As many 500 of the 1,700 automotive suppliers could fail in 30 to 90 days, an "implosion" that could bring assembly lines to a standstill.

Nearly a third of the automotive industry’s suppliers could be forced to consolidate – or to go out of business entirely.  Without this shake-up, says a leading specialist in corporate restructuring, the entire supply chain could collapse, bringing automotive production to a screeching halt.

The crisis on the parts manufacturing side of the business is even more severe than what has happened on the auto assembly side, says Laura Marcero, a partner with Grant Thornton LLP, even considering the potential collapse of both General Motors Corp. and Chrysler LLC.

“We believe 30 to 40 percent of all suppliers are at high risk…and must come out of the base,” Marcero declared during a meeting of the Automotive Press Association, on Thursday.”

Suppliers have largely run out of cash, Marcero noted, as their customers – carmakers like GM, Toyota and Mercedes-Benz — have been forced to slow their assembly lines and curtail parts purchasing.  Making matters worse, banks and lenders have clamped shut supplier credit lines.

That’s making an already bad situation worse by the day.  Between 2005 and 2008, Marcero reported, an average of 30 mid to large suppliers declared bankruptcy each year.  But the number hoping to restructure – or failing entirely – has surged exponentially since the fourth quarter of 2008, when the automotive market collapsed.  Already this year, “dozens” of parts manufacturers have filed for court protection.

From a peak of more than 17 million vehicles sold, each year, during the early part of this decade, volumes are currently running at an annualized rate of less than 10 million, industry analysts project.  And a recovery is expected to take years.  Even then, Grant Thornton echoes other leading analysts forecasting that the market is likely to rise back up to only 14 million for the foreseeable future.  And that’s simply not enough to support the current supplier base.

So, said Marcero, as many 500 of the current 1,700 parts producers will likely have to go.  But even those who survive will need assistance, in the near-term.  There are several ways to achieve this, she explained.

The best approach would be through an orderly consolidation, one that had the support of the Obama Administration – which is being asked to provide billions of dollars to support suppliers, as well as GM and Chrysler – lenders, and automotive assemblers.

Suppliers will need to aggressively restructure their own operations, added Macero, addressing everything from wages to interest rates.

Macero said she’s hoping the plight of the industry’s suppliers won’t be ignored because a collapse would lead to “unplanned shutdowns” at assembly lines across the country, and that includes foreign-owned “transplant” assembly lines, not just those operated by Detroit’s Big Three.

The supplier network, she concluded, “is being held together, right now, by fingers, toes and band-aids.”  But without a concerted effort, there could be a truly horrific “implosion…within 30 to 90 days.”