It seems as if our concerns about a Chrysler supplier "run on the bank" scenario– whereby the company's suppliers would demand cash-on-the-nail for goods and services rendered, throwing Chrysler into bankruptcy– are not without foundation. TTAC's Deep Throat has been making some calls. There are rumblings amongst the automaker's financially unstable suppliers. Something along the lines of "If we're going down, we're all going down together." Chrysler has been hammering its suppliers on price for years. And then outsourcing anyway. The company's decision to cancel Plastech's contract hasn't made The Crisis Corporation any friends. (Chrysler CEO Bob Nardelli isn't exactly known for that skill.) DT says it could be the tipping point. If and when the run happens, Chrysler will go down in a matter of days. The good news? Ford and GM will get a significant sales boost just when they need it most.
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Could GM and/or Ford be encouraging the revolt?
They could be but it could easily backfire on them too. GM is not the fastest payer in the world and many suppliers are sick of the juvenile verbal abuse they take from GM at supplier quality meetings. If you ever get a chance to be a fly on the wall at one of these meetings were the supplier is called in because of quality issues, you will quickly see how professional GM is at doing business. GM & Ford are as bad as the 3 headed dog at bashing suppliers over the head constantly for cost savings and give backs.
The good news? Ford and GM will get a significant sales boost just when they need it most.
Shouldn’t they already be seeing sales boosts, Chryslers products pretty much suck(except for Jeep) and aren’t really seeing at the moment. If Chrysler did crash I think the boost would be evenly split between imports and what’s left of the domestics.
Plus aren’t they tied together with a lot of the same suppliers, wouldn’t it cause problems in Ford and GM’s supply line if these suppliers bit the dust.
oboylepr If you ever get a chance to be a fly on the wall at one of these meetings were the supplier is called in because of quality issues
Aren’t the suppliers just building parts to their required specs and price, how is it the suppliers fault. You still get what you paid for, weather it be the part or the sum of those parts.
I guess alls fair in love and war,though the casualitys in this war will be those that can least afford it.
As mentioned in the other article on this subject, GM, Ford, and Johnson Controls are the three other largest customers of Plastech. According to Plastech, they are passing the buck, and all contributed to a huge (I think the number was $47 mil – it’s in the other article) attempt to bail Plastech out only one year ago. It seems Chrysler is their largest customer – as it would be, judging from Plastech’s Auburn Hills, MI, address – but the other three will most certainly be affected. Not sure about the conspiracy theories, but anything is possible.
Although it certainly could backfire, I’m of the mindset that Chrysler is using it as an example to other suppliers, as a means of clearing out unwanted inventory (none of the nameplates listed as affected by this closure sell well at all), and as put forth by another poster in the other article, as a way of immediate outsourcing through elimination of reasons to stay inside the US. Are higher-quality Chrysler interiors (not a hard feat, considering the crap they’ve been putting into their cars for the past two model generations) worth this? Chrysler seems to think so.
I sincerely doubt that GM or Ford is encouraging a supplier revolt. All of the big automakers have been boosting profitability by squeezing suppliers. Bankruptcy of a supplier means that your contracts are renegotiated at terms set by the judge, probably at a higher price. Since finding an alternate means of supply would take a while, all customers of the supplier would take a hit. Not to mention that hungrier suppliers can’t afford to turn down business, even marginal business. The Big 2.8 have no interest in encouraging further consolidation of the parts industry.
When there are only a few suppliers left, it becomes what in economics is known as an ‘oligopsony’ meaning the few suppliers left could raise prices and there would be nothing the automakers could do. We’re still far from this point but not as far as most people think- consolidation could happen very rapidly, particularly if the value of the suppliers goes to zero due to price pressure by the customers…
I doubt that GM and Ford are cheering for a Chrysler bankruptcy. From GM’s 10K last spring under the “Risk Factors” section:
The financial distress, bankruptcy, or insolvency of a major competitor could have significant adverse consequences for us.
If a major automotive company experienced financial distress, it could pursue short-term strategies that would disrupt the market and force competitors like GM to consider actiosn that would be imprudent or unsustainable in the long term. In addition, the financial distress, bankruptcy, or insolvency of a major manufacturer could lead to a disruption in our suppy base, which could materially affect our business. Finally, a competitor that today has substantial pension and OPEB oblications to its retirees could gain a significant cost advantage over us if it succeeded in reducing or eliminating its contractual obligations to its unionized work force and other parties through a bankruptcy proceeding.
So, methinks they aren’t rooting for something like this to happen.
though the casualties in this war will be those that can least afford it.
That’s always the case Mikey.
Saw ‘Enron, The Smartest Guys in the Room‘ last night. Watch it…you’ll puke, kick your tv in, or both.
This Chrysler/Plastech scenario reminds me of an old Monty Python skit:
Page: ‘Sire, the peasants are revolting’
King: ‘Not so loud, fool, they’ll hear you!’
