Magna exec: More suppliers will fail

How many troubled suppliers is Magna supporting? Don Walker said, "It is as high as we have ever seen in the past."
DETROIT — The co-CEO of North American auto parts giant Magna International Inc. says deteriorating market conditions will accelerate auto supplier failures.

Don Walker also said changes are needed in the U.S. bankruptcy process. Chapter 11 should be modified so creditors that receive court protection will not "end up crippling the car companies," he said.

Bleak forecast

"If you look at the economy, sinking volume, the financial situation, the banks, the pressures on the car companies, I think we're going to see acceleration in the number of auto parts suppliers that will fail," Walker told Automotive News here at last week's SAE 2008 World Congress.

Asked about how many troubled suppliers the Aurora, Ontario, company is supporting, Walker said: "It is as high as we have ever seen in the past."

Like their automaker customers, large Tier 1 suppliers often must prop up key suppliers that run into financial trouble, to ensure uninterrupted parts delivery. The industry is witnessing a variety of pressures: tightened credit, weak demand, rising commodity prices, increased overseas competition and an emphasis on cost cuts.

Walker's call for changes in the bankruptcy laws follows industry problems this year by Plastech Engineered Products Inc.'s filing Chapter 11. Court protection allowed Plastech to halt Chrysler LLC's efforts to recover the automaker's tooling and move business to more efficient rivals.

Exercising caution

Walker said growing industry pressure has caused automakers to be more cautious. The car companies are more leery of awarding contracts to companies without a strong balance sheet or without a strong business model, he said.

"The attraction of getting a low price from a weak supplier has been counteracted by all these bankruptcies," Walker said. "They cost everyone a ton of money.

"You have to put a triple whammy on the weak suppliers. They can't win new contracts; they can't survive." 

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