Thousands of dealers could soon close their doors
With January numbers taking a deep dive – the fourth month in a row with an automotive sales downturn greater than 30 percent – domestic and import automakers alike are struggling. But the biggest impact is arguably being felt off the assembly line. A growing number of auto partsmakers, as well as automotive retailers are facing collapse.
Scores of auto suppliers have already declared bankruptcy, in recent years. Some, like Tower Automotive, a major metal stamping firm, have been able to restructure and emerge from Chapter 11, others, like giant Delphi remain mired in bankruptcy, and a growing number of others, like the minority-run Plastech, have been forced to shutter their operations. Analysts like Joe Phillippi, of AutoTrends Consulting, believe the latter option is going to be seen more and more often before any recovery takes hold.
The situation isn’t much better on the retail side. As the Detroit News reports, in today’s edition, almost 1,000 dealers closed their doors in 2008. And the National Automobile Dealers Association finds the situation is only getting worse. Reportedly, dealers are struggling to pay back at least $10 billion in outstanding loans. Chrysler forced one Chicago-area dealer to close about half of his showrooms when it became clear he couldn’t cover more than $500 million in debt.
So, with two of the Big Three automakers depending on a federal bailout, and even foreign manufacturers looking for planned government aid in Europe and Japan, it’s likely no surprise dealers and suppliers would seek some help, as well.
The NADA is pushing Washington lawmakers to approve billions in loans for its members, likely by tapping the $700 billion TARP bank program approved last autumn. Such a move is “critical,” the trade group’s chairman, John P. McEleney, himself an Iowa dealer, told the News.
Meanwhile, suppliers also appear to be going after an aid package, and though various officials within the diverse industry sector disagree over the sought-after amount, it could push to $10 billion or more.
Whether Congress or the White House would approve such assistance isn’t clear. The Big Three faced some intense skepticism and grueling hearings before they won their first round of aid. And even then, the payouts were partial, Chrysler getting just $4 billion, for example, with billions more riding on the viability plan it will have to complete by March 31st.
The situation varies widely from one retailer to another, one supplier to another, so it’s unclear how an aid package would be structured and how cash assistance would actually be doled out.
There is little doubt, however, that both groups are in trouble, and their failure could worsen the situation for automakers, whether General Motors or Toyota. Indeed, the latter manufacturer warned, late last year, that its U.S. operations could grind to a halt if major parts suppliers failed.
Meanwhile, the impact on the worsening unemployment crisis could be spectacular. An estimated 700,000 Americans work in the auto parts industry. Auto dealerships reported a loss of 50,000 jobs in 2008, and even more could vanish in 2009.