No, the good news is that the guys taking the hit if Chrysler fails are private equity. The bad news is that this will give a bunch of powerful people on Wall Street a headache wich they will somehow manage to move along to the rest of us.
NickR,
I am amazed at all the people who know ALL about Enron and still cannot clearly describe why it happened. It happened because not only did the foxes get left in charge of the hen house, but the guard dogs were told to eat the hens as well. The system bred its own destruction.
All but the most ethical of people will turn into cheats under the right circumstances, and that is precisely what Enron created.
Subprime – SAME THING.
There is a difference here. Apparently, there are competitive self interests involved, and Chrysler may not be able to pull a Don Trump on all of them(where you get the others in the deal trapped into going along indefinitely because you have turned them into unwilling partners). On the other hand, I wonder how many of these guys are like Plastech and couldn’t do business at all without Chryslerberus? (they are “Trumped”). How many of the suppliers’ CEO’s have been sleeping at the wheel and will succumb to the squeeze rather than watch their bonuses dissappear completely?
Aren’t the suppliers just building parts to their required specs and price, how is it the suppliers fault. You still get what you paid for, weather it be the part or the sum of those parts.
You are correct they are building to an OEM spec. That’s the theory, but what often happens is this. A supplier meets the required spec. but the part does not fit anyway probably because the spec is wrong or the OEM made a bo bo. Then things go horribly wrong on the line and if the line has to stop because of it, by golly someone’s ass is in a sling. The supplier gets called in and is read ‘The Riot Act’. The supplier knows that the part is right but the very worst thing he could say is, ‘the part is built to spec.’ The OEM supplier rep will blow a gasket on the unfortunate supplier because he didn’t know to make corrections so as the part would fit and to hell with the spec. This scenario is played out time and again complete with people literally screaming abuse at the supplier. I work for a big tier 1 supplier and I have seen our reps in tears after a meeting like that. This scenario is very common. We got clever though by ending up fixing the OEM’s errors and even errors made by other suppliers for the sake of peace. It actually saved us money in the long term. Anyone in the auto supply business will tell you the relationship between the Detroit 3 and their supply base is poisonous. Someday their will be a supplier revolt but it will affect all of them not just Chrysler.
I had a mercury mystique. due to cheapness issues, er, supplier problems, my dash began to pull away from the glass. Ford replaced my entire dashboard. it was a common problem, and according to the dealer (who was quite nice about it) they got paid 2.5 hours for a job that took 5 and the mechanics hate. Eventually Ford cheaped out and came up with a kit to reattach the existing dashboard. Luckily for me I was early and my $2 dash was replaced correctly with a nicer $3 dash.
In contrast, my BMW has quality parts where they are never seen except by geeks and mechanics. Oddly, the BMW also is solid at 150k when the Mercury was clapped at 100k
oboylepr
Does that sort of nasty supplier relationship just happen with Detroit or also with the imports?
From the way you described it this sounds like one of the many reasons their cars have been sh*t for so long. It amazes me how they cause a problem and later on don’t even realize or rectify what they have done to cause it, over and over and over. If these guys are still doing this crap how could their cars possibly be any better, sounds like they are getting worse to me.
You guys are much more patient than myself and some of the firms I have worked for and currently work for. We have told a good few abusive clients to blatantly f*ck off and that we didn’t want their business. It’s not worth our time and talent to deal with clients like that. And they are usually cheap asses who never want to pay the full fee, like they should get a discount for dragging our ass over the coals due to their own incompetence.
oboylepr,
You can add reminders in those meetings of how much the OEM’s still have not paid yet and how much they are not going to pay because of the supplier “screwup”. Extortionists to the end.
Redbarchetta,
This type of supplier relationship has been pretty much a Detroit thing. That’s not to say Toyota’s a saint but compared to GM and Chrysler, suppliers would prefer to have Toyota as the client.
As for how you would deal with a bad client, I completely agree but it’s just not possible in this industry. Every supplier wants to or has been advised to work with the imports but there is simply not enough business to go around.
It wasn’t always this way:
http://www.allpar.com/corporate/score.html
http://www.allpar.com/corporate/stallkamp.html
Alas, Stallkamp resigned (probably under pressure) and SCORE was scrapped after Dailer took over.
Sounds about right I knew a guy who worked at a GM assembly plant. There was a deep recessed area in the floor and a car fell into it.
It sat there for the entire time he worked there because it was the kind of place where if you did anything about it you would be blamed for the car ending up there.
He said it was totally insane, supervisors and workers went about their job for months with a freaking car in a hole in the middle of the plant acting like it didnt exist.
The emperor has no clothes at GM. Those supply managers screaming their heads off at the supplier are not bad people, they’re screaming to keep their jobs. If they admit any error and take a loss they will get pushed sideways or phased out.
Blame the culture the toxic culture thats developed there which is ultimately a management issue.