Government aid should be extended to auto parts industry: analyst

If the U.S. and Canadian governments don't provide financial assistance to the North American automotive industry, the fallout will be enormous, rippling out to hundreds of auto parts suppliers and costing millions of jobs, according to an industry analyst.

"You really get a domestic effect affecting hundreds of suppliers," said Bill Pochiluk of AutomotiveCompass. "Once this house of cards starts to break down, the impact will be swift and it will be pervasive."

Pochiluk, speaking Monday at an emergency meeting of the Automotive Parts Manufacturers' Association in Toronto, said "the collapse of the domestic automotive industry is inevitable without government funding."

And he questioned why no one is talking about extending any potential government aid to parts suppliers.

He said a worst-case scenario would see "hundreds of suppliers gone" and "high unemployment across the automotive supply chain and beyond" with between two and three million North American jobs lost within a year.

If governments in both countries doesn't act quickly, many smaller auto parts companies will go under, resulting in a serious supply shortage if and when the industry rebounds, added Pochiluk.

"We're looking at the possible destruction of the supply chain, making restructuring and innovation goals unachievable," he told a crowd of approximately 40 industry players.

Economic crisis

Gerry Fedchun, president of the Automotive Parts Manufacturers' Association, said that if the auto industry is left to muddle its way through the current economic crisis, many companies won't survive.

"If the domestic automotive industry is allowed to collapse, we'll see a great depression in Ontario and Quebec," he said.

Pochiluk said the key to long-term survival will be product innovation, an area in which auto parts manufacturers can play an important role by developing technology to help North American automakers keep up with consumer demand for low-emission vehicles.

Pochiluk said the automotive and auto parts industries are "viable and they do have the ability to transform," but not without substantial government assistance more than $25 billion.

The U.S. Congress and White House are looking at ways to aid the auto industry haven't come to a consensus about how to do it, although the amount most frequently cited is $25 billion US.

North American automakers and auto parts manufacturers including Canada-based Magna International Inc.and Linamar Corp. are reeling from the combined effects of slumping U.S. demand for their products and frozen credit markets.

Earlier this month, Magna reported a third-quarter loss of $215 million US compared with a year-earlier profit of $155 million amid "extremely difficult" conditions.

"In 2008 it has been difficult to keep up with the pace of change in our industry," CFO Vince Galifi said at the time.

Big request

The Detroit Three automakers General Motors, Ford and Chrysler have said they need $75 billion in loan guarantees to help tide over the sector until demand in the U.S. recovers for North American-produced vehicles.

But U.S. President George W. Bush, whose term ends in January, has said he's only willing to hand over the $25 billion US that's already earmarked for auto companies.

In Canada, the federal Conservatives have long rejected direct intervention in the auto sector, but Finance Minister Jim Flaherty said recently he may be willing to invest what he calls "transformational money" in auto plants with viable prospects.

On Friday, federal Industry Minister Tony Clement said he was investigating the possibility of a joint Canada-U.S. bailout of North America's ailing auto industry.

The Ontario MP, newly named to an economic portfolio, said he'll be on what he called a fact-finding mission this week to Detroit and Washington and a common cross-border aid package is on the table.