Executive Briefings

Fate of Parts Makers Interconnected with Automakers' Supply Chains

Obviously, automotive parts suppliers are heavily exposed to the difficulties of the Detroit Three, but most of them also sell parts to the Asian and European manufacturers in America. Given the extreme interdependency of the supply chain and the degree of specialization within it, the failure of even one or two small firms can lead to stoppages on vehicle-assembly lines.
The collapse in new-vehicle demand has traumatized parts-makers. They have seen their cash flow fall by half or more during the first quarter, as carmakers have scrambled to cut production, in many cases entirely shutting factories for weeks and months. Surveys suggest that a third of the supply base is already in financial distress, and another third expects to fall into that state before the end of the quarter. With inventories finally thinning, the carmakers are now starting to ramp up production, albeit at a much reduced rate. But parts makers, which typically get paid only after 55 days, must somehow find the cash to supply their customers when no one will lend to them and no payments can be expected before late April.
Source: The Economist

Obviously, automotive parts suppliers are heavily exposed to the difficulties of the Detroit Three, but most of them also sell parts to the Asian and European manufacturers in America. Given the extreme interdependency of the supply chain and the degree of specialization within it, the failure of even one or two small firms can lead to stoppages on vehicle-assembly lines.
The collapse in new-vehicle demand has traumatized parts-makers. They have seen their cash flow fall by half or more during the first quarter, as carmakers have scrambled to cut production, in many cases entirely shutting factories for weeks and months. Surveys suggest that a third of the supply base is already in financial distress, and another third expects to fall into that state before the end of the quarter. With inventories finally thinning, the carmakers are now starting to ramp up production, albeit at a much reduced rate. But parts makers, which typically get paid only after 55 days, must somehow find the cash to supply their customers when no one will lend to them and no payments can be expected before late April.
Source: The Economist