Suppliers, many of them barely hanging on & parts supply
05-28-2009, 05:49 AM
#1
Team Owner
Thread Starter
Suppliers, many of them barely hanging on & parts supply
Thursday, May 28, 2009
Daniel Howes
Suppliers feel the heat from GM's impending bankruptcy
As many as 1,400 suppliers to General Motors Corp. today expect to receive their cut of roughly $2 billion in payments from the beleaguered automaker, teetering near a historic bankruptcy filing likely to come as early as Monday.
The payments, part of GM's "MNS-2" supplier program, are scheduled to be transmitted electronically to cover parts and materials mostly delivered during April, before GM began aggressively halting production at many -- but not all -- of its North American plants.
What the suppliers don't know: When they'll see the next checks amid GM's rolling production shutdown and an all-but-certain bankruptcy filing. Nor do they know yet whether operations outside the United States may be affected.
"Part of what we're very anxious about is which GM subsidiaries may file and which may not," a senior finance executive for a major Metro Detroit-based supplier told me Wednesday, requesting anonymity because of the sensitive nature of the situation.
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GM owes his company $30 million for parts shipped from plants around the world, $7 million of which should be paid today by GM. Another $3 million, the supplier estimates, would be in jeopardy from a GM bankruptcy filing in the United States, with the balance owed by GM's foreign units in China, Latin America and deeply troubled Europe.
This is getting very interesting. A confluence of business interests, presidential power and geo-political jockeying -- not GM's cars and trucks -- are competing to decide whether GM and its global operations emerge from the morass.
Or whether the sprawling network intended to lead GM into a more promising future collapses into liquidation and legal wrangling that takes others, such as long-bankrupt Delphi Corp. and other suppliers, with it. Either way, Detroit's auto industry will never be the same.
How much imperiled suppliers are likely to be paid before a bankruptcy filing, particularly for material delivered overseas, depends as much on foreign governments as it does on a bankruptcy judge, the U.S. Treasury and GM itself.
In Germany, home to GM's Adam Opel GmbH unit, the center-right government of Chancellor Angela Merkel appears likely to backstop Opel's operations or finance a transfer to one of several suitors or both, likely ensuring payments owed to suppliers.
That's only a start. As wrenching as Chrysler LLC's slide into bankruptcy has been, likely to be followed soon by a landmark GM filing, the sobering fact is that we're still in the opening stages of the tempering of Detroit.
No one, including President Obama and his auto task force, knows how most of it will end. But this much is certain: It'll be a hot summer.
Suppliers, many of them barely hanging on, are looking at months of idled plants and badly shrunken receivables, meaning August, September and October are likely to be more harrowing than April, May and June. Enter Michigan Gov. Jennifer Granholm and her allies in the Legislature to secure temporary federal support from Obama's auto community czar, Ed Montgomery.
Without functioning suppliers able to pay their workforce and operate plants, GM and Chrysler plants can't run, can't ship assembled vehicles and can't book revenue. Stalled suppliers stall any restart of automakers straining to slip the bonds of bankruptcy.
As public (and media) attention has focused intensely on GM's talks with the United Auto Workers and its failed debt-to-equity swap offer to thousands of unsecured bondholders, confirmed Wednesday, the myriad suppliers who employ far more people in more communities than GM itself are scrambling to answer a simple question:
What will this giant's slide into federal bankruptcy court mean for their business, their liquidity and their own chances of landing in a bankruptcy court near them? How likely is GM to execute some sort of global bankruptcy that would reverberate from Detroit and New York to Frankfurt, London, Moscow and Sao Paolo?
Even more: Are there legitimate exit strategies for weary suppliers tired of the start again-stop again orders from customers like GM or Chrysler unsure about their product plan, how long current models will run and when the replacements arrive?
Underpinning the conditions that coalesced to bring GM and Chrysler to this reckoning is a simple human response when patience is lost and the excuses don't resonate: "We're done" and "no more."
