Supplier bankruptcy could signal approaching storm

Some clients are just now starting to see success in renegotiating contract terms to spread inflated costs of materials, labor and transportation more evenly between supplier and customer, he said, but the financial pinch remains sharp on suppliers.

At Birmingham-based Brooks Wilkins Sharkey & Turco PLLC, firm co-founder and supply chain litigation attorney Dan Sharkey said he is also seeing more business disputes coming through the door.

“The biggest single issue remains pricing: In the face of all of these increased costs, suppliers need price increases to survive, and some customers are still fighting tooth and nail,” Sharkey said in an email.

Sharkey said he doesn’t think suppliers have reached a tipping point because OEMs learned during the Great Recession that letting suppliers fail is bad for business.

At the same time, driving costs down is part of the automakers’ DNA, and Sharkey said many of his clients are working to exit unprofitable relationships to avoid financial distress.

“I’ve not heard a lot of optimism,” Rustmann added.

That tracks with the latest Supplier Barometer report released Aug. 2 by the Original Equipment Supplier Association, which saw supplier sentiment plummet.

In the survey of executives from more than 100 automotive suppliers, their top three concerns were production shutdowns, weakness in the US economy and labor availability. Most said they think a recession is more likely than not in the next year and 35 percent said that worries of being unable to recover increased costs from customers are hindering investment plans.

“The outlook for the third quarter fell deep into pessimistic territory due to continued concerns over production shutdowns, and heightened concerns over a weakening US economy,” according to the OESA. “Sentiment deteriorated sequentially across businesses of all sizes but fell drastically for mid-level suppliers.”

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