A growing number of parts suppliers face abandonment by their banks and lenders.
Parts makers' lenders are doing more than just tightening credit standards. "The banks are trying to get out of town," says investment banker Scott Eisenberg of Amherst Partners LLC of suburban Detroit.
Fifth Third Bancorp, KeyCorp, Huntington Bancshares Inc. and Comerica Inc. have been cutting their exposure to the auto industry, according to a report in American Banker, a trade publication.
Comerica's modern history began in 1933 as Manufacturers National Corp. -- a bank formed by Edsel Ford that long dominated automotive lending. But Comerica now boasts of pulling back from the industry.
"We have reduced our loans outstanding by $1.2 billion, or 46 percent, since the end of 2005," a Comerica executive told analysts in April. "This portfolio (of automotive manufacturing) represents about 3 percent of our total loans, and we plan to continue to reduce our loans to the automotive sector."
Analysts say banks with significant operations in the Midwest will take hits in multiple lending portfolios -- for example, consumer loans, real estate loans, mortgage lending -- if the automakers fail. Suppliers just don't have the resources to withstand a prolonged downturn, they say.
Comerica, which moved its headquarters from Detroit to Dallas in 2007, would feel an impact because it still originates more than a third of its loans in the Midwest, one analyst says.
The value of the collateral that banks have taken in return for loans has been severely diminished. Eisenberg cites an auction of automotive equipment his firm handled that brought only 10 to 20 percent of the equipment's value just 18 months before.
Twice in recent weeks Chrysler had to come to the aid of suppliers after banks yanked their loans or refused to extend additional credit, Chrysler purchasing chief Scott Garberding said in Bankruptcy Court documents this month.
He said Chrysler had to intervene at Nicholas Plastics, a supplier that eventually closed in western Michigan, and Contech LLC, which is now in Chapter 11 reorganization.
Contech, a maker of die castings, suspension and exhaust systems, filed Chapter 11 in January when lenders pulled the plug on a loan. The Portage, Mich., company got most of its $222.8 million in 2008 revenue from Detroit-area factories.
According to a bankruptcy affidavit, CEO Morris Rowlett said Contech was forced into Chapter 11 when lenders seized $11.5 million in cash from the company. At the time, Contech was trying to negotiate help from its automotive customers and a bank forbearance agreement to maintain access to working capital.
When the banks called in their loans, Chrysler was forced to hustle to keep Contech parts flowing, Garberding said.
In an affidavit, Garberding said: "The banks in the current economic atmosphere have been very impatient with any business within the automobile industry that fails to abide by every covenant and provision of its loan agreement."