Private lenders like banks, hedge funds and many investors already have said as much, hastening the rush of GM and Chrysler into federal supervision. Don't think more than a few suppliers wouldn't like to do the same -- after the checks clear.
Daniel Howes
Suppliers feel the heat from GM's impending bankruptcy
As many as 1,400 suppliers to General Motors Corp. today expect to receive their cut of roughly $2 billion in payments from the beleaguered automaker, teetering near a historic bankruptcy filing likely to come as early as Monday.
The payments, part of GM's "MNS-2" supplier program, are scheduled to be transmitted electronically to cover parts and materials mostly delivered during April, before GM began aggressively halting production at many -- but not all -- of its North American plants.
What the suppliers don't know: When they'll see the next checks amid GM's rolling production shutdown and an all-but-certain bankruptcy filing. Nor do they know yet whether operations outside the United States may be affected.
"Part of what we're very anxious about is which GM subsidiaries may file and which may not," a senior finance executive for a major Metro Detroit-based supplier told me Wednesday, requesting anonymity because of the sensitive nature of the situation.
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GM owes his company $30 million for parts shipped from plants around the world, $7 million of which should be paid today by GM. Another $3 million, the supplier estimates, would be in jeopardy from a GM bankruptcy filing in the United States, with the balance owed by GM's foreign units in China, Latin America and deeply troubled Europe.
This is getting very interesting. A confluence of business interests, presidential power and geo-political jockeying -- not GM's cars and trucks -- are competing to decide whether GM and its global operations emerge from the morass.
Or whether the sprawling network intended to lead GM into a more promising future collapses into liquidation and legal wrangling that takes others, such as long-bankrupt Delphi Corp. and other suppliers, with it. Either way, Detroit's auto industry will never be the same.
How much imperiled suppliers are likely to be paid before a bankruptcy filing, particularly for material delivered overseas, depends as much on foreign governments as it does on a bankruptcy judge, the U.S. Treasury and GM itself.
In Germany, home to GM's Adam Opel GmbH unit, the center-right government of Chancellor Angela Merkel appears likely to backstop Opel's operations or finance a transfer to one of several suitors or both, likely ensuring payments owed to suppliers.
That's only a start. As wrenching as Chrysler LLC's slide into bankruptcy has been, likely to be followed soon by a landmark GM filing, the sobering fact is that we're still in the opening stages of the tempering of Detroit.
No one, including President Obama and his auto task force, knows how most of it will end. But this much is certain: It'll be a hot summer.
Suppliers, many of them barely hanging on, are looking at months of idled plants and badly shrunken receivables, meaning August, September and October are likely to be more harrowing than April, May and June. Enter Michigan Gov. Jennifer Granholm and her allies in the Legislature to secure temporary federal support from Obama's auto community czar, Ed Montgomery.
Without functioning suppliers able to pay their workforce and operate plants, GM and Chrysler plants can't run, can't ship assembled vehicles and can't book revenue. Stalled suppliers stall any restart of automakers straining to slip the bonds of bankruptcy.
As public (and media) attention has focused intensely on GM's talks with the United Auto Workers and its failed debt-to-equity swap offer to thousands of unsecured bondholders, confirmed Wednesday, the myriad suppliers who employ far more people in more communities than GM itself are scrambling to answer a simple question:
What will this giant's slide into federal bankruptcy court mean for their business, their liquidity and their own chances of landing in a bankruptcy court near them? How likely is GM to execute some sort of global bankruptcy that would reverberate from Detroit and New York to Frankfurt, London, Moscow and Sao Paolo?
Even more: Are there legitimate exit strategies for weary suppliers tired of the start again-stop again orders from customers like GM or Chrysler unsure about their product plan, how long current models will run and when the replacements arrive?
Underpinning the conditions that coalesced to bring GM and Chrysler to this reckoning is a simple human response when patience is lost and the excuses don't resonate: "We're done" and "no more."
Private lenders like banks, hedge funds and many investors already have said as much, hastening the rush of GM and Chrysler into federal supervision. Don't think more than a few suppliers wouldn't like to do the same -- after the checks clear.
