Going into bankruptcy isn't so much the problem, the senior executive at a prominent Tier One auto supplier told me. The problem is getting out.
"Banks and automotive are the two most toxic words you can say to investors," he told me, provided his identity would not be revealed because of the implications it might have for his company with investors. For major suppliers with close ties to Detroit's automakers, a working assumption is that a Chapter 11 bankruptcy filing is fast becoming akin to "submitting to liquidation."
Unless, that is, your crack bankruptcy counsel can line up debtor-in-possession financing that would be sufficient to pave an exit from bankruptcy months later. That's a gargantuan task if no one can accurately predict when the credit market's risk appetite might return and whether the precipitous slide in auto sales will reverse anytime soon.
Remember that should Visteon Corp., its shares delisted and in danger of missing interest payments on outstanding bonds, seek bankruptcy protection as early as today. Or if Lear Corp. and American Axle & Manufacturing Holdings Inc., both considered to be "on the bubble," are forced by circumstances to follow their rivals.
Or just review the saga of Delphi Corp., the former parts unit of General Motors Corp. Three years and five months ago, the Troy-based supplier filed for bankruptcy in a watershed move that, for the first time, exposed the national contract between the United Auto Workers and Detroit's automakers to bankruptcy court scrutiny.
Those contracts are resolved, but the company remains mired in a kind of bankruptcy purgatory -- leaner, purged of money-losing operations and financial obligations but still unable to arrange the financing necessary for its much smaller U.S. operations to emerge from bankruptcy.
Which means Delphi and others likely to follow its route into Chapter 11 are as likely to liquidate their remaining U.S. operations and operate abroad -- where they book profits in more normal times -- as they are to keep doing the same things and expect different results. Who needs it?
Delphi employs 146,600 employees worldwide, only 12,700 of them in the United States. Of the supplier's 150 manufacturing sites around the globe, eight are located in the States -- only one of them in Michigan.
Visteon, the former captive parts unit of Ford Motor Co., could follow Delphi into bankruptcy, the first in a new wave of filings that would reshape the global auto supply base. Shorn of its money losing plants with the help of Ford, one option for a reorganized Visteon could be as a foreign entity managed from Michigan -- or not. Another option: be sold in pieces to rival bidders.
These suppliers, major players here in Metro Detroit, may not draw much attention compared with the roles their customers play as national whipping boys. Yet suppliers employ many more people than Detroit's automakers, and their failure -- especially the kind of "uncontrolled" collapse most feared by their Detroit customers -- could trigger the kind of chain reaction the Obama White House is eager to avoid.
As key members of President Obama's auto task force spent Monday here visiting with GM and Chrysler LLC, the higher drama this week is playing out among top suppliers: Can they muster the cash to restart operations now that lengthy auto shutdowns are at an end? Who, if any, will be forced into bankruptcy? Will Team Obama forestall collapse by backing suppliers' receivables -- money due them from automakers -- with federal guarantees?
Which suppliers will win and which will lose this macabre game of automotive roulette? Because all of them won't survive this brutal shakeout.
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