Chrysler LLCs parts suppliers will be hurt severely by the loss of revenues as the automaker halts all North American manufacturing until it emerges from bankruptcy -- especially if the process lingers beyond the expected 30 to 60 days.
David Leiker, an analyst who covers suppliers at Robert W. Baird & Co., believes the immediate implications for suppliers of Chryslers Chapter 11 filing itself are likely nominal.
Most receivable claims are likely insured or small enough for suppliers to absorb, Leiker said today in an e-mail. The greater issue will be Chryslers decision to close its assembly plants.
The risks of a hemorrhage to the troubled supply chain continues to grow, another expert said.
"This situation is not as easy as it sounds," said Laurie Harbour-Felax, SAA vice president and president of Harbour-Felax Group.
"Thirty to 60 days in bankruptcy will be challenging for everyone involved. It will be devastating to the supply base that is already dealing with nine weeks of shutdown for many plants at GM and now have all Chrysler plants down for 30 to 60 days minimum. Unfortunately, we will be seeing many supplier bankruptcies following this announcement today."
The bankruptcy filing prompted Standard & Poors Ratings Services yesterday to immediately place six suppliers on CreditWatch with negative implications because the filing will result in lower vehicle production in the near term, even compared to what we believe have been very low levels thus far in 2009.
Placed on CreditWatch were Harman International Industries Inc., Johnson Controls Inc., Magna International Inc., Shiloh Industries Inc., Stoneridge Inc. and TRW Automotive Inc.
S&P predicted that a number of smaller, Tier II suppliers could fail because of the Chrysler bankruptcy or the additional plant shutdowns being discussed by General Motors.
S&P said that the lower ratings reflect worries over work stoppages and come despite the governments efforts to minimize the duration of the bankruptcy.
More immediately, the bankruptcy itself could cost Chryslers parts producers millions in lost revenues.
The Chapter 11 filing listed component suppliers from around the world among what Chrysler said were its 50 largest unsecured creditors.
The largest is South Koreas Hyundai Mobis, whose Toledo subsidiary, Ohio Module Manufacturing Co. Inc., is owed $70.3 million by Chrysler. Others range from seat maker Johnson Controls, which is owed $50.3 million, to TRW Chassis System, which Chrysler says it owes just over $5 million.
Some suppliers questioned those numbers, saying they were too low. For example, its unclear whether those figures include amounts owed for tools and dies.
Bairds Leiker notes that engine and transmission system supplier BorgWarner Inc., which is owed $5.5 million by Chrysler, has just reported first-quarter results that were better than expected by analysts. He attributed that result to BorgWarners better-than-expected cost-cutting performance, and said it showed that some suppliers can absorb having payments tied up in bankruptcy court.
Some ratings unaffected
Echoing that opinion, Standard & Poors Ratings Services said Friday from Tokyo that the Chrysler bankruptcy would not affect the ratings of the many Japanese suppliers that do business with the automaker in North America.
The auto suppliers have adopted credit management measures, such as inventory reduction, in anticipation, S&P said.
A spokeswoman for the North American subsidiary of Japans Denso Corp. said it is too early to say what impact the Chrysler bankruptcy will have but that Denso is working closely with the customer.
The court filing indicates that Denso has $18.7 million in unsecured receivables from Chrysler. But that loss could grow quickly. Chrysler represents about $428 million worth of annual business to the supplier of engine management and heating and air conditioning systems. At that volume, a 60-day halt in business would represent roughly another $70 million in lost revenues for Denso.
Several Japanese parts companies have applied for available U.S. Treasury Department guarantees on their Chrysler accounts receivable. Among those seeking Treasury assistance:
Hitachi Metals Ltd., a steel maker.
Mitsubishi Electric Corp., which makes electronic parts.
Nachi-Fujikoshi Corp., which makes factory robots.
Akebono Brake Industry Co., which produces brakes in the United States.
Hans Greimel contributed to this report