05-28-2009, 05:56 AM
#2
Team Owner
Thread Starter
Thursday, May 28, 2009
Japan braces for GM bankruptcy
Associated Press
Tokyo -- More than 100 Japanese companies face possible bad debts if General Motors Corp. files for bankruptcy, a private credit research agency said Wednesday.
GM has close business ties with 102 Japanese companies, Teikoku Databank Ltd. said. They include auto parts makers and suppliers such as Aisin Seiki Co. Ltd., Bridgestone Corp. and Mitsubishi Electric Corp.
GM said Wednesday that not enough of its bondholders agreed to swap their debt for company stock, meaning that the money-losing auto giant is likely to be headed for bankruptcy protection.
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GM has until Monday to finish restructuring or file for bankruptcy.
Amid worries over GM's possible bankruptcy, the U.S. Treasury Department has launched a $5 billion support program to provide government guarantees for financing auto parts.
Aisin Seiki said it had applied for the U.S. government's auto parts support program. It said it had around 1.7 billion yen ($18 million) in bad debt from GM at the end of April.
Teikoku Databank did not specify the number of Japanese companies applying for the U.S. auto parts assistance program. But it warned that not every applicant would be able to get federal assistance.
"There is a potential risk that GM's bankruptcy could trigger bad debt" among the 102 Japanese companies, the research agency said.
GM, which has received $19.4 billion in federal loans, faces an almost impossible list of restructuring tasks to complete before the Monday deadline. It must get new cost-cutting agreements with unions, close factories, cut jobs, and complete the debt-for-stock swap with 90 percent of its bondholders to prove to the government it can repay loans.
Japan braces for GM bankruptcy
Associated Press
Tokyo -- More than 100 Japanese companies face possible bad debts if General Motors Corp. files for bankruptcy, a private credit research agency said Wednesday.
GM has close business ties with 102 Japanese companies, Teikoku Databank Ltd. said. They include auto parts makers and suppliers such as Aisin Seiki Co. Ltd., Bridgestone Corp. and Mitsubishi Electric Corp.
GM said Wednesday that not enough of its bondholders agreed to swap their debt for company stock, meaning that the money-losing auto giant is likely to be headed for bankruptcy protection.
Advertisement
China could be a great market for your products and services
The Secret to Saving Money on Auto Insurance
The Secrets to Successful eBay Selling
Advertising provided by:
ARALifestyle.com
GM has until Monday to finish restructuring or file for bankruptcy.
Amid worries over GM's possible bankruptcy, the U.S. Treasury Department has launched a $5 billion support program to provide government guarantees for financing auto parts.
Aisin Seiki said it had applied for the U.S. government's auto parts support program. It said it had around 1.7 billion yen ($18 million) in bad debt from GM at the end of April.
Teikoku Databank did not specify the number of Japanese companies applying for the U.S. auto parts assistance program. But it warned that not every applicant would be able to get federal assistance.
"There is a potential risk that GM's bankruptcy could trigger bad debt" among the 102 Japanese companies, the research agency said.
GM, which has received $19.4 billion in federal loans, faces an almost impossible list of restructuring tasks to complete before the Monday deadline. It must get new cost-cutting agreements with unions, close factories, cut jobs, and complete the debt-for-stock swap with 90 percent of its bondholders to prove to the government it can repay loans.
05-29-2009, 06:27 AM
#3
Team Owner
Thread Starter
Friday, May 29, 2009
Auto suppliers brace for hit
Visteon, Metaldyne bankruptcies reveal supply base fragility
Christine Tierney and Bryce G. Hoffman / The Detroit News
The bankruptcies of Visteon Corp. and Metaldyne Corp., occurring within hours of each other on Thursday, could be just the first in a rash of failures of auto parts suppliers starved by huge cuts in U.S. vehicle production.
"There'll be a series of bankruptcies," said Kirk Ludtke, an investment adviser with CRT Capital Group LLC in Stamford, Conn. "We're in the early stages of the process, unfortunately."
