Chrysler LLC, the third-largest U.S. automaker, shall keep all of its 30 plants inoperative throughout the bankruptcy process, an event which could have far reaching consequences on the entire auto industry.
Impact to percolate down to suppliers
Experts opine that Chrysler’s already cash strapped suppliers will have no new revenue for the next 60 days or, worse still, for an indefinite period of time. According to industry experts, this decision of Chrysler could disrupt production at plants of rivals also.
Laurie Harbour-Felax, president of the Harbour-Felax Group, an auto research firm warned of the repercussions, “The aftershocks are going to be huge. We just haven't seen it yet.”
Chrysler buys close to 80 percent of its parts and materials from U.S.-based suppliers. These suppliers have already been hit hard by the turmoil caused in the industry by the ongoing recession.
Shutdown scheduled at General Motors
The besieged General Motors (NYSE: GM) has also scheduled a nine weeks ‘no production’ at 13 of its assembly plants beginning mid-May. The suppliers, already on tenterhooks, are likely to face a big blow due to this idling as well.
Anthony Faria, an analyst at the auto research centre of the University of Windsor in Ontario, Canada, noted, “Prior to this, 30 to 40 percent of auto parts companies are in some form of distress financially, and I would guess all of these shutdowns are going to pump that up to maybe 50 percent suppliers being in a real financial distress situation.”
She opined that over the next few months, several auto parts companies would collapse.
Payment to be disbursed by Chrysler
The Auburn Hills, Michigan based Chrysler has already paid a retainership of $18.9 million to Jones Day lawyers. The law firm is expected to help the automaker prepare for the Chapter 11 proceeding.
The company may pay another $200 million to lawyers and other experts to aid it to stitch a more feasible partnership with Italy’s Fiat SpA (BIT: F).
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