Parts-makers like Tenneco to seek fed help in Chrysler bankruptcy
U.S. auto-parts suppliers such as BorgWarner Inc. are counting on Chrysler LLC’s bankruptcy process to get paid for sales to the automaker, while producers including Tenneco Inc. seek government guarantees.
Chrysler filed for Chapter 11 protection today. The automaker probably will ask the bankruptcy judge to ensure payments to the most important partsmakers, analysts said.
“The critical vendors will likely be protected,” said Stephen Spivey, an auto analyst at Frost & Sullivan in San Antonio. “As long as Chrysler is not being liquidated, as long as it is just being restructured, they should make it.”
The automaker’s filing adds to challenges for the more than 4,000 U.S. parts companies. They already have had to cope with reduced production of cars and trucks, as U.S. auto sales tumbled to a 16-year low in 2008 and plunged 38 percent in the year’s first quarter.
In recent months, the possibility of a Chrysler or General Motors Corp. bankruptcy also made it difficult for partsmakers to borrow against payments owed by the automakers. Now, some of the largest suppliers must rely on the bankruptcy court to collect from Chrysler.
“We fully expect to be classified as a critical supplier,” Timothy Manganello, BorgWarner’s chief executive officer, said on a conference call today. His Auburn Hills, Michigan-based company is the world’s biggest maker of automatic-transmission parts.
Tenneco, the largest maker of vehicle-exhaust systems, said it’s seeking U.S. guarantees on about $72 million due to the Lake Forest-based company from GM and $16 million from Chrysler. A $5 billion Treasury Department program, including $1.5 billion allocated for Chrysler, offers assurance for such payments, which sometimes aren’t received for 45 to 60 days.
Idling Factories
Chrysler said today that it will idle most manufacturing starting May 4 until it completes a transaction through the bankruptcy process under which most of its assets will be placed in a new company. The Auburn Hills-based automaker also said the government will provide enough financing during court protection to allow “business as usual,” including paying suppliers.
Not all parts companies will be able to survive Chrysler’s restructuring and production halt, said Jim McTevia, who advises suppliers at McTevia & Associates in Bingham Farms, Michigan.
“Some of my clients are going crazy,” he said. “These are companies that are not critical vendors, and they’re faced with disasters.”
Loan Offer
Suppliers and Chrysler dealers will be offered the chance to apply to the U.S. Small Business Administration for guaranteed loans, President Barack Obama said at a press conference. The administration will announce details of the program tomorrow, said Michael Stamler, a spokesman.
More than 40 major suppliers went bankrupt last year because of reduced auto production, according to the Motor & Equipment Manufacturers Association trade group.
Under the U.S. supplier-aid program, closely held ADAC Automotive Inc. has sold Chrysler bills to the Treasury to get advance payment for a 3 percent charge, said Chief Financial Officer Tom Kowieski. The Grand Rapids, Michigan-based maker of door handles and blinkers relies on the automaker for about 19 percent of revenue.
“We need this situation resolved soon as possible and get the uncertainty out of this thing,” he said. “That’s part of why we’re not selling cars in America. There’s just this whole dark cloud over the industry.”