Senior members of the Obama administration, including Secretary of Transportation Ray LaHood and Secretary of Energy Steven Chu, are likely to hear dire accounts next week as they tour hard-hit parts of the Midwest.
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More than half a million people in the region work for suppliers, which account for the largest number of manufacturing jobs in Michigan and several other Midwestern states.
With banks reluctant to lend money to automakers or their suppliers, the pressure is mounting on Detroit's struggling carmakers and the U.S. government to provide the funds to keep the supply base from unraveling.
In addition to a huge slump in vehicle production resulting from a 40 percent collapse in sales this year, many suppliers have been hammered by Chrysler LLC's production halt after it declared bankruptcy. General Motors Corp. also has idled many plants.
Earlier this year, the government earmarked $5 billion in aid to suppliers, which automakers were expected to distribute, but little of that has reached struggling parts manufacturers.
"Some help has come to suppliers. Not enough," Sen. Debbie Stabenow, D-Lansing, said in a radio interview Thursday with WJR-AM's Frank Beckmann. "More help needs to come to tier two, tier three suppliers," she said, referring to smaller firms down the supply chain.
Suppliers have asked for an additional $8 billion -- a request that Gov. Jennifer Granholm pressed this week in talks with Ed Montgomery, the White House's point man on communities hit by the auto industry's crisis.
The Obama administration is monitoring the sector but has no plans to go beyond a $5 billion program created to guarantee supplier payments, officials said Thursday.
The strains on the sector are bound to increase if GM also files for bankruptcy, as is widely expected next week. Both American Axle & Manufacturing Holdings Inc. and Lear Corp. are viewed as teetering on the verge of bankruptcy.
"There's going to be a lot more in the next 60 days," said Michael Hedge of Hedge & Co. in Bingham Farms. "This is going to be the long hot summer for suppliers."
With both GM and Chrysler shutting down most of their North American factories, already cash-strapped suppliers are being pushed to the brink. He said many have already reached their credit limits or are on the verge of violating loan covenants.
Even a resumption of production will not solve their problems immediately. Under the terms of most contracts, automakers are not required to pay for components until two or even three months after they are shipped.
How suppliers are going to come up with the cash to get their lines running again is a key question that will have to be answered by the federal government, Hedge said. The existing government program that allocated $5 billion only covered bills for merchandise already shipped.
"Something much larger and longer has to be put into place," he said. "You've got to get the money flowing in this industry."
For months, analysts have been predicting a cascade of supplier bankruptcies -- and some say it may have begun. Early on Thursday, Visteon, based in Van Buren Township, filed for bankruptcy protection, followed by Plymouth-based Metaldyne.
S&P credit analyst Robert Schulz said he believed the filings were prompted by the firms' heavy debt burdens and a cash crunch provoked by severe production declines. S&P cut the credit ratings for both Visteon and Metaldyne to D from CCC.
Ford Motor Co. has agreed to provide debtor-in-possession financing for Visteon, a former subsidiary of the Dearborn automaker. (Similarly, GM provided assistance to its onetime subsidiary Delphi Corp., which declared bankruptcy in 2005 and has not yet emerged.)
Deutsche Bank AG has agreed to provide an $18.5 million debtor-in-possession loan to Metaldyne.
"So far, we've seen carmakers step up for their former subsidiaries," Ludtke said. But it's not clear who will act to support large suppliers that are not affiliated primarily with one automaker.
"We're in the early stages of a consolidation of the supply base. That consolidation is going to take time, and it's going to be expensive."
Key suppliers file for bankruptcy Visteon
Headquarters: Van Buren Township (Wayne County)
About the company: Visteon was spun off from Ford in June 2000. It suspended matching contributions to workers 401(k) plans in January and said it would cut 800 jobs. Shut or sold 300 plants in three years. Visteon said it expects to fund its operations with cash on hand, cash flows from operations and a debtor-in-possession facility. Ford has said it will support the parts maker's debtor-in-possession financing to ensure the continued supply of parts.
