Consultant: Number of auto suppliers should be reduced

Nov 11, 2009

The U.S. auto supply industry averted catastrophe during the implosion of vehicle sales this year, says a Detroit datelined Reuters report, but more than half of the private companies still standing are distressed, an industry consultant said.

William Diehl, chief executive of advisory firm BBK, told the Reuters Autos Summit the sector must shrink rapidly to match output with vehicle sales, which have declined from nearly 17 million units three years ago to just over 10 million this year.

“The view was we would see a tsunami of suppliers who weren’t going to get funded,” Diehl said, noting an industry collapse was averted during the sales plunge and bankruptcies at General Motors and Chrysler this year.

This time period included more than $5 billion in government aid for suppliers.

But Diehl said suppliers have not “gotten any healthier” and perhaps have gotten worse, establishing the need for consolidations or liquidations.

“We have to see that rationalization on an accelerated basis,” Diehl said.

Private suppliers make up two-thirds of the sector. He also said roughly 30% of publicly held suppliers are in trouble.