DEALTALK-Auto uncertainty puts brakes on deals

By Jui Chakravorty Das

DETROIT (Reuters) - The uncertainty surrounding the U.S. auto industry is forcing companies to wait out the downturn before buying or selling assets, a trend that is building pressure on struggling suppliers and increasing the chances of liquidations, bankruptcies and buyouts in 2009.

Despite the expectations for increased consolidation in the auto supplier industry this year, that market has seen record lows in merger and acquisition activity -- a trend expected to continue through the remainder of 2008.

As high oil prices, a faltering housing market and tight credit conditions push down U.S. auto sales to their lowest levels in a decade, automakers are struggling to cope.

The immediate victims of struggling automakers are parts suppliers, who are stuck between rising commodity bills and automakers' demands to lower prices.

In order to reduce capacity in the industry and compete better, suppliers need to consolidate. Until a few months ago, analysts and investment bankers had anticipated more consolidation, with private equity buying out dying companies and Indian and Chinese suppliers buying U.S. counterparts.

That has not happened.

The credit crunch, which hit a year ago, made financing of leveraged buyouts very difficult and severely limited the ability of buyout firms to invest money.

Things have worsened this year as the economic crisis has deepened unexpectedly.