May 6, 2009 at 4:27 pm

Ford worries about suppliers

Automaker prepares for impact from Chrysler bankruptcy

Dearborn

Ford Motor Co. Executive Chairman Bill Ford Jr. said he is "worried" about the impact Chrysler LLC's bankruptcy could have on the supply base on which all automakers depend, but is "encouraged" by the steps being taken to prevent disruption in the flow of parts.

Members of President Obama's automotive task force "completely understand that the one thing this industry can't withstand is the collapse of the supply base," Ford told The Detroit News in an exclusive interview Tuesday. "They want to know in real time the condition of each major supplier. We've spent a lot of time explaining that to them -- as have others."

President Barack Obama's advisers are not just talking to Detroit's Big Three. The News has learned they also are talking to foreign automakers, including Toyota Motor Corp. and Honda Motor Co.

"Like other automakers, we have been talking to the Treasury about a variety of issues, including suppliers," said Honda spokesman Edward Miller.

Toyota had no immediate comment, but the company had asked to meet with the task force earlier this year and stressed that it relies on many of the same suppliers in the United States as GM and Chrysler.

Bill Ford and others in the industry are particularly concerned about Chrysler's decision to idle production at its North American factories during its bankruptcy. Suppliers already were struggling to cope with General Motors Corp.'s decision to suspend production at its own plants in the United States and Mexico for as long as 11 weeks, starting later this month.

A $5 billion fund has been established to help struggling suppliers, but that money can only be used to cover payments for parts already shipped. It cannot be used to make up for this lost business, according to people familiar with the situation.

"Additional government support for suppliers may be necessary in order to ensure the viability of the Detroit Three," said Moody's Investors Service.

Some suppliers already have applied for aid under the current federal program.

Federal-Mogul Corp. said it has been approved for government aid and will continue shipments to Chrysler as a result.

"As long as payments are guaranteed, we will ship," said Federal-Mogul CEO Jose Maria Alapont. Unlike other parts manufacturers, the Southfield-based company did not interrupt shipments to Chrysler after it filed for Chapter 11 bankruptcy protection last Thursday.

Still, Alapont said the decision by GM and Chrysler to suspend production will make things hard for his company, which is already in the midst of its "worst ever" second quarter. Once plants start building cars again, suppliers must absorb the cost of restarting production in advance of receiving payment. He said there will be a "finance and cash gap there."

While Alapont said Federal-Mogul will be alright -- it has $500 million in cash and a $700 million undrawn cash revolver -- he is concerned about his own supply base. About 10 percent of Federal-Mogul's suppliers have had to be replaced so far and the number is expected to increase, Alapont said.

Meanwhile, Chrysler is poised to announce generous new incentives in a bid to keep customers coming to its showrooms during bankruptcy.

Bill Ford said his company will not match them.

"We're going to be very careful not to do anything to damage our brand and go for short-term market share," he said. "We look at building our brand for the long term."

Speaking to Latino community leaders later at the Latin Americans for Social & Economic Development Inc.'s annual Cinco de Mayo luncheon, he drew loud applause for Ford's decision not to seek government aid.

"We are getting through this without any government assistance, and that's important to us because it really allows us to run our company without interference -- too move quickly, to make quick decisions," he said. "We have a very good plan, and it's working. But it's fragile, because the economy is fragile."