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Chrysler Bankruptcy: What It Means to Distributors<TAB>

April 30, 2009

In December, Mike Hamzey Jr., vice president and legal counsel for R.M. Wright Co. in Farmington Hills, MI, told MDM that bankruptcy (of the automakers) is probably the worst thing that could happen right now."
Fast-forward to the present day and the first of the Big Three has gone that way, with Chrysler LLC filing for bankruptcy protection on Thursday. But with it, Hamzey's tune has changed a little, as well. "We've had the last five months to prepare ourselves for the real possibility," Hamzey tells me today. "Because of that and some of the other changes that have come in that time, it's not as bad as it could have been back in December."
Along with the bankruptcy filing, Chrysler made a deal for a partnership with Italian automaker Fiat, a move that could present solid benefits for companies like R.M. Wright. R.M. Wright already does business with Fiat subsidiary Comau PICO in Michigan, and this agreement could benefit that relationship, Hamzey says.
But overall, for many distributors, the bankruptcy filing highlights the position of distributors in the supply channel, and the worries that can come with that position. "Distribution is a hidden industry to the government and most Americans," says John Masek, vice president of Bearing Service Inc. in Livonia, MI, and past president of the Power Transmission Distributors Association. "Chrysler's bankruptcy filing will likely have a devastating effect on distributors if the Administration focuses all its efforts on addressing the car company and its Tier 1 production suppliers."
Masek expects the filing to have a three-fold impact on the distribution sector:

  • The loss of open receivables will have an immediate direct effect that could be compounded if the bankruptcy courts deem the last 90 days worth of receipts as preferential.

  • The trickle-down impact to Tier 2 or Tier 3 distributors "who had most of their eggs in Chrysler's basket" and were already struggling; as a result, those distributors could fail.

  • With the bankruptcy, Chrysler's supply base will likely shrink, giving distributors a smaller piece of the pie.

Masek called on distributors to band together so their "collective voice" is heard in Washington. "The leaders of all distribution associations need to make sure that the government understands the bigger impact of this most unfortunate event," he says. "While the bankruptcy of a major player in any industry is devastating to our economy, there will likely be an even greater impact if President Obama and his automotive team fail to recognize the impact to the supply channel and to distribution directly."
What is the impact of Chrysler's bankruptcy filing on the channel? Share your thoughts below.
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