FRANKFURT, Dec 8: A first German auto parts company declared bankruptcy on Monday, saying it was the result of slumping orders and restricted credit.

TMD Friction, which makes brakes and has established its headquarters in Luxembourg, filed for bankruptcy for four units based in the northwestern German state of North Rhine-Westphalia, which employ roughly 2,000 workers.

“I regret that we were unable to reach an agreement with our shareholders and our creditors,” TMD Friction boss Derek Whitworth said in a statement.

He added that the company had been “hit severely by the fall in the automobile industry and the withdrawal of credit insurers.”

In 2007, TMD Friction employed 4,500 workers in 11 countries.

Automobile sub contractors, which employ 330,000 people in Germany, have been struck by a fall in orders from the export-oriented auto industry, which is suffering from a drop in demand that has forced car makers to announce production cutbacks.

Parts companies have also been hit by the financial crisis because banks are tightening credit conditions, while credit insurers that guarantee transactions have been accused of raising prices sharply or cancelling contracts with little prior notice.“The dangers from a credit squeeze exist for many small and medium-sized enterprises” which have weak cash flows, the head of parts group Schaeffler, Juergen Geissinger, said Monday in the magazine Automobilwoche.

Some experts say failures and large-scale layoffs could claim up to 50,000 jobs.

For others however, an expected consolidation of the auto parts sector could work to the advantage of German companies.

—AFP