DETROIT -- Supplier executives are growing more pessimistic as shrinking U.S. vehicle sales force them to slash production of auto parts.
Four out of five supplier executives who responded to an Original Equipment Supplier Association survey this month said November and December darkened their outlooks.
Were really worried as a trade organization about the number of bankruptcies that could flow from here, said Dave Andrea, OESAs vice president of industry analysis and economics. He presented data from the January survey of 81 members yesterday before the Detroit Association of Business Economics.
70% of capacity
U.S. suppliers produced at 70 percent of capacity in the fourth quarter of last year, Federal Reserve data show. That quarter, U.S. vehicle sales fell to 25-year lows, and the CEOs of the Detroit 3 requested federal loans, eventually receiving promises of up to $17.4 billion to ensure the immediate survival of General Motors and Chrysler LLC.
Supplier production this quarter has fallen even further, making a case for federal aid, Andrea said.
Theres absolutely no way were going to be profitable in this industry when we have utilization rates like that, he said. Youre putting the federal loan guarantee dollars behind Chrysler and GM right now, but youre not putting it into the supply base as well. Youre weakening your potential return on those two investments.
U.S. suppliers operating losses in 2009 will total $20.3 billion, down from collective operating income of $12.7 billion in 2007, according to data from corporate consulting firm A.T. Kearney cited by Andrea. All suppliers are at risk, since forecasters expect U.S. light-vehicle sales of between 10 million and 12 million units this year, down from 16.2 million in 2007 and 13.2 million in 2008.
I dont care if youre making the most advanced, high-tech part, Andrea said. If theres no volume, if theres no production schedules, that gives you no cover.
Tier 1 suppliers, those that deliver parts directly to automakers, also say between 10 and 26 percent of their own suppliers are on watch lists for possible future production disruptions, the OESA survey found.
Financing for all stages of Tier 1 suppliers operations has come to a screeching halt, Andrea said. Banks have restricted short-term loans to suppliers, who typically use the money to fund their payroll, promising to pay back the loans when automakers pay for parts.
But thats just the start, Andrea said.
We all talk about product, product, product as the way out of the doldrums here, he said. Vehicle manufacturers are coming to the suppliers with new vehicles programs to install in, and the suppliers cant get lending to buy new tools and to put new lines in.