Visteon sign outside the company's headquarters in Van Buren Township. The auto parts supplier said Thursday, it has filed for Chapter 11 bankruptcy protection. (Paul Sancya / Associated Press)
The bankruptcies of Visteon Corp. and Metaldyne Corp., occurring within hours of each other on Thursday, could be just the first in a rash of failures of auto parts suppliers starved by huge cuts in U.S. vehicle production.
"There'll be a series of bankruptcies," said Kirk Ludtke, an investment adviser with CRT Capital Group LLC in Stamford, Conn. "We're in the early stages of the process, unfortunately."
Senior members of the Obama administration, including Secretary of Transportation Ray LaHood and Secretary of Energy Steven Chu, are likely to hear dire accounts next week as they tour hard-hit parts of the Midwest.
More than half a million people in the region work for suppliers, which account for the largest number of manufacturing jobs in Michigan and several other Midwestern states.
With banks reluctant to lend money to automakers or their suppliers, the pressure is mounting on Detroit's struggling carmakers and the U.S. government to provide the funds to keep the supply base from unraveling.
In addition to a huge slump in vehicle production resulting from a 40 percent collapse in sales this year, many suppliers have been hammered by Chrysler LLC's production halt after it declared bankruptcy. General Motors Corp. also has idled many plants.
Earlier this year, the government earmarked $5 billion in aid to suppliers, which automakers were expected to distribute, but little of that has reached struggling parts manufacturers.
"Some help has come to suppliers. Not enough," Sen. Debbie Stabenow, D-Lansing, said in a radio interview Thursday with WJR-AM's Frank Beckmann. "More help needs to come to tier two, tier three suppliers," she said, referring to smaller firms down the supply chain.
Suppliers have asked for an additional $8 billion -- a request that Gov. Jennifer Granholm pressed this week in talks with Ed Montgomery, the White House's point man on communities hit by the auto industry's crisis.
The Obama administration is monitoring the sector but has no plans to go beyond a $5 billion program created to guarantee supplier payments, officials said Thursday.
The strains on the sector are bound to increase if GM also files for bankruptcy, as is widely expected next week. Both American Axle & Manufacturing Holdings Inc. and Lear Corp. are viewed as teetering on the verge of bankruptcy.
"There's going to be a lot more in the next 60 days," said Michael Hedge of Hedge & Co. in Bingham Farms. "This is going to be the long hot summer for suppliers."
With both GM and Chrysler shutting down most of their North American factories, already cash-strapped suppliers are being pushed to the brink. He said many have already reached their credit limits or are on the verge of violating loan covenants.
Even a resumption of production will not solve their problems immediately. Under the terms of most contracts, automakers are not required to pay for components until two or even three months after they are shipped.
How suppliers are going to come up with the cash to get their lines running again is a key question that will have to be answered by the federal government, Hedge said. The existing government program that allocated $5 billion only covered bills for merchandise already shipped.
"Something much larger and longer has to be put into place," he said. "You've got to get the money flowing in this industry."
For months, analysts have been predicting a cascade of supplier bankruptcies -- and some say it may have begun. Early on Thursday, Visteon, based in Van Buren Township, filed for bankruptcy protection, followed by Plymouth-based Metaldyne.
S&P credit analyst Robert Schulz said he believed the filings were prompted by the firms' heavy debt burdens and a cash crunch provoked by severe production declines. S&P cut the credit ratings for both Visteon and Metaldyne to D from CCC.
Ford Motor Co. has agreed to provide debtor-in-possession financing for Visteon, a former subsidiary of the Dearborn automaker. (Similarly, GM provided assistance to its onetime subsidiary Delphi Corp., which declared bankruptcy in 2005 and has not yet emerged.)
Deutsche Bank AG has agreed to provide an $18.5 million debtor-in-possession loan to Metaldyne.
"So far, we've seen carmakers step up for their former subsidiaries," Ludtke said. But it's not clear who will act to support large suppliers that are not affiliated primarily with one automaker.
"We're in the early stages of a consolidation of the supply base. That consolidation is going to take time, and it's going to be expensive."
Key suppliers file for bankruptcy Visteon
Headquarters: Van Buren Township (Wayne County)
About the company: Visteon was spun off from Ford in June 2000. It suspended matching contributions to workers 401(k) plans in January and said it would cut 800 jobs. Shut or sold 300 plants in three years. Visteon said it expects to fund its operations with cash on hand, cash flows from operations and a debtor-in-possession facility. Ford has said it will support the parts maker's debtor-in-possession financing to ensure the continued supply of parts.
Products: Vehicle climate systems, interior parts, lighting and electronic systems.
Employees: About 31,000
Finances: Last year's sales totaled $9.54 billion. The company hasn't reported an annual profit since it was spun off by Ford. Its bankruptcy filing listed $4.58 billion in assets and $5.32 billion in liabilities, including $862 million owed to bondholders.
Largest customer: Ford
Headquarters: Plymouth Township (Wayne County)
About the company: Parent company Asahi Tec is 60.1 percent-owned by Belgium's RHJ International SA. RHJ offered to buy some operations in North America and Europe for $25 million cash, a new $50 million note, rollover of an existing $20 million note and assumption of other liabilities. Washington-based equity firm Carlyle Group made an undisclosed bid for chassis-making assets in the U.S., Mexico and Spain. Metaldyne is seeking bidders for the rest of its assets.
Products: Chassis and powertrain components
Employees: 4,500 globally; 2,500 in the U.S.
Finances: Last year's sales totaled $1.5 billion. Accumulated liabilities totaled $929 million as of Dec. 31. Ford is owed $22.5 million and GM $9.75 million, while unsecured bondholders are owed $29.3 million.
Largest customer: Chrysler
American Axle & Manufacturing Holdings Inc.
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Collins & Aikman Corp.
Southfield: Filed for bankruptcy in 2005, liquidated in 2007