Canadian Auto Parts Industry Struggling To Survive

Several parts suppliers have been forced to shut down operations in the last few months as the weak economy cuts into demand for new vehicles and the parts that go into them.

TORONTO (CP) -- A dispute over the closure of two auto parts plants in Windsor, Ont., is further proof the parts industry is on the brink and needs its own government bailout, according to the president of the Automotive Parts Manufacturers' Association.

"We're down to our last bit of money as an industry," Gerry Fedchun said Wednesday. "We need some help to get through 2009."

Several parts suppliers have been forced to shut down operations in the last few months as the weak economy cuts into demand for new vehicles and the parts that go into them.

Most recently, 80 workers were laid off last week at the Aradco and Aramco plants in Windsor, Ont., both owned by U.S.-based Catalina Precision Products.

The two plants are suppliers to Chrysler and members of the Canadian Auto Workers union blockaded the plants until the union reached a deal Wednesday to ensure 80 laid-off workers will get severance and back pay.

Fedchun said closures like these could create a vicious cycle wherein assembly plants are forced to shut down because a key supplier has gone under, thus forcing other suppliers of the plants to cease operations as well.

"If the part can't be replaced the assembly plant will shut down, and then shut down everyone else who supplies the assembly plant," Fedchun said.

"We are a just-in-time system, there is no inventory lying around, so when the plant goes down everybody goes down with it within just a few days."

Fedchun said there's no doubt that more parts suppliers will go out of business unless they get immediate government assistance.

A government bailout of General Motors and Chrysler won't trickle down fast enough to help the parts companies, he added.

"A lot of suppliers now need direct government assistance themselves, because even if they get paid everything they deserve from the assemblers, that's not enough money to stay open," he said.

The assemblers have been using fewer and fewer parts as demand for their finished products slumps, he said.

"Suppliers can't go to their banks, the banks won't lend them any more money, so they simply don't have enough money to keep going for the next few months."

Fedchun said in a letter to Ottawa's and Ontario's finance ministers last October that the auto parts industry needs up to $1 billion in immediate short-term loans to help it survive the economic downturn.

Bill Pochiluk, president of industry adviser AutomotiveCompass, said the biggest worry for the auto industry right now isn't the survival of the Detroit Three automakers, but rather the "dissolution of the supply chain."

"It's not going to matter if you're domestic or you're foreign-based, the impacts will be rapid and they'll be wide-ranging," Pochiluk said.

Pochiluk said governments have two options at this point: giving money directly to the suppliers, or giving even more money to the assemblers to dispense to the suppliers.

"To the extent that the due diligence, the qualification phase of having to give money directly to suppliers is very demanding and very expensive, the easiest way to distribute the money may be just to give the money to the vehicle manufacturer and let them refloat their supply base," Pochiluk said.

Greg Crone, a spokesman for Ontario economic development minister Michael Bryant, said Wednesday the provincial government is "assessing" the auto parts industry's request for aid.

"The auto parts sector is an extremely important part of the Ontario economy and the Ontario government, along with our federal partner, is assessing their request for assistance and taking it very seriously," Crone said.

Although the governments have promised billions in aid to General Motors and Chrysler, no direct aid has been forthcoming for their suppliers.

Statistics Canada reported Wednesday that wholesale sales in the automotive sector fell by 23 per cent in January.

Besides the Aradco and Aramco plants, several other parts suppliers have shut down or scaled back operations in recent months.

For instance Pittsburgh-based United States Steel Corp., a major supplier to the auto assemblers and the auto parts industry, said earlier this month it will indefinitely idle operations at its Hamilton and Lake Erie plants, putting 1,500 people out of work.

The ArvinMeritor plant in Tilbury, Ont., which makes brakes for the trucking industry, will shut down in June, resulting in 200 layoffs.

That came on the heels of an announcement last fall that ArvinMeritor would shut down its 500-employee factory in Toronto, moving the work to Mexico.

Other parts makers suppliers, including Court Valve Company Inc., DDM Plastics and Magna International have also recently shut down Canadian plants.

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