As Parts Company Visteon Goes Bankrupt, Car Industry Faces Another Challenge

Car parts maker Visteon is is going into Chapter 11 and if a number of its peers follow it, there is a chance that the supply of components to US car companies could be interrupted. That would make GM’s (GM) life more difficult as it attempts to go through the Chapter 11 process itself.

In a filing about the action, the company said “Visteon expects to fund its operations with its U.S. cash balance, cash flows from operations and a debtor-in-possession facility. Ford Motor Company has executed a commitment letter to support debtor-in-possession financing for Visteon’s restructuring efforts and to ensure long-term continuity of supply.”

But, as Chrysler has found out, Chapter 11 filings are not always easy. Creditors and employees can complicate the process. If a bankruptcy drags on, a court can turn it into a liquidation.

The federal government may have to decide the extent to which it is willing to bail out auto parts suppliers to make sure that its bail out of the car companies themselves is not derailed. Ford (F) is giving Visteon financial support to take it through Chapter 11. Not all parts companies will be that lucky.

The summer could bring an interruption in parts from suppliers who are struggling with low cash balances and perennial labor problems. The American car industry may not be ready to launch its 2010 model year vehicles because the Treasury elected to only salvage on part of the sector.

Douglas A. McIntyre