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Impact Of GM's Bankruptcy

Action further resigns chemical makers to lower demand from a smaller U.S. auto industry

by Alexander H. Tullo
June 8, 2009 | A version of this story appeared in Volume 87, Issue 23

Credit: Newscom
General Motors is closing its assembly plant in Pontiac, Mich.
Credit: Newscom
General Motors is closing its assembly plant in Pontiac, Mich.

General Motors' bankruptcy, the largest ever by a U.S. manufacturer, won't have as big an impact on the chemical industry as the precipitous decline in U.S. auto sales already has had, experts say.

GM plans to emerge as the "new GM" in 60 to 90 days. It will have new owners, the largest of which will be the U.S. government, with a 60.8% stake. The governments of Canada and Ontario will have an 11.7% share, the unions will have a 17.5% stake, and the balance is going to unsecured creditors.

No chemical firms are named as major creditors in the bankruptcy filing. But the list includes parts suppliers—such as Delphi, Lear, and Johnson Controls—that buy plastics from chemical companies.

The economic downturn slammed the automotive industry, which already was severely struggling with its finances, says T. Kevin Swift, chief economist at the American Chemistry Council, an industry trade group. "The extent of the downturn surprised many people and just made things worse," he says.

Cars are important to the chemical industry. According to Swift's most recent study, based on 2007 statistics, the average light vehicle made in North America incorporates some $2,664 worth of chemistry. This number represents not only the nylon resins under the hood and the polyurethane foam in the seat cushions but also the sulfuric acid used in processing the steel.

DuPont, which sells paint and engineering polymers to the auto industry, is downplaying GM's filing. "A broad range of DuPont products are purchased by our customers in the global automotive industry," the firm says in a statement. "The exposure associated with any one customer is minimal to our overall company."

But chemical suppliers will need to adapt to a much smaller GM and U.S. auto industry. It is reducing the number of assembly, powertrain, and metal-stamping plants in the U.S. to 33 from 47 last year.

The firm believes it can turn a profit if U.S. light vehicle sales stabilize above 10 million units annually, a far cry from the 15 million to 17 million units seen before the economic crisis. The most recent J.D. Power & Associates survey puts GM sales at an annual rate of 9.7 million.



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