Over half of US parts suppliers may go bankrupt: study

21 March 2009

The storm in the US auto industry could sweep away more than half of the country's Tier 1 automotive suppliers, who may file for bankruptcy in 2009, and render over a million jobless, according to a new study from global management consulting firm A.T. Kearney.

The US government will also lose an estimated $9 billion in income tax revenue, the study showed.

''The dramatic drop-off in sales volumes that is impacting the OEMs is having a ripple effect on the health of their Tier 1 suppliers,'' said AT Kearney partner and North American automotive practice leader Dan Cheng. ''In particular, suppliers with large capital investments stranded in dedicated, underutilised facilities are especially at risk,'' he added.

The survey covered top-tier automotive suppliers to North America to assess the impact of the economic downturn on their financial health. In addition, the firm created a number of scenario-based market projections to analyse the health of these suppliers over the 2009-2010, AT Kearney said.

The survey found that a significant drop in auto sales has exposed under-utilised high capital intensive operations of ancillary units.

While raw material prices have increased 24 per cent over the past year, some suppliers have still not been unable to totally pass on to their OEM customers.