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AUTO INDUSTRY REPORTER

The massive North American auto supplier network took a major hit yesterday as Lear Corp. filed for Chapter 11 bankruptcy protection, becoming the latest example of how the collapse in vehicle sales has spread well beyond vehicle manufacturers and deep into the thousands of firms that supply them with parts.

Lear Corp., whose bankruptcy filing is the largest among auto suppliers this year, owes $7-million (U.S.) to Canadian parts makers already struggling through the worst downturn in the auto industry in a generation.

The automotive seating and interiors giant owes the money to privately held suppliers Woodbridge Corp., Canadian General Tower Ltd., Omron Automotive Electronics Inc., WET Automotive Systems Ltd. and a division of Magna International Inc., as well as an unspecified amount to the Ontario government's Pension Benefit Guarantee Fund, court documents show.

Lear, based in the Detroit suburb of Southfield, Mich., will also seek protection under the Companies' Creditors Arrangement Act in Canada for the company's operations here, which consist of three plants still operating and another that closed its doors last month. Sources said the Canadian filing is expected as early as today.

The auto industry crisis, which has already led to bankruptcy filings by Chrysler LLC and General Motors Corp., has cascaded down the supply chain to place the entire auto parts industry under severe pressure.

"We see Lear as a leading indicator of an acceleration of the decline of the automotive supply chain," said Bill Pochiluk, head of AutomotiveCompass LLC, an auto consulting firm. "We see this as the tip of the iceberg and we're going to see more filings as a result of Lear picking this particular time to do it."

Until about the middle of this decade, Lear was the poster child for debt-fuelled growth, snapping up rivals in the automotive seating and interiors businesses and expanding into vehicle electronics. Revenue hit $13.6-billion last year, up from $2-billion in 1993.

Sales to GM and Ford Motor Co. represent about 40 per cent of its revenue, including sales generated by its plants in Whitby, Ont., and St. Thomas, Ont., which ship to GM and Ford respectively.

The court filings outlined $4.5-billion in liabilities compared with just $1.3-billion in assets.

Lear warned in court documents that the health of many of its own suppliers is fragile and in the months leading up to yesterday's filing, some of these companies grew increasingly worried about Lear.

Many sought cash in advance of delivery versus the standard terms of payment 50 days after delivery, said one Lear motion that asked a New York bankruptcy court to approve payments to key suppliers for money they were owed for shipments made before yesterday.

"More than 74 other suppliers have requested that the debtors make cash payments immediately upon delivery of product," the document said.

In addition, Lear said it might have to stop shipments to auto makers if it does not receive the components it needs for the parts it makes.

"The debtors have highly sensitive supply chains that easily could be disrupted by a recalcitrant or financially distressed vendor," Lear said.

None of the five Canadian parts makers, listed among the top 50 Lear creditors, returned calls yesterday.

Rowena MacDougall, a spokeswoman for the Financial Services Commission of Ontario, said the nature and amount of the pension liability are undetermined.