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More Auto Suppliers Going Bankrupt, Report Says

The beat-down goes on for U.S. automotive suppliers, although a relative increase in production in the third quarter of 2009 should provide some relief.

In addition, Deloitte Corporate Finance LLC said in a report last week that the U.S. Treasury may have to provide some government support to the auto supplier segment, to keep Treasury's stake in Chrysler and General Motors viable.

Meanwhile, the financial picture is grim for most auto suppliers, according to the Deloitte auto industry report, which was published Aug. 18.

Deloitte cited a survey by the Original Equipment Suppliers Association, which said that in the first half of 2009, 13 major U.S. suppliers filed for Chapter 11 bankruptcy or had their assets foreclosed.

The latest OESA survey of 81 automotive suppliers showed that about one quarter of the respondents were out of compliance with commercial loan covenants, and another one quarter expect to be out of compliance by the end of 2009, according to Deloitte.

Deloitte said that auto production estimates for North America for the third quarter total more than 2.6 million, up from 2.5 million in the second quarter.

"Although there will likely be many challenges coupled with slow growth in the near term, the resulting transformation of the domestic OEMs (original equipment manufacturers) and the stabilization of production volumes could present opportunities for suppliers with a diverse customer base, innovative product offerings, global production capabilities and strong balance sheets," Deloitte said.

The trouble is, few suppliers enjoy all those advantages.

Chart: Deloitte