More supplier bankruptcies loom

DEARBORN -- February could bring more auto supplier bankruptcies than ever before, according to Ford Motor Co.'s global purchasing chief.

"Industry experts and others at restructuring firms working with financially troubled suppliers expect we may well see in February the largest number of bankruptcy filings in the U.S. and Europe ever," Ford's Tony Brown said Wednesday during the Automotive News World Congress.

"The number of financially distressed suppliers that Ford has on our 'watch list' in 2007 has grown by 44 percent compared to this time last year."

Brown later told reporters there could be some big-name "Tier 1" suppliers among those filing in February, but he would not give any specifics.

"We're not done yet," he said. "There's still excess capacity in the system."

Jim Gillette, director of supplier analysis for CSM Worldwide in Northville, agreed that more bankruptcies are likely, and said Brown is well-positioned to know about them.

"He's got suppliers who are probably telling him that they are going to do it," Gillette said.

"Unfortunately, Chapter 11 has become a strategy for refinancing for some companies, rather than a last resort."

But Gillette added that it is also easier than ever for troubled suppliers to avoid bankruptcy because of the amount of liquidity available from hedge funds. In addition to providing cash, many of these investment firms have become adept at attracting veteran executives to help lead supplier turnarounds.

Chapter 11 bankruptcy provides a company with court protection from creditors while it restructures.

A number of high-profile parts makers have filed for bankruptcy in recent years, including such big names as Troy-based Delphi Corp., Toledo's Dana Corp. and Collins & Aikman Corp. in Southfield. Just as domestic automakers have begun a painful restructuring process, suppliers need to realign their businesses, Brown said.Ford is moving forward with its own plan to dramatically reduce the number of suppliers with whom it works. The automaker plans to work more closely -- and more collaboratively -- with those that remain.

However, Gillette said automakers need to be more sensitive to the tremendous challenges facing domestic suppliers, all of which are grappling with the same three issues: major vehicle production cuts at customers like Ford, increasingly fierce competition from low-cost countries such as China and rising raw materials prices.

The latter is also a big concern for automakers, Brown said.

Ford is continuing to work with the other five largest automakers to create a steel purchasing exchange that would allow them to better weather the ups and downs of steel prices. Brown first floated the idea in a letter to Ford's main competitors last fall and said discussions are continuing.

The automakers are also talking with steel producers, whom he said would also benefit from such an arrangement.

"They need stability, too," Brown said.