Products: Vehicle climate systems, interior parts, lighting and electronic systems.
Employees: About 31,000
Finances: Last year's sales totaled $9.54 billion. The company hasn't reported an annual profit since it was spun off by Ford. Its bankruptcy filing listed $4.58 billion in assets and $5.32 billion in liabilities, including $862 million owed to bondholders.
Largest customer: Ford
Metaldyne
Headquarters: Plymouth Township (Wayne County)
About the company: Parent company Asahi Tec is 60.1 percent-owned by Belgium's RHJ International SA. RHJ offered to buy some operations in North America and Europe for $25 million cash, a new $50 million note, rollover of an existing $20 million note and assumption of other liabilities. Washington-based equity firm Carlyle Group made an undisclosed bid for chassis-making assets in the U.S., Mexico and Spain. Metaldyne is seeking bidders for the rest of its assets.
Products: Chassis and powertrain components
Employees: 4,500 globally; 2,500 in the U.S.
Finances: Last year's sales totaled $1.5 billion. Accumulated liabilities totaled $929 million as of Dec. 31. Ford is owed $22.5 million and GM $9.75 million, while unsecured bondholders are owed $29.3 million.
Largest customer: Chrysler
American Axle & Manufacturing Holdings Inc.
Detroit: On bankruptcy watch list
Lear Corp.
Southfield: On bankruptcy watch list
Delphi Corp.
Troy: Filed for bankruptcy in 2005, waiting to emerge
Dana Corp.
Toledo: Filed for bankruptcy in 2006, emerged in 2008
Collins & Aikman Corp.
Southfield: Filed for bankruptcy in 2005, liquidated in 2007
ctierney@detnews.com (313) 222-1463 David Shepardson contributed.
Auto suppliers brace for hit
Visteon, Metaldyne bankruptcies reveal supply base fragility
Christine Tierney and Bryce G. Hoffman / The Detroit News
The bankruptcies of Visteon Corp. and Metaldyne Corp., occurring within hours of each other on Thursday, could be just the first in a rash of failures of auto parts suppliers starved by huge cuts in U.S. vehicle production.
"There'll be a series of bankruptcies," said Kirk Ludtke, an investment adviser with CRT Capital Group LLC in Stamford, Conn. "We're in the early stages of the process, unfortunately."
Senior members of the Obama administration, including Secretary of Transportation Ray LaHood and Secretary of Energy Steven Chu, are likely to hear dire accounts next week as they tour hard-hit parts of the Midwest.
Advertisement
More than half a million people in the region work for suppliers, which account for the largest number of manufacturing jobs in Michigan and several other Midwestern states.
With banks reluctant to lend money to automakers or their suppliers, the pressure is mounting on Detroit's struggling carmakers and the U.S. government to provide the funds to keep the supply base from unraveling.
In addition to a huge slump in vehicle production resulting from a 40 percent collapse in sales this year, many suppliers have been hammered by Chrysler LLC's production halt after it declared bankruptcy. General Motors Corp. also has idled many plants.
Earlier this year, the government earmarked $5 billion in aid to suppliers, which automakers were expected to distribute, but little of that has reached struggling parts manufacturers.
"Some help has come to suppliers. Not enough," Sen. Debbie Stabenow, D-Lansing, said in a radio interview Thursday with WJR-AM's Frank Beckmann. "More help needs to come to tier two, tier three suppliers," she said, referring to smaller firms down the supply chain.
Suppliers have asked for an additional $8 billion -- a request that Gov. Jennifer Granholm pressed this week in talks with Ed Montgomery, the White House's point man on communities hit by the auto industry's crisis.
The Obama administration is monitoring the sector but has no plans to go beyond a $5 billion program created to guarantee supplier payments, officials said Thursday.
The strains on the sector are bound to increase if GM also files for bankruptcy, as is widely expected next week. Both American Axle & Manufacturing Holdings Inc. and Lear Corp. are viewed as teetering on the verge of bankruptcy.
