DETROIT (May 4, 2010)—The threat of widespread distress in the North American automotive parts supply base has eased, but excess capacity still plagues the industry, said Tony Brown, Ford Motor Co.'s purchasing chief.
Suppliers surveyed recently by UBS Securities generally agreed with Brown's views.
The state of the supply base “looks better than it did a year ago,” Brown, Ford's group vice president of global purchasing, said. “We're concerned, but less concerned than before.”
While things look better, “there's still some excess capacity out there,” Brown said. “As long as there is, it weakens the system.”
Most risk lies with the Tier 2 and Tier 3 suppliers that remain “much more volatile,” Brown said. But there, too, he said, “We're off the peak.”
Brown said Ford continues to monitor suppliers' financial health. Although the short-term financials have looked good, he said, “look at debt maturation.”
“Banks are still being very conservative,” and “we'll have to see” whether other sources of credit are available to suppliers when they need to refinance their debt, Brown said.
Separately, a U.S. auto supplier report by UBS Securities that Brown cited found that the risk of suppliers' going bankrupt is the lowest since the first quarter of 2009.
Just 6 percent of the 68 respondents to a UBS survey reported a greater than 50 percent probability of their company going bankrupt, down from 7 percent during the fourth quarter of last year and 10 percent during the third quarter of last year. The survey, a copy of which was obtained by Automotive News, a sister publication of Rubber & Plastics News, was taken in March.
Suppliers reporting the highest risk of bankruptcy to UBS were those dependent on General Motors Co. and those supplying frames, structures and exterior components.
The respondents to the UBS survey agreed with Brown's assessment that overcapacity remains a problem. A slight majority of respondents to the survey—51 percent—said overcapacity was at least somewhat addressed by the industry downturn. But 49 percent said it did not reduce capacity enough or at all.