Well, it’s about time. The plight of the auto suppliers and the danger their financial distress poses to the supply chains of the entire auto industry - the Big 3 and foreign car makers like Toyota - is finally getting some attention in the press. But is it too little, too late for many of the Tier 1 suppliers? Or if the car makers act soon (with or without help from the Treasury), can they keep the supply chain moving?

Earlier this week, Toyota’s President of US sales, Jim Lentz, warned President Obama’s auto industry task force that their supply chain was in danger due to GM and Chrysler’s financial problems. To quote the Washington Post’s coverage:

“Of its 500 suppliers, Toyota is worried about the financial viability of about 100 companies, with 20 or 30 in critical condition. The company is working on backup plans should one of them fall into bankruptcy. Avoiding any production disruption is key. If a supplier of a unique Toyota product collapses, it could take up to a month to find a suitable replacement, Lentz said.”

Let’s think about that for just a moment. Toyota, the respected, innovative, profitable brand behind the Prius (widely perceived as the car which brought hybrid technology into the mainstream) is in danger. If anyone still thinks GM and Chrysler’s problems are limited to themselves, their UAW workers and the city of Detroit, Toyota’s warning should snap you out of it. The web of car companies and their suppliers is extremely connected and vulnerable in the current credit and consumer demand climate.

And lest you think Toyota is over-estimating the danger their supply chain is in, consulting firm Grant Thornton released a strikingly similar analysis yesterday. Their research shows 500 Tier 1 auto suppliers, or 40% that industry segment, are at a “high risk” of going bankrupt in the next 3 months due to the massive drop in manufacturing in December/January (which is the period they are currently being paid for by auto makers) and the credit crunch.

The clock is ticking. Without help from the Treasury soon and/or widespread adoption of supply chain finance by the auto makers and suppliers, many Tier 1’s will fail in the near future. And as Lentz pointed out, the ripples (tidal waves?) will be felt across the industry.

Justin Fogarty is Managing Editor of Supply Excellence. For any questions or feedback on the blog or its contributors, Justin can be reached at jfogarty[at]ariba.com.