Lear Corp., the second largest producer of car seats, filed for bankruptcy Tuesday.
Industry insiders doubt the bankruptcies will stop there.
“There will be quite a few more. Just the fact that we are operating at volume about 50 percent of normal is the killer,” says Neil De Koker, president and CEO of the Original Equipment Suppliers Association in Troy, Mich. “Two-thirds of our members say they will have a tough time making it through the end of the year unless volume increases, lenders extend credit lines, or there is some other help.”
The problems for the parts suppliers probably mean more belt-tightening in gritty Midwestern towns, former mill towns in the Carolinas, and manufacturing hubs in Missouri. Unemployment in the manufacturing sector could stay at an elevated level as the auto companies use fewer parts suppliers – something the companies have already indicated they will do.
Assuming the auto market eventually revives, there could be parts shortages and price pressures because fewer companies will be competing.
Although much of the automotive focus has been on the bankruptcies of GM and Chrysler, the parts-supplying industry is larger in terms of the number of employees. According to Mr. De Koker, there are 229,000 active auto workers and 680,000 people in the equipment supply business.
But those numbers are bound to shrink. Ford has said it will reduce its suppliers from 1,600 to no more than 850. GM and Chrysler have said they will reduce their suppliers by about 30 percent.