With the "Big 3" needing a bailout or face possible bankruptcy, being a manufacturer supplying parts to them is no joy right now.
Shares of Canadian autoparts makers have taken a beating due to the decline in the U.S. auto sector, but the companies will face a much harsher reality if one or more of the Detroit Three is allowed to fail.
Parts companies already run on razor-thin margins, and a bankruptcy of one of the big automakers would mean suppliers would not be paid. That would lead to a catastrophic chain reaction that would ripple through the industry, said Linda Hasenfratz, president and chief executive of Linamar Corp , in an interview.
"You are looking at shutting down the entire automotive industry in North America," she said.
"Just to be clear on the ramifications, not just Ford , General Motors and Chrysler ... but everybody. Everybody goes down, because really, you are only as strong as the weakest link in the chain, and some of the weakest links in this chain are the suppliers."
More than 65 percent of suppliers to Ford, GM and Chrysler, also supply Toyota Motor Co and Honda Motor Co , so even the offshore-based manufacturers would be hard hit.
Worries of a bankruptcy of one or all of the Detroit Three are reflected in Linamar's share price, which is down 79 percent since the beginning of the year.
At C$4.20, it is now on the verge of being removed from the S&P/TSX composite index due to failure to meet listing requirements, which include maintaining a certain level of market capitalization and volume.
No Canadian autoparts manufacturer has escaped seeing its stock being clobbered this year. Magna International Inc is down 56 percent at C$35.76, and Martinrea International Inc is down 84 percent at C$1.94.
Thirty-five percent of Linamar's sales go to the Detroit Three, according to RBC Capital Markets. For Magna, that number jumps to 52 percent, and it's about 80 percent for Martinrea.
Michael Willemse, an analyst at CIBC World Markets, said sales volumes would likely decline further for U.S. car sales -- they fell 37 percent in November alone -- on a Detroit Three bankruptcy.
"If one or all three of the Big Three go bankrupt, I would expect sales volumes to decline because customers would be nervous about buying a vehicle by a bankrupt OEM (original equipment manufacturer)," he told Reuters.
Willemse wrote in a note, after the U.S. Senate rejected a $14 billion auto bailout bill late Thursday, that the risk of bankruptcy at each of the Detroit Three had become more likely, with Chrysler in danger of folding within the next few weeks.
Many in the industry have also said that GM will not make it into the new year without government support.
LOANS OR BAILOUT COMING - BUT WHAT AFTER?
Stock markets on Friday reacted negatively to news the U.S. Senate had killed the auto aid bill, but they bounced back strongly within minutes of the U.S. government saying it may use some of the money set aside in the $700 billion earmarked for fiscal relief to help the beleaguered auto sector.
Richard Cooper, vice-president of Canadian operations at industry consultant JD Power and Associates, said he believes some sort of aid will be made available, but that will only be the beginning of a long process to bring the companies back from the brink of liquidation.
A bailout "is really only survival for the next few weeks or so," he said.
The next phase would be restructuring. In Canada, the shares of autoparts makers would likely remain depressed, as U.S. sales aren't expected to pick up any time soon, and there is a lot of uncertainly about what the automakers and the government have been planning.
"That kind of uncertainly is really taking it's toll in the market right now," said Cooper.
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