Thursday, March 10, 2005


The Good News Just Keeps Rollin' In...

Wow, it's just all fuckin' roses and sunshine in the auto industry:

Parts Suppliers Sent Reeling

On the heels of soft sales in February, both General Motors Corp. and Ford Motor Co. announced a new round of production cuts that have left suppliers facing new problems.

Standard & Poors said in a new report that rising materials costs and reduced car production by GM and Ford are making for a difficult business environment for automotive suppliers such as Collins & Aikman. Collins & Aikman's cash flow has been poor in recent years and free cash flow is likely to be negative this year, S&P said. The company has relatively high borrowings, S&P added. The company has securitized unpaid customer bills and sold assets to raise funds, which reduces available sources for funds in the future, S&P noted as it lowered Collins & Aikman's corporate credit rating to "B," the fifth-highest junk rating, from "B-plus."

General Motor Corp. plans to close five assembly plants this week, including factories building the brand-new Buick LaCrosse and its high-profile mid-size sport utility vehicles. GM's weekly production report said the automaker planned to close plants in Detroit and Lansing, Michigan; Oshawa, Ontario; Moraine, Ohio; and Oklahoma City. GM's market share has dropped to 24 percent during February and the company also said that it planned to reduce first-quarter production by an additional 45,000 units. GM also plans to reduce production by another 149,000 units during the second quarter, which starts April 1 and also announced it was suspending production at the Lansing Car assembly plant by the end of May, about one year ahead of the planned closure.

Delphi CFO Quits, Debt Rating Cut

Delphi Corp.'s credit rating was sharply reduced by one major rating service and another warned it might do the same, as an accounting scandal at one of the world's largest automotive suppliers continued to grow.

Fitch said it was cutting Delphi's debt ratings to junk, after the giant parts supplier said it may restate financial results from multiple years and said its chief financial officer had resigned. Fitch cut the company's senior unsecured rating one notch to "BB-plus," the highest junk rating, from "BBB-minus," and said it may cut the company's ratings further.

In addition, Standard & Poors also said it was considered reducing its ratings on Delphi's outstanding debt. The rating reductions are considered a serious blow to Delphi, which will have to pay more to borrow at a time when its profits are non-existent. The company said in January it expected to lose $200 million and the higher borrowing costs could increase the size of the future losses.

I think we're getting ever closer to finding out what happens when the world comes crashing down for suppliers and OEMs alike.

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