Restructuring expert says 500 U.S. suppliers at 'high risk' of failure

About 500 auto parts suppliers may be at "high risk" for bankruptcy in the next three months due to sharply reduced volumes and uncertainty around any near-term government aid, according to a study by corporate and restructuring services firm Grant Thornton.
"To right-size capacity levels and promote a viable industry, we believe 30 to 40 percent of all suppliers are at risk due to the necessary alignment of capacity with demand," Grant Thornton LLP partner Laura Marcero said Thursday, adding that the U.S. auto market should stabilize in the 12 million to 14 million-vehicle per year range by 2010-2011.
Marcero said the sector needs $10 billion of immediate assistance in the next 30 to 90 days.
Auto parts suppliers have come under intense pressure from tight credit conditions and from plant shutdowns by major automakers at the end of last year and the beginning of 2009.
Suppliers receive payment 45 to 60 days after delivering parts, and analysts have warned of a wave of failures in March and April, when the near-total shutdown in U.S. auto production at the beginning of the year starts to hit their balance sheets.
Marcero said she has seen an "exponential rate of increase" in business failures among smaller auto suppliers in January.
"These are companies that are locking their doors with a week's notice if we are lucky," she said.
Marcero said the situation was so dire that it was possible that automakers would soon be affected.
"We are facing the potential of unplanned (automaker) shutdowns," she said.
U.S. auto suppliers have been in talks with the U.S. Treasury to secure $18.5 billion in emergency funding to avoid a wave of bankruptcies and a deeper crisis for cash-strapped automakers.
The request, submitted by two industry groups, asks the government to guarantee supplier receivables from U.S. automakers, accelerate payment terms or guarantee commercial loans to parts companies.
U.S. auto suppliers have not yet received any definitive reply on the aid from the government but are in touch with officials, said Dave Andrea, vice president of industry analysis and economics at Original Equipment Suppliers Association, one of the groups that submitted the request.