The coming year will be a dynamic one for the battered auto supply base as the industry comes off its worst year in the post-World War II era.
The remnants of 2009 -- vehicle sales dropping by as much 50 percent, a credit drought, massive losses, and the bankruptcies and liquidations that pockmarked the supplier landscape -- are sure to linger through 2010.
“By no means are we going to be on the other side of this next year,” said Dave Andrea, vice president of economics and industry analysis for the Original Equipment Suppliers Association. “We're going to be living with this for a long time to come -- (the change is) definitely structural.”
Many companies have scrambled and pared down their operations to match the industry's new reality of a smaller market.
Andrea cited projections made by CSM Worldwide Inc. that roughly 10.1 million passenger vehicles will be built in North America next year. That's an improvement from this year, when an estimated 8.5 million will be built, but still a far cry from the 12.6 million cars and trucks built in 2007.
Working capital shortfalls will cause some suppliers to stumble when vehicle production gains spur more orders for parts.
Suppliers are still essentially off-limits for traditional commercial lenders. Many companies, sometimes even profitable, reliable firms, are seeing their lines of credit reduced or in some cases cut off altogether.
Mike Wall, director of global financial services for CSM Worldwide, said he expects the supplier credit crunch to continue at least through the second quarter of 2010.
“On a macro level, we're seeing some improvement” in credit availability for the economy as a whole, he said. “But from a practicality standpoint, commercial banks are still hesitant in terms of re-engaging automotive lending.”
A lack of working capital will make it tough for suppliers to pay for front-end costs such as raw materials, engineering and personnel costs as production rates increase.
“A common refrain from the suppliers I've been working with is 'it's almost easier to weather the downturn than manage the upturn,' ” Wall said.