The federal government's auto industry task force leader expects more auto suppliers are going to be squeezed out of business in the coming months, but don't expect the government to step in as those firms struggle.
It is only natural that the supply base contract to match the auto production capacity that has been taken out of the industry by General Motors Corp., Chrysler Group LLC and Ford Motor Co. That is unfortunate, but it must happen, said Ron Bloom, senior adviser to the U.S. Treasury Department and assigned to the Presidential Task Force on the Automotive Industry.
“You don't need steering wheels when you don't make cars,” Bloom said Aug. 5 during the Center for Automotive Research's Management Briefing Seminars, held Aug. 4-7 in Traverse City.
“We understand that the ramp-up that will be coming in the weeks and months ahead will put pressure on the working capital needs of the suppliers. We intend to be very careful and to monitor closely what's happening with the supply base, but we can't mislead people.
“We're not going to try and stop the rationalization, because preserving capacity above demand does nobody any favors.”
Bloom helped oversee the government's intervention in bankruptcies this year for both Auburn Hills, Mich.-based Chrysler and Detroit-based GM. While the federal program provided needed financing support to ensure GM and Chrysler suppliers would be paid during the bankruptcies and has worked to loosen up credit markets, suppliers will have to look to the private sector for financing.
Having a healthy GM and Chrysler will do more for suppliers than individual federal investments could, he said.
“If you have a healthy [automaker] you don't necessarily have a healthy supply base, but you do have the conditions needed for a healthy supply base,” Bloom said.
Lear Corp., for example, was able to access private financing as it entered Chapter 11 bankruptcy protection to restructure its debts in July.
“Without GM, there isn't a Lear,” he said. “Now without Lear, they aren't going to make a lot of GM cars either, so there is an interconnectedness.
“But in the end, you've got to have cars and there's no question with the fact that GM is now healthy. No one is out there thinking that GM is going to go away in the foreseeable future. It's a critical reason why people were willing to give financing to Lear,” Bloom said.
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