I don't pretend to know the inside dope about the U.S. car industry. O.K. I do. But there are times when the suits' statements leave me wondering if I inhabit the same universe of cause and effect as these highly paid execs. To wit: the co-CEO of Canadian-based parts maker Magna stood up in front of the Society of Automotive Engineers and told them that the feds they should change U.S. bankruptcy laws so failing automotive suppliers can't get domestic automakers by the short and curlies. True story. Automotive News [sub] reports that Don Walker doesn't want Plastech-type failure to end up "crippling the car companies." As Justin says, that's batshit crazy. First, why should we re-write federal law for The Big 2.8? Second, why would The Society of Automotive Engineers care about bankruptcy law? It gets weirder. "Walker said the growing industry pressure has caused automakers to be more cautious in selecting suppliers. The car companies are more leery of awarding contracts to companies without a strong balance sheet or without a strong business model." So that would favor suppliers like… Magna. I thought I was wise to the ways of man. Can someone please explain this to me?
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Easily explained. Detroit and everybody involved with them live on a different planet then the rest of us. There’s no other possible explanation.
“Can someone please explain this to me?”
Did you miss it completely after you disembarked from the plane, when the white haired gentleman and his height-challenged sidekick welcomed you to Fantasy Island?
Well, basic economic principles go down the toilet when you can justify billion dollar losses. Why should Federal Laws apply here?
Yes, changing federal bankruptcy rules to help one industry with its problems smacks of caprice (no abstract pun intended). But why wouldn’t The Society of Automotive Engineers be interested in hearing an idea designed to help the industry that, from what we can ascertain, employs most of them?
As has been reported on TTAC for quite some time, much of the D3 supplier base is in severe distress. The Plastech debacle has also shown us that moving production from one supplier to another is not a trivial exercise. There may not be enough time or enough healthy suppliers to move production to before all the bills come due.
As a supposedly healthy supplier, Magna does indeed stand to gain from this, but not if the D3 fail before they can switch. Asking for special bankruptcy rules would probably work in Magna’s favour
I think “crackers” has it.
If one of the weak suppliers (or several) pull the Debt3 down Magna gets it in the shorts too.
It’s short sighted and self-centered (and heck, it’s not THEIR government they are tinkering with), but it makes a kind of sense.
Bunter
Perhaps just perhaps, Magna is finally going to get their way and take Chrysler and/or Jeep off Cereberus’ hands.
Now, that’s made you think, eh, Robert? ‘coz then Magna WOULD be one of the 2.801.
Of course, the fact that they even still might consider WANTING Chrysler and/or Jeep just absolutely proves that they DO inhabit the Twilight Zone.
na NA Na na, na NA Na na.
Plastech files for bankruptcy protection, and to protect Plastech lenders, Plastech customer assets are frozen. Courts then commence glacial progress to resolution. Production stops. Everyone else has to keep paying bills without moving any product. Collapse.
So. Magna is hit on both sides of this problem, they support lower tier, probably by lending to them, and they in turn get hammered by detroit with downward spiraling prices and orders. and slowed payments. This is when there is no bankruptcy.
When there is, they get hit with write down of the amounts due them by lower tier, plus orders from upper tier snap to zero for affected product lines and then we stretch out collections from upper tier on past product.
The real problem is decades of bad product coming out of detroit. Reminds me of movie “on the beach” where doctor tells first dying evacuee that he is suffering from death, and the first to go; not everyone dies all at once at end of world. Magna will be among the last to go, they are strong, with worldwide ops. Plastech was among first, relying on Chrysler sales.
I guess all you really have to do is look at Toyota and Honda and the way they deal with their suppliers – they don’t make their suppliers adversaries. They work with them to deliver a product and co-exist.
Common sense really, but then again common sense isn’t common anymore.
Orian
Toyota and Honda, or their banks, own majority interest in their major suppliers and have imported many of them here.
Orian-
It’s a mistake to assume that everything is hunky-dory between Japanese companies and their suppliers. In the Keiretsu structure, suppliers, while “independent” companies are bound to the banking part of the keiretsu and the customer. They can’t venture outside of the keiretsu pyramid without risking both a loss of credit and all their customers. Product design and cost are under the constant eye of the customer with constant pressure to improve quality and lower costs. As a result, the pressure is intense and profit margins are often exceptionally small. It’s actually a model of a corporate feudal system.
In fact, the current state of the relationship between domestic suppliers and the big 2.8 are the result of an inperfect attempt to replicate the keiretsu model. It has failed because the big 2.8 have focused primarily upon costs to the point of failing to consider the risks of having mission-critical suppliers go belly-up.
Life is good for Honda and Toyota and as a result, their suppliers are doing okay. But it’s not too much of a stretch to imagine Toyota and Honda facing tougher times ahead under which their suppliers could be facing bankuptcy as well.