Automakers won't Go down alone

Ford Motor's F-150 pickup is the top-selling vehicle in the US with more than 436,000 purchased through October. But when people stop buying the F-150 - and 26 per cent fewer have sold this year than last - it's not just Ford and its workers that suffer.

Falling sales dry up orders for anti-freeze made in Illinois by a division of Honeywell International, computer sensors manufactured by Germany's Robert Bosch in South Carolina and a hood latch part made by the 110-odd employees of Amanda Bent Bolt of Logan, Ohio.

All told, each truck contains 4,350 parts, made by 270 suppliers in 26 states as well as several foreign countries. Every F-150 that doesn't sell hits literally hundreds of thousands of people who play a role in putting the big machine on the road.

When it comes to the US automakers and their financial troubles, politicians and the public tend to think about the 240,000 jobs that could be lost at the Big Three's assembly lines in Michigan and nearby Rust Belt states.

Yet suppliers provide about 70 per cent of the content in most automobiles, from the seats to specialised bolts on the suspension - everything except the sheet metal and the motor assembly. So when Ford, Chrysler or General Motors sneeze, 600,000 workers in places as widely scattered as Peachtree City and Pittsburg are likely to catch a cold.

As the Alliance of Automobile Manufacturers trade group likes to say, "A lot of US industry goes into every automobile."

That delicate but often overlooked relationship is of crucial importance now that Congress is preparing to debate at least $25 billion in new aid to the auto industry. The US automakers have appealed to the Bush Administration and President-elect Barack Obama for help, arguing that huge losses and crashing sales make emergency cash a necessity.

GM and Ford have lost a combined $30 billion so far this year, while US sales by all three carmakers have declined 21 per cent. This month, GM said it might not have enough cash to pay its bills in the first half of next year.

Senate majority leader Harry Reid plans to try to bring up an auto industry rescue bill in the lame-duck session. A vote could occur tomorrow, but it will be difficult to overcome a threatened filibuster, which would put the issue off until Barack Obama takes office in January with bigger Democratic majorities in Congress.

A number of Republicans who came under attack for supporting the $700 billion Wall Street bailout have been hesitant to back new aid to the auto industry. Senator John Cornyn, who backed the banking system cash, said: "Like most Americans who are concerned about the direction of our economy and more federal spending, I must also ask: When is enough enough?"

What Congress decides could have serious effects on not just employees of Ford, GM and Chrysler but also those who work at such companies as Superior Industries International of Los Angeles, which makes the the F-150's wheels. Superior will close its Pittsburg aluminum wheel plant next month, laying off about 600 employees, because its shipments in the third quarter dropped to the lowest level in a decade.

In Peachtree City, Panasonic Automotive Systems of America has notified its approximately 500 employees who make car stereos, GPS devices and rear-seat DVD entertainment systems that they'll be out of work by the end of next year.

It is a similar story at AK Steel, which relies on the auto market for 30 per cent of its business. The company has temporarily shut down its Mansfield, Ohio, plant because of low demand for the stainless steel it produces for exhaust systems.

"This industry has just nose-dived," said Neil DeKoker, chief executive of the trade group Original Equipment Suppliers Association. He estimates that among the roughly 5,000 US suppliers, more than 100,000 jobs have been shed in the last two years as carmakers order increasingly fewer parts. According to a study by advisory firm BBK, 17 per cent of suppliers were at risk of bankruptcy at the outset of 2008, and the study's author believes that has risen significantly this year.

The vast majority of suppliers get 60 per cent or more of their orders from the auto industry, making the companies particularly vulnerable to a downturn in demand for cars. Detroit's routine requests for lower prices on parts only compounds the problem, DeKoker said. "This could be the last breath for some of these suppliers. Some are just not going to make it."

The Big Three spend about $300 billion a year on equipment, supplies, tooling and parts ranging from transmissions to shop rags. In the US alone, Ford spends more than $40 billion while GM spends $7 billion a year transporting parts to factories and hauling finished automobiles to dealers.

That makes railroads and trucking companies huge clients of the Big Three. No wonder that with car sales down, Norfolk Southern reported a 30 per cent decline in rail car business in the third quarter compared to a year earlier.

Vehicle and parts manufacturing jobs are concentrated in the Midwest and the South. Collectively, Michigan, Ohio, Indiana, Tennessee and Illinois have more than half of the industry's jobs. Other states with sizable numbers include Kentucky, New York, California, Pennsylvania, and North Carolina, according to the Bureau of Labour Statistics.

Ripple effect

With such a wide base of suppliers, the effects of a big automaker failure could be felt throughout the country. "Suppliers have already been in a recession for several years now," said William Diehl, chief executive of BBK.

He pointed out that many of the problems that have afflicted Ford, GM and Chrysler - high gas prices, frozen credit markets and plummeting consumer confidence - affect suppliers as well.

With up to 50 per cent of suppliers "distressed" because of lack of access to new sources of financing and decreased sales, Diehl predicts a "huge increase in supplier liquidations and bankruptcy filings very soon."

That would create blowback for automakers. In February, Plastech Engineered Products Inc. filed for bankruptcy protection. The Dearborn, Mich., molded plastic parts maker employed 7,600 people and had plants in eight states. Last year, it sold $1.4 billion worth of engine covers, grill panels, floor consoles and the like to carmakers, including $200 million in parts to Chrysler. When Plastech closed up shop, Chrysler was forced to immediately idle four plants, sending 10,500 employees home until it could find a new supplier.

Most large suppliers sell parts to all three American automakers at once, plus European and Asian companies like Toyota Motor that have plants in the US. So the failure of certain suppliers could cut off production beyond the Big Three.

"There are dozens and dozens of tiny suppliers that, if they fail, could shut down GM, Ford or even Honda," said Craig Fitzgerald of accounting and advisory firm Plante Moran. That possibility was highlighted in a recent report by the Centre for Automotive Research, which predicted that the failure of a major carmaker could set off a spiralling chain of failures claiming 2.5 million jobs within a year.

Long the silent partners in the automotive world, suppliers are beginning to make noise to draw attention to their financial straits. "Our national security is at stake," Tim Leuliette, chief executive of Dura Automotive Systems, wrote in a letter to President George W. Bush and Treasury Secretary Henry M. Paulson last Thursday, urging government aid for GM, Ford and Chrysler.

The industry's two largest trade groups are expected to send a letter to Congress, signed by nearly 100 companies, supporting federal help to automakers - but urging that the money be spread around.

"Aid is necessary, but it should be provided for suppliers also," said Ann Wilson, senior vice-president for government affairs at the Motor and Equipment Manufacturers Association.

Even with significant help from Washington, some worry that depressed sales of vehicles will continue to push suppliers out of business.

"These companies are in a position where they can't take any more hits," said Kimberly Rodriguez, a principal in the automotive practice at consulting firm Grant Thornton. "A government bailout doesn't affect sales, and sales is what this industry needs."