Outlook for 2010 Improves for Battered Auto Suppliers

(MoneyWatch)  It's anything but rosy, but the 2010 outlook for most North American auto suppliers has at least improved to "cautiously optimistic," according to the latest poll of its members from the Original Equipment Suppliers Association.

Separately, Delphi Corp. officially emerged from bankruptcy reorganization earlier this week, after a deal was reached in July for former parent company General Motors and other investors to acquire Delphi's assets. Delphi was in bankruptcy since 2005.

However, the auto supplier segment is still in trouble. Other major suppliers, notably Visteon and Lear, filed for bankruptcy this year - Visteon in May, and Lear in July. The OESA said that in the first half of 2009, 13 major U.S. suppliers filed for Chapter 11 bankruptcy or had their assets foreclosed.

So what is there to be even cautiously optimistic about?

Supplier revenues are directly correlated to production. Several automakers have at least partially reversed production cuts for the third and fourth quarters of 2009. The government's "Cash for Clunkers" program also stimulated demand, even if it was temporary.

Like the automakers themselves, suppliers have also drastically cut costs and jobs, to achieve a lower breakeven point. According to the supplier association, the median breakeven level for its survey respondents is now only 9.5 million units of production. Meanwhile, the respondents estimate 2010 North American production volume will be 10.1 million units.

"This means that even with a modest increase in production, suppliers, on average, should be above their breakeven point next year," the OESA said.

Chart: OESA