"There's going to be a lot more in the next 60 days," said Michael Hedge of Hedge & Co. in Bingham Farms. "This is going to be the long hot summer for suppliers."
With both GM and Chrysler shutting down most of their North American factories, already cash-strapped suppliers are being pushed to the brink. He said many have already reached their credit limits or are on the verge of violating loan covenants.
Even a resumption of production will not solve their problems immediately. Under the terms of most contracts, automakers are not required to pay for components until two or even three months after they are shipped.
How suppliers are going to come up with the cash to get their lines running again is a key question that will have to be answered by the federal government, Hedge said. The existing government program that allocated $5 billion only covered bills for merchandise already shipped.
"Something much larger and longer has to be put into place," he said. "You've got to get the money flowing in this industry."
For months, analysts have been predicting a cascade of supplier bankruptcies -- and some say it may have begun. Early on Thursday, Visteon, based in Van Buren Township, filed for bankruptcy protection, followed by Plymouth-based Metaldyne.
S&P credit analyst Robert Schulz said he believed the filings were prompted by the firms' heavy debt burdens and a cash crunch provoked by severe production declines. S&P cut the credit ratings for both Visteon and Metaldyne to D from CCC.
Ford Motor Co. has agreed to provide debtor-in-possession financing for Visteon, a former subsidiary of the Dearborn automaker. (Similarly, GM provided assistance to its onetime subsidiary Delphi Corp., which declared bankruptcy in 2005 and has not yet emerged.)
Deutsche Bank AG has agreed to provide an $18.5 million debtor-in-possession loan to Metaldyne.
"So far, we've seen carmakers step up for their former subsidiaries," Ludtke said. But it's not clear who will act to support large suppliers that are not affiliated primarily with one automaker.
"We're in the early stages of a consolidation of the supply base. That consolidation is going to take time, and it's going to be expensive."
Key suppliers file for bankruptcy Visteon
Headquarters: Van Buren Township (Wayne County)
About the company: Visteon was spun off from Ford in June 2000. It suspended matching contributions to workers 401(k) plans in January and said it would cut 800 jobs. Shut or sold 300 plants in three years. Visteon said it expects to fund its operations with cash on hand, cash flows from operations and a debtor-in-possession facility. Ford has said it will support the parts maker's debtor-in-possession financing to ensure the continued supply of parts.
Products: Vehicle climate systems, interior parts, lighting and electronic systems.
Employees: About 31,000
Finances: Last year's sales totaled $9.54 billion. The company hasn't reported an annual profit since it was spun off by Ford. Its bankruptcy filing listed $4.58 billion in assets and $5.32 billion in liabilities, including $862 million owed to bondholders.
Largest customer: Ford
Metaldyne
Headquarters: Plymouth Township (Wayne County)
About the company: Parent company Asahi Tec is 60.1 percent-owned by Belgium's RHJ International SA. RHJ offered to buy some operations in North America and Europe for $25 million cash, a new $50 million note, rollover of an existing $20 million note and assumption of other liabilities. Washington-based equity firm Carlyle Group made an undisclosed bid for chassis-making assets in the U.S., Mexico and Spain. Metaldyne is seeking bidders for the rest of its assets.
Products: Chassis and powertrain components
Employees: 4,500 globally; 2,500 in the U.S.
Finances: Last year's sales totaled $1.5 billion. Accumulated liabilities totaled $929 million as of Dec. 31. Ford is owed $22.5 million and GM $9.75 million, while unsecured bondholders are owed $29.3 million.
Largest customer: Chrysler
American Axle & Manufacturing Holdings Inc.
Detroit: On bankruptcy watch list
Lear Corp.
Southfield: On bankruptcy watch list
Delphi Corp.
Troy: Filed for bankruptcy in 2005, waiting to emerge
Dana Corp.
Toledo: Filed for bankruptcy in 2006, emerged in 2008
Collins & Aikman Corp.
Southfield: Filed for bankruptcy in 2005, liquidated in 2007
ctierney@detnews.com (313) 222-1463 David Shepardson contributed.