Al Koch helped see over the revival of Kmart, so he knows a thing or two about financial difficulty - and that's exactly what he sees in the auto-part industry. Koch specially mentions decreasing production from domestic automakers as potentially causing severe trouble. While a move away from incentives has increased the profitability of the Big Three, it puts the squeeze on suppliers by decreasing production (you can bet that none of that profit makes its way down the supply chain). The loss of cash flow is particularly hazardous to those who have made substantial capital and R&D investments - not the sort of businesses that the industry wants to see struggling.

One potentially good shred of news is that capital is still easy to obtain, so that those suppliers who wish to borrow money can still do so. Conditions could also improve if gas prices fall or if the domestic automakers manage to stabilize their market share. A relatively painless resolution of the Delphi situation would also be viewed as a positive sign for the segment.

[Source: Houston Chronicle] 

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