Big Three bailout
bangornews.com
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Way too many jobs are at stake...most folks don't realize how much restructuring the big 3 automakers have done in the last 3 years -- it's the consumers lack of confidence and the credit crunch that's killing them...no one accurately forecast the current drop off in demand...
Legendary turn around artist and billionaire Wilbur Ross (who is a Republican) said on Bloomberg this morning that he's against letting GM fail and go into bankruptcy as it could take down the entire US auto industry...remember all the suppliers and all those jobs too...
Auto Suppliers' Receivables at Risk Without Rescue Plan for GM
By Alex Ortolani
Nov. 13 (Bloomberg) -- General Motors Corp.'s North American parts supply chain may be in for heavy losses, bankruptcies and liquidations if a rescue plan for the automaker fails to ensure payments for scheduled business.
Thousands of suppliers for GM or companies that ship parts to the automaker often use receivables to back credit for operations. Those with the highest exposure, such as Magna International Inc., American Axle & Manufacturing Holdings Inc. and Lear Corp., are most at risk, said attorney W. Patrick Dreisig.
``The quality of those receivables is very much up in the air depending on the nature and scope of the government bailout and what these companies do to right their own ships,'' said Dreisig, who heads the automotive practice at law firm Butzel Long in Bloomfield Hills, Michigan.
GM said last week it may run out of cash by the end of the year unless auto sales increase or it gets help. U.S. lawmakers are considering a request for $25 billion in aid to GM, Ford Motor Co. and Chrysler LLC. If GM filed for bankruptcy or was forced to liquidate, suppliers with large amounts owed to them by GM may follow the company into Chapter 11, Dreisig said.
``It would be a cataclysmic event for the entire American automobile industry,'' he said.
A solvent GM, which is based in Detroit, would mean large, diversified suppliers are likely to survive amid heavy losses. For smaller companies, doubt concerning GM receivables by banks could spell the end, said James Gillette, a consultant with CSM Worldwide Inc. in Grand Rapids, Michigan.
``The banks are very nervous right now about this continuation of cash revenue for suppliers that they lend to,'' Gillette said.
Watching Closely
Magna, North America's largest auto-parts maker, which got 24 percent of sales from GM last year, had $4.02 billion due in accounts and notes receivable in the third quarter. Lear, with 29 percent exposure to GM, had $1.98 billion in receivables, and American Axle, which received 78 percent of revenue from GM, had $264 million in scheduled payments.
American Axle declined to comment on receivable concerns, said spokeswoman Renee Rogers. Lear also declined to comment, said spokesman Mel Stephens. Magna spokeswoman Tracy Fuerst didn't respond to phone calls seeking comment.
TRW Automotive Holdings Corp., which got 10 percent of its revenue from GM last year, is watching it receivables ``closely, like everybody else,'' said spokesman John Wilkerson. It had $2.83 billion in receivables in the third quarter.
GM has lost about a third of its value since Nov. 7, when the company said it may not have enough cash to operate past year-end. The stock is down 88 percent this year. Magna has dropped 65 percent, and American Axle and Lear are both down at least 89 percent.
`Cross-Linkages'
The collapse of even small companies would have a negative impact on large, so-called Tier I suppliers and automakers, said Thomas Klier of the Federal Reserve Bank of Chicago, who wrote a book on the U.S. auto supply base.
``Very few companies stand alone,'' he said. ``Each carmaker has a supply chain and there are a lot of cross-linkages with other carmakers.''
Auto-parts makers employ 783,100 people across the U.S., not including 1.97 million indirect jobs in industries from steel to plastics, according to the Motor and Equipment Manufacturing Association. Some suppliers have gone out of business this year because of the decline in U.S. auto sales -- 15 percent through October -- and higher raw materials costs.
Plastech Engineered Products Inc., a maker of plastic auto parts for Ford and GM, sold off business units after declaring bankruptcy in February. Progressive Molded Products Inc. and Blue Water Automotive Systems Inc., which both supplied GM and Ford, failed to reorganize in Chapter 11 and are liquidating.
To contact the reporter on this story: Alex Ortolani in New York at aortolani1@bloomberg.net
Last Updated: November 13, 2008 17:01 EST |
