Auto-Parts Makers Sweat Out GM Bust (Update)

It could well be a long, hot summer for auto-parts suppliers.

Sure, General Motors'(GM Quote) bankruptcy, made official Monday morning, had been expected for weeks. And, yes, the federal government extended a $5 billion TARP lifeline to parts makers back in March, promising to help Chrysler and GM pay their suppliers bills.

But like seemingly everything else during this financial crisis and recession, survival for auto-parts makers will come down to balance sheets.

For now, the process seems orderly, and many analysts have been at pains to strike a somewhat ho-hum attitude, saying that GM's Chapter 11 filing does nothing, in itself, to effect suppliers.

GM, for example, like Chrysler before it, has asked for permission from the bankruptcy court to pay its suppliers "in the ordinary course."

Also, the carmaker won't likely exploit its position to pressure suppliers into cutting prices or aggressively renegotiating the terms of its supplier contracts. Brian Johnson, an auto analyst with Barclays(BCS Quote) Capital, wrote in a research note Monday that GM's workout "will be focused on identifying potential cash-strapped suppliers up the value chain and using government cash (e.g., by accelerated payment terms) to provide support to those suppliers."

Indeed, Monday's events seemed to reassure investors, who gave auto-supplier stocks a sharp bump into the green Monday on heavy volume. In afternoon trading, Johnson Controls(JCI Quote) was up 6.6%, Magna International(MGA Quote) up 1.5%, BorgWarner(BWA Quote) up 7%, American Axle(AXL Quote) up 18%, Tenneco(TEN Quote) up 10%, Lear(LEA Quote) up 13%, TRW Automotive(TRW Quote) up 1.4%, and Dana Holding(DAN Quote) up 3%.

Still, some of GM's suppliers may, in the end, not get paid in full, and it remains an open question as to when, exactly, those payments will arrive. Bottom line: parts suppliers with weak cash positions and high debt obligations could be put in an even more precarious position than they are now.