NEW YORK (Reuters) - The auto sector is expected to be the most financially troubled industry in the United States next year, taking the top spot from the homebuilding group, according to a survey of restructuring and bankruptcy professionals released on Monday.
As the nation has slid into recession, auto and auto parts makers have been slammed by dropping sales, pushing industry stalwarts such as General Motors and their suppliers to the brink of bankruptcy.
Homebuilding was named the most troubled industry for 2008 but fell to third for the coming year, according to the survey by Turnaround Management Association, taken during the first two weeks of December.
“The Detroit Big 3 (automakers) have been losing volumes for some period of time, but the volume reductions are now across the board,” Charles Moore, senior managing director with turnaround firm Conway MacKenzie & Dunleavy, said in an interview.
“Suppliers, being as capital intensive as they are, are finding it very hard to cut their cost structure,” he said.
In addition, consumers are finding it difficult to get the credit to buy new cars, said Moore, who is also president of the Detroit chapter of Turnaround Management Association.
Retail, hurt by sliding consumer spending and a drastic cut in credit availability, is seen as the second-most distressed industry for the coming year, according to the survey, up from 6th place last year.
The poll surveyed representatives from 213 companies with TMA membership.
Those polled said a Chapter 11 bankruptcy filing was the most appropriate solution for beleaguered automakers.
“Simply infusing money into an industry will not solve the problem,” Steve Mischo, a member of the TMA board of directors and an adjunct professor of finance at Adelphi University’s School of Business, said in a statement.
Some 77 percent of those polled said bankruptcy was the best option, while 68 percent said the government should guarantee debtor-in-possession loans to help the companies operate while under creditor protection.
Liquidators, who help sell the merchandise and equipment of failed or shrinking businesses, are expected to be quite busy next year, TMA said. But profit growth will not keep pace because fewer companies are expanding; companies are keeping their cash in hand rather than spending on equipment, it said. Consumers, too, are less willing to spend on discretionary items, despite the good deals to be found at going-out-of-business sales.
“Although liquidation sales have fared better than regular retail, they are not generating historic returns,” Tom Pabst, chief operating officer of asset management firm Great American Group, said in a statement. “Fewer buyers for machinery, equipment and fixtures are driving down values. We expect liquidations to remain active through 2009, but returns will be impacted by economic conditions.”
Reporting by Chelsea Emery; editing by John Wallace