Thursday, May 28, 2009

Visteon Files Chapter 11 Bankruptcy, Will Others Soon Follow?

Visteon is Ford's biggest supplier of auto parts, providing the pieces for the F-150 right on down to the new hybrid models that are touted to be the saviors of the industry. Now Ford gets to finance this bankruptcy, or liquidation may follow - and that would put Ford itself at risk.

Parts suppliers are the heart and soul of auto manufacturing in America and elsewhere - and they are in deep trouble. We lose them and the whole system will collapse. Foreign and domestic alike. Number two on Visteon's big customer list? Hyundai.

Visteon Corp., a former division of Ford Motor Co. and one of the country's largest auto suppliers, put its U.S. operations into Chapter 11 bankruptcy protection Thursday morning.

Visteon's bankruptcy is the latest casualty in the U.S. auto industry, which has been hit by the Chrysler LLC bankruptcy and awaits an imminent filing by General Motors Corp. Though expected for months, a Visteon filing could complicate matters for Ford, the one Detroit auto maker to so far avoid government aid. Visteon doesn't have any financing lined up from banks, and will have to lean heavily on Ford and other auto companies for cash to get it through a restructuring.

As of Dec. 31, Visteon employed 11,000 salaried workers and 22,500 hourly workers world-wide. It also had $893 million in unfunded pension obligations.

Visteon UK filed in March and closed three British plants. Chances are they will be forced to do the same here, as Chairman Donald Stebbins indicates that "capital structure and legacy costs are not sustainable" given the plant shutdowns and auto industry restructuring. That means more layoffs of current workers and benefit cuts to retirees, when translated into real world implications.

This could be the first of many, as suppliers are scrambling to find the way to make it through this dry spell. The banks aren't helping.

Visteon's bankruptcy comes at the beginning of what is likely to be a painful global contraction among companies that supply auto parts. With auto makers building fewer cars and taking longer to pay their bills, suppliers are burning through cash and finding banks reluctant to lend to an industry beset by uncertainty.

Not only are the banks reluctant to lend, it turns out that one bank in particular has slowed the process down considerably, at least as far as GM and Chrysler are concerned. Remember that $5 billion that the feds made available to parts suppliers back in March? Turns out that Citibank, recipient of $50 billion in TARP funds mind you, was "overwhelmed" by the program and wouldn't answer supplier inquiries, even though the auto companies had approved these suppliers for payout.

All our paperwork has been in for weeks,” said the CEO of a Detroit company that makes molded parts.

After General Motors Corp. approved his company for the program, the CEO spent weeks trying to obtain guarantees on his receivables, including three weeks of due diligence with his lender and others.

“But Citibank does not return phone calls or e-mails,” he said.

The program allows suppliers designated by GM or Chrysler L.L.C. to get paid early for their parts shipments or to use government guarantees of payment to borrow from their private lenders. The cash outlays are administered by Citibank, but GM and Chrysler decide which of their suppliers can participate.

Another CEO, who runs a Detroit-area trim supplier, faced similar problems. GM and Chrysler “say we are on the list of suppliers qualified for aid,” he said. But he has yet to hear from Citibank, which he said is overwhelmed by supplier demand.

As of mid-May, Chrysler won court approval to pay these suppliers outside the Treasury program, and GM is expected to do the same. And since it only covered the parts that have already shipped, it can't help suppliers get through the shutdowns that are occurring now. Quick aid will be imperative to getting these companies past this summer.

Governor Granholm made an ominous plea on Tuesday concerning the suppliers. Dr. Ed Montgomery was in town to talk about grants for energy programs, which is a good thing and all, but doesn't come close to addressing the massive job loss we could soon be facing if these guys don't get some help. Are the Feds listening?

"We are in the next week going to see some massive change in our economy. Whatever happens in the next week, we know that things are going to go dark for a while," she said. "The urgency cannot be overstated. We need to provide the suppliers a means to get through the next 60 to 90 days."

Auto parts suppliers account for over 600,000 jobs across the country according to the Center for Automotive Research. Between that and the closing dealerships, the wave of job loss threatens to be tremendous indeed, and will accelerate into the fall, causing a drag on any economic recovery this country could hope to have.

Let's hope the federal government gets a clue and provides some quick relief this time, and please, let's see if we can avoid getting this tangled up in the banks. Don't know how that would work out - but just do it. Find a way. We can't afford to lose these companies because they can't get through the "red tape" that bailed-out banks are putting in their way.