More from the continuing saga of the auto industry coming out of the recession. In particular, it appears that auto suppliers (especially smaller ones) are having a hard time lining up financing to expand as the industry recovers (Parts makers face plenty of peril in industry’s recovery, Automotive News, Sep 28). Here is the issue in a nutshell:
“More companies fail in an expansion, especially an expansion after a downturn,” [David Tull, CEO of Crestmark Bank] said. “In a downturn, they’re collecting on receivables, but they’re not buying new inventory. So their need for cash goes down. Now? Their cash needs are up.”
So why isn’t there cash to be had. To some extent it is the lingering effect of the credit crunch but it also reflects a desire of some lenders to reduce their exposure to the auto industry. That is, lenders want to hold a smaller portfolio of auto-related loans and some auto suppliers are being left out in the financing cold even though they have been good borrowers to date.
For example, at a presentation this month, Comerica Inc. Chairman Ralph Babb showed a slide highlighting Comerica’s sharply reduced exposure to auto manufacturers and suppliers: from $2.7 billion at the end of 2005 to $1.3 billion in May this year.
In short, cash for clunkers aside, it could be a long time before the auto industry as a whole is healthy.
[...] can help smaller suppliers transition out of the recession, a story that is also playing out in the auto industry. (Also, the McKinsey Operations Extranet has an interesting article this week on managing [...]