One-Third of Chrysler Suppliers Distressed
Tom Murphy Ward's AutoWorld, Jun 1, 2009 12:00 PM

Even Before Chrysler LLC Filed for Bankruptcy Protection, its supply base was growing increasingly distressed.

In a court affidavit filed in May, Chief Procurement Officer Scott Garberding says his department has spent up to 40% of its time working with economically troubled suppliers, and that the auto maker rates parts producers as either “stable,” “monitor,” “concern,” “risk” or “high risk.”

In October 2008, 11.5% of Chrysler suppliers were classified as concern, risk or high risk. Every month since, that percentage has been rising, “leading to a total of 31.8% of suppliers in those three critical categories,” Garberding writes in the affidavit.

The court filing cites specific examples of suppliers that have struggled to keep their doors open or have had to stop shipment of parts. Garberding refers to Contech LLC in Portage, MI, a producer of track bars. It faced “an imminent shutdown due to liquidity problems” earlier this year.

“Because Chrysler cannot build cars without the parts provided by Contech, Chrysler — even while it faced its own unprecedented liquidity problems — stepped in as the operator of Contech, facing a 120-day timeframe when Contech's bank promised to withdraw all its financing,” Garberding says.

Recently, DriveSol Worldwide Inc. of Troy, MI, stopped production for two weeks of intermediate steering shafts. “Even in this short period of time, it was extremely difficult to keep Chrysler supplied,” Garberding says. “Any shutdown of longer than two weeks would almost certainly have resulted in the stoppage of Chrysler assembly lines.”

When DriveSol restarted production — with new hires — Chrysler sent a manufacturing team to train the workers and spent considerable time, money and manpower in the process.

Chrysler is able to provide this type of support to fewer than 10 suppliers at a time, Garberding says. The auto maker “would not be able to provide that support to hundreds of suppliers who would need it in a shutdown during an extended bankruptcy shutdown of indeterminate length,” he says.

Manufacturing the all-new Dodge Ram fullsize pickup requires 200 Tier 1 suppliers spread out across 536 locations.

“If any one of these suppliers stops producing or does not deliver their specified inventory of parts or supplies, all three Chrysler truck plants can shut down within three hours,” Garberding says in the court papers.

Supplier content constitutes up to 80% Chrysler vehicles. The auto maker says it paid $35 billion to its 1,300 suppliers in 2008; 78% of those payments went to U.S.-based companies.

Chrysler purchased nearly $25.6 billion worth of direct-production parts domestically in 2008; as of the filing, the auto maker owes those suppliers $1.7 billion.

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