Auto parts makers are coping with the downturn better than anticipated and a major supply chain disruption is looking less-likely, according to a Wall Street analyst.
We have increased confidence that a major supplier disruption appears to be unlikely given that working capital concerns may be overstated and suppliers may be healthier than anticipated, Brett Hoselton, senior automotive analyst with KeyBanc Capital Markets Inc., said in an investors note today following a recent meeting with the Original Equipment Suppliers Association in Troy, Mich.
Even with the Chapter 11 bankruptcies of General Motors, then-Chrysler LLC and large tier-one suppliers like Lear Corp., Visteon Corp., Hayes-Lemmerz International Inc., the flow of parts has not yet been significantly disrupted.
Key companies in bankruptcy have been able to pursue reorganization via financing from banks or the automakers themselves, rather than be forced to liquidate because of a lack in working capital, he said.
That, combined with the fact that only 14 out of 105 suppliers surveyed in a recent OESA poll voiced concerns about liquidity shortages causing problems in a production ramp-up, Hoselton said fears of a supplier cash crunch may be overstated.
OESA has led the public push for additional supplier aid, making multiple pleas to the federal government for up to $18.5 billion in loans and loan guarantees to prevent suppliers that have found access to capital to be very slim from failing.
Hoselton also said consolidation of the supply base is under way, with automakers moving business to fewer, financially-strong suppliers from weaker ones and suppliers reducing their own supply base.
The stronger suppliers are also beginning reap the benefits of their health. Automakers are beginning to more frequently pay for suppliers up-front like engineering, research and development and tooling costs, Hoselton said.