Auto dealers selling General Motors Corp. and Chrysler LLC cars got their letters in May telling them if they will continue to be a part of the automakers' families in the future.
Some auto suppliers may be next in line to hear whether they will be cut.
GM and Chrysler are downsizing with GM potentially joining Chrysler in bankruptcy and closing plants. Fewer plants and fewer product lines mean they will need fewer parts, and fewer part makers.
The question becomes, what happens on the other side? said Jeff Mengel a partner with consulting group Plante & Moran PLLC with offices in Chicago. Whatever GM and Chrysler are after this, they will be a different kind of company and they're going to have to have a new supply-chain management.
Auburn Hills, Mich.-based Chrysler filed in April for Chapter 11 protection in U.S. Bankruptcy Court in New York, as part of a restructuring that will see a controlling stake sold to Italian automaker Fiat SpA.
GM also may seek Chapter 11 protection, possibly by June 1.
Both companies also are expected to close multiple plants about six are set to shut down by the end of 2010 from Chrysler, and Detroit-based GM is rumored to be closing up to 14 plants.
A bankruptcy judge can authorize automakers to restructure not just debts, but contracts as well, which could be a key to GM and Chrysler paring down their lists of suppliers.
They've done a poor job of trying to consolidate the supply chain so far, Mengel said. The incentive to restructure their supply chain will be in court and the question will be how they end up creating what they'll need when they go back into production mode.
The auto industry is feeling the pinch from slowed production. Chrysler shut down its assembly plants when it entered bankruptcy, while GM slowed production dramatically starting in May.
Ford Motor Co., while in better financial shape and not requiring federal aid, has also slowed its lines because of reduced consumer demand for new cars and trucks.
Even without bankruptcy, those shutdowns are giving automakers a chance to build up their existing stockpile of parts, and make plans to move production from one supplier to another, without worrying about disrupting production.
Mengel said he is hearing of companies that are quoting on new business, but nearly all of that business is based around taking over work from other, troubled, firms.
The companies are already in shutdown mode, and they already have the parts bank, Mengel said. [The automakers] have a greater ability to move molds coming out of shutdown than at anytime in the past.
Firms that are not sure whether their customers consider them a key supplier should do what they can now to build up their relationships and alliances, he said.
There are few guarantees at this point, however, as large and small suppliers alike have seen their revenue streams slow to a trickle, and credit remains hard to get. Even multibillion-dollar suppliers are finding it hard to pay the bills. Visteon Corp. filed May 27 for Chapter 11 protection in U.S. Bankruptcy Court in Wilmington, Del., citing a capital structure and legacy costs that are not sustainable given the current economic environment, Chairman and CEO Donald Stebbins said in a news release.
Nine major suppliers, including Visteon, have filed for bankruptcy protection so far this year, according to consulting group IRN Inc. of Grand Rapids, Mich., and others are having problems accessing credit or restructuring existing debt to keep up with the changing industry. Delphi Corp., the former GM parts unit that was spun off into an independent company more than 10 years ago, has been unable to escape bankruptcy since it entered Chapter 11 in 2005, and may be forced to sell itself off piece by piece an ending that may have seemed unthinkable for a company that was once the world's largest auto supplier and, last year, still had more than $18 billion in global sales.
Smaller firms may not be making the same news as Visteon or Delphi, but some of them have been quietly closing, and more may follow. Some of those firms haven't been forced into bankruptcy simply because banks are preoccupied, Mengel said.
So many things are going on in terms of the big companies the Delphis, the GMs, the Chryslers, the Visteons that if you're a small guy, you're not even on their radar, he said.