KeyBanc Analyst: Major Auto Parts Supplier Disruption Unlikely

|
Includes: ITXN, JCI, LEA, VC
by: FP Trading Desk

A stunning 43 automotive parts makers have gone bankrupt since much of the world plunged into a recession last fall, including major names like Lear Corp. and Visteon Corp. But a key meeting with a U.S. supplier trade group has convinced KeyBanc Capital analyst Brett Hoselton that a major supplier disruption now appears unlikely and that the remaining suppliers are beginning to see improved pricing.

“The bankruptcy process is currently working on properly enabling Chapter 11 re-organizations rather than Chapter 7 liquidation, and debtor-in-possession financing is available either through banks and lending groups or the automakers themselves,” Mr. Hoselton writes in an August 24 research note.

Many suppliers were able to restructure and regain profitability in June and July, surprising given the extended shutdowns at General Motors Co. and Chrysler Group LLC, the analyst says.

Automakers are seeking to shift business from more distressed suppliers to healthier ones. Ford, for example, has set a target of cutting its base from 1,600 suppliers to 750 while GM expects to cut its base by 30%.

“We are encouraged that remaining suppliers are beginning to see some improved pricing in the form of upfront payments for engineering, development and tooling,” Mr. Hoselton says.