Turmoil). What the Forbes article shows is how the ripple could go both ways.
