As it turns out, the deconstruction of General Motors’s extended web of suppliers has been underway for months. With a bankruptcy filing, it’s likely to accelerate, costing thousands of workers their jobs and likely destroying dozens of firms.

Chris Norch, president of Denison Industries, employs 125 employees in a metal casting business founded in 1991. It supplies aluminum castings for the automotive, defense, aerospace, and commercial industries. He’s also president of the American Foundry Society, which represents about 3,000 metal casting firms, the majority of which are family owned and employ an average of 100 people or fewer.

He told the House Small Business Committee recently that GM and Chrysler, which already has filed for bankruptcy, owe their large and small suppliers about $10 billion for parts that have been delivered. GM has held off paying them for weeks. In bankruptcy, GM may not have to pay them at all.

In the past six months, 15 metal casting companies have closed down, and the trade association estimates that another 30 could close their doors over the next six to nine months.

Ron Overton, chief executive of Overton Industries, a company his father founded in 1968, has seen similar fallout among so-called second-tier suppliers. In his case, they make machine tools for companies that make auto parts. “In my 30 years in this industry, these times are by far the most dire for the automotive sector and particularly the thousands of small middle-market suppliers around the country,” he told the committee during a recent hearing.

His company is holding several million dollars in receivables from direct suppliers to GM and Chrysler and he’s worried about getting paid. Although the Obama administration has insured GM and Chrysler receivables to direct suppliers, companies like Overton have little recourse in the event of a GM bankruptcy.

“In the current environment, these accounts receivables remain open for a longer period of time than ever before,” he said. Some companies in the administration’s Supplier Support Program funded under the Troubled Assets Relief Program (TARP) are withholding payments for up to 180 days, even though they are receiving payments from GM and Chrysler in less than 60 days.

Because of the impact on cash flow, small middle-market auto suppliers say the doors are being slammed shut on credit. “The moment a lender or receivables insurance broker sees we are involved in the automotive industry, they immediately move us to a high-risk category, will not extend credit, or they will transfer us to a third-party lender,” said Overton. “Simply put, they believe we are not ‘bankable’ due to our auto industry work.”

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