Financial distress expected for some suppliers

Some suppliers in the automotive industry are in financial distress moving forward this year, an industry expert warned.

Despite increasing revenues and proclamations of it being a period of “boom” for the automotive aftermarket, notably jobber stores and repair shops, Sig Huber, senior managing director at Riveron, a business advisory firm, warned of financial distress among aftermarket and automaker suppliers.

Specifically, suppliers are not getting any relief from the original equipment manufacturer clients as they face increasing cost pressures for raw materials and shipping costs, for example.

“And there’s a real financial pressure on tier-one suppliers right now,” Huber explained at the February Automotive Aftermarket Suppliers Association 2022 Global Summit in Florida. “But where we’re seeing it even worse is the tier two [and] tier-three levels. Because what’s happening is, the tier-ones aren’t giving price relief to the tier twos because they’re not getting it from the OEMs.”

So companies get squeezed to the point where they tell partners that they’re not making parts for them anymore. Suppliers are losing money and the company doesn’t want to fund money-losing jobs.

For an industry like the aftermarket, those cost increases can be passed on to the customer, Huber acknowledged.

“Now the question is, when is the tipping point for when, all of a sudden, that’s going to cause a demand problem because there are alternative parts available or something like that?” he wondered. “But for now, this group in this room has been able to weather the storm a lot better than your production counterparts. But that’s something to definitely keep an eye on.”

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