Newsletter - March 2009

Will Auto Parts Shortages be Next?

There’s a great deal of uncertainty about the auto industry. Just today President Obama fired the chairman of GM and replaced him with Joe Biden (just kidding but you believed me for a second didn’t you?).

On March 19 the Obama Administration put together a plan that commits $5 billion in payment guarantees to struggling auto parts suppliers, who may be close to bankruptcy, especially those most closely associated with Chrysler and GM. The government’s auto industry task force had been warned recently that a shortage of credit could force as many as 500 of the 1500 U.S. parts suppliers into liquidation or Chapter 11 within the next 60 days. If many of these suppliers failed within the next two months, it would not only affect GM and Chrysler but Ford and Toyota who also depend on these sources.

Auto sales dropped 18% last year and in the first two months of 2009 they’re 39% lower than the same 2008 period. Auto parts suppliers base their profit projections on a sales volume of 12-15 million vehicle sales per year. Based on’09 January and February sales, units sold will end up at 10 million.

If manufacturers are faced with a shortage of parts for cars in production, they will be forced to use their spare parts supply (parts used for repairs) to keep the assembly lines running and this will diminish the supply of repair parts available for late model vehicles. If a number of suppliers go out of business it will disrupt the supply of parts for many other vehicles as well.

In addition to closing assembly plants, GM is likely to close a stamping plant that produces body parts for trucks and SUVs. This could lead to shortages of body repair parts for these late model vehicles. On the mechanical side GM’s engine plant in Romulus, Michigan and its transmission plant in Ypsilanti could be vulnerable to closing because they’re both closely tied to truck production.

We’re hoping the transitions that need to happen in the industry pertaining to parts will work themselves out without backorder or shortage issues.

As a proactive measure we believe certain things should be fixed or performed sooner rather than later. These include body repairs on trucks and larger SUVs and preventative maintenance that in many cases extends the life of original parts.

Addison Auto Repair and Body Shop has a large network of suppliers due to our mechanical parts and body parts supplier relationships.

We’re watching closely for any disruptions in the supply pipeline and we’ll keep you informed.

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Addison Auto Repair & Body Shop
2005 South Holly Street • Denver, CO 80222 • 303-691-9484