DETROIT (AFP)--Asia automakers say they are re-evaluating their
U.S. supply chains out of concern for possibly disruption through
bankruptcies, following a sharp drop in auto sales and the
financial problems at General Motors Corp. (GM) and Chrysler
LLC.
"The supply base is a big concern," John Mendel, vice president
of automotive operations for American Honda, said Monday.
"Even in good years we'll have a dozen sales, consolidations,
bankruptcies."
But 2009 is expected to be a particularly bad year, with U.S.
auto sales forecast to fall by up to 3 million vehicles to between
10.5 and 12 million units.
That follows an 18% drop in 2008 sales in the sharpest decline
in 29 years.
Sales have hovered at between 16 million and 17 million vehicles
for the past decade, and haven't been below 12 million since the
recession of 1982, when the United States had 74 million fewer
people than today.
Should they fall to the 10 million range, that would be the
lowest per capital sales rate since World War II.
Suppliers are already heavily stressed following years of plant
closures and restructuring at the Detroit Three.
And those production cuts are only expected to accelerate as
General Motors and Chrysler downsize in exchange for billions in
government loans and Ford Motor Co. (F) slashes costs to avoid
needing government loans.
The loss of some suppliers is likely inevitable considering such
a sudden drop-off in demand, Mendel said in an interview on the
sidelines of the Detroit auto show.
"The bigger concern is not the small suppliers but the big ones
- Visteon, Magna, Delphi, Lear - who do massive amounts of business
with everyone," he said.
"An interruption in that base could be very difficult to come
around."
An even bigger shock would come should one of the Detroit Three
collapse.
Because the supplier base is so integrated, the ripple effects
of the loss of even one manufacturer could bring U.S. auto
production to a halt, a recent study by the Center for Automotive
Research found.
In interviews at the Detroit auto show, executives from GM and
Chrysler insisted that they are on the path to long-term viability
and will be able to repay the billions in loans they recently
obtained from the U.S. government.
But both admitted more money is needed if they are to survive
the current slump.
Ford, which is in a better cash position and didn't receive
loans, said Monday it could be forced to ask for help from the
government if sales worsen.
Bankruptcy isn't completely out of the question, said Irv
Miller, vice president of environmental and public affairs for
Toyota Motor Sales USA.
"If you listened to the federal hearings (on bailing out the
domestic auto industry), there were a number of senators asking why
not," Miller said.
"I think they're hoping to avoid that with the federal use of
funds, but I don't know if long-term that's a reasonable
expectation or not."
Toyota is "working awfully hard to identify" suppliers that may
be affected by a failure at one of the Detroit Three, Miller
said.
"We're not standing still," he said. "We're trying to make sure
we have as many bases covered as we can."
Importing vehicles from Japan is "not very possible" because of
the current exchange rate between the yen and the dollar, Miller
said.
So Toyota has developed a number of scenarios in which it could
keep U.S. production going in the wake of a major disruption of its
supply base, including finding alternative suppliers or "seeking
ways to financially assist suppliers and make sure they don't go
out of business."
South Korea's Hyundai has already looked into accessing a supply
base outside of the United States, said Dave Zuchowski, vice
president of sales for Hyundai USA.
"We have some shared suppliers with the domestics and we have
alternative suppliers we can investigate in Korea, but in the event
of a failure it would definite have immediate implications for some
key component parts for us."
Honda is relatively insulated from problems with suppliers
linked to the Detroit Three because all of its key suppliers derive
about 80% of their business from Honda, Mendel said.
But there is always the concern that those suppliers could lose
access to critical parts amid a deepening recession.
Honda has also been forced to slash production by 170,000 units
due to the collapse in demand.
"We have taken steps in the past to assist suppliers
financially, with costs, with personnel and we would be willing to
do that again if need be to protect our production system," Mendel
said.
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