General Motors' decision to idle 13 North American plants over 11 weeks beginning in May will rock already reeling parts makers and perhaps push the auto maker's largest supplier into liquidation, industry insiders and analysts say.
“It's going to have severe repercussions through the entire supply chain,” says Dennis Virag of the Ann Arbor, MI-based Automotive Consulting Group Inc.
GM says the temporary shutdowns from May to June will remove 190,000 units from its build schedule. The goal is to bring its inventories in line with the current weak demand.
Without the largest U.S. auto maker running its manufacturing operations, countless suppliers will ship fewer parts and the revenue stream of many will grind to a halt.
A $5 billion bailout of the supplier sector crafted by President Obama's auto industry task force and initiated in April by GM and Chrysler LLC only covers shipped parts awaiting payment.
“They'll be going back to Washington for more money,” Virag says of cash-strapped suppliers.
GM North America President Troy Clarke says the auto maker is not trying to push suppliers off the cliff. But he admits the cuts will move GM closer to a resolution with Delphi Corp., its former in-house parts maker and largest supplier.
Delphi's bid to emerge from bankruptcy has been hampered by an inability to secure the necessary funding.
Since Delphi filed for bankruptcy in October 2005, GM has pumped $12 billion into the company to keep important auto parts flowing.
The response from the supplier community to GM's plan to slash production strikes a somber tone.
“This could potentially threaten the entire supply chain that serves all North American customers,” a Tier 1 supplier says in an email to Ward's.
“We are standing close to the edge,” another reports.