Chinese auto suppliers facing 'severe' cash problems

20 April 2009

21 April 2009 | Jake Kanter

More than a third of automotive suppliers in China have "severe" liquidity issues and many are in danger of going bankrupt this year, according to consultancy AlixPartners.

The research company said more than 40 per cent of the country's automotive supply vendors will have problems raising cash in 2009.

It analysed the Chinese auto industry and interviewed 40 suppliers for the study.

The report said more than 20 per cent of those surveyed recorded a net loss last year and more half expected net profit margins for 2009 to be below 5 per cent.

The study claimed inefficiencies in supply chains and business operations meant that the average working capital requirement for Chinese suppliers was 74 days in the fourth quarter of last year, double that of their counterparts in the US and Europe.

"The days of both easy credit and relatively easy cash flow generation are long gone in the Chinese auto supply market," said Ivo Naumann, a managing director at AlixPartners.

"The winners in this market will be those who maximise all areas of cash management, starting with working capital and operational improvement."

China is not alone in having a struggling auto industry.

Last month accountancy firm Grant Thornton warned that 500 vendors in the US were at a high risk of going bankrupt, with partner Laura Marcero suggesting the industry was at a "tipping point" where the "scale and scope of supplier failures at all levels will increase dramatically".

Chrysler and General Motors unveiled multi-billion dollar vendor support packages earlier this month, backed by the US government (Web news, 15 April).


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