Auto Suppliers Brace for Blow of GM Bankruptcy

Auto parts suppliers, pummeled by the global slump in vehicle sales, will soon face a new menace to their survival: General Motors' bankruptcy.

GM is likely to file for Chapter 11 bankruptcy protection on Monday. And suppliers could suffer if the automaker, following Chrysler's example, slashes more production by shuttering plants until it emerges from court.

GM shares more than half of its 1,500 North American suppliers with Chrysler and Ford, according to CSM Worldwide.

"You'll have a tough time finding a supplier that isn't touched by GM," CSM auto analyst Mike Wall said.

The industry is already suffering. Plagued by manufacturing cutbacks and falling profits, Ford's largest supplier, Visteon, filed for Chapter 11 protection in U.S. Bankruptcy Court in Delaware on Thursday, while Metaldyne, another Michigan company, filed in New York.

"Visteon and Metaldyne are just the beginning," said Ann Wilson, senior vice president of government affairs for the Motor and Equipment Manufacturers Association. "We're talking 50 to 60 suppliers that will probably file in the next few months. Some will go straight to liquidation. Small companies will just close. But a number will enter the bankruptcy process, and it's important it's done with the same thought and care that's been afforded to GM and Chrysler."

Last year about 40 suppliers sought bankruptcy protection, according to the manufacturers association. At least 20 filed in the first four months of this year.

The association plans to meet lawmakers next month in hopes that they will pass an incentive program, like cash-for-clunkers, to reverse weak U.S. new-car sales.

Following Chrysler's bankruptcy, small auto parts makers have appealed to lawmakers for federal aid. Chrysler's bankruptcy judge approved a motion that will pay some of its biggest venders, who make key modules such as dashboards, for shipped parts. Yet small companies, contracted to make the screws for those dashboards, say the money isn't trickling down.

GM is wrestling with its spun-off supplier Delphi, which filed for Chapter 11 in 2005 and still has not emerged. GM has poured millions of dollars into Delphi, and under a deal this week with its union, GM may take ownership of five Delphi plants.

Yesterday, its bankruptcy judge delayed a scheduled hearing on Delphi, which is seeking an extension or waiver from its lenders, until Tuesday. Delphi continues to work with its lenders, GM and the president's auto task force to resolve the remaining elements of its Chapter 11 case, but said it could default on its bankruptcy loans early next week if it does not reach an agreement with the Treasury Department and GM by Monday.

Visteon, which spun off Ford in 2000, will continue operations with the help of Ford. While the automaker has not disclosed the amount it will provide, Ford expects Visteon's other customers to also help with debtor-in-possession financing.

"Ford's top priority is to ensure we have sufficient parts and material to protect our production," purchasing executive Tony Brown said in the statement. Ford may provide $500 million to $700 million, based on Visteon's recent cash performance, Brian Johnson, a Barclays Capital analyst, wrote in a note.

Visteon's filing listed $5.32 billion in liabilities, including $862 million owed to bondholders. Visteon hasn't reported an annual profit since it was spun off. Yesterday, Visteon's bankruptcy judge authorized the supplier to continue paying wages and other obligations.

Metaldyne, which has secured $18.5 million in debtor-in-possession financing, intends to sell a majority of its business as its parent company, Asahi Tec, shifts its focus to its Japanese businesses. Private-equity firms RHJ International and the Carlyle Group have separately submitted letters of intent to purchase assets. Carlyle has proposed purchasing Metaldyne's chassis business in the United States, Mexico and Spain, Metaldyne said, without disclosing the price.

Metaldyne had $939 million in liabilities as of Dec. 31, a statement on the Tokyo Stock exchange said. GM is owed $9.75 million and Ford is owed $22.75 million, according to the bankruptcy filing.