The preparations for GM’s June 1 Chapter 11 filing continue apace. The Financial Times reports that the ailing American automaker wants [to use federal funds] to pay hundreds of “key” suppliers while it’s dividing itself into Michael (good) and Garth (bad) GM. The FT’s experts reckon The General will get permission to do so to maintain its status as a going concern, as the artist formerly known as the world’s most profitable corporation enters the court’s protection. (No mention was made of political considerations, but they’re there too.) But no matter how you slice it, this is gonna be a cluster-you-know-what of epic proportions. To wit: “A judge could also force GM to prove that individual suppliers would stop operating or shipping goods if they were not paid, rather than letting GM use the money as it sees fit. The critical vendor legal doctrine can be ‘subject to abuse and unfairness’, one attorney said. Roughly two-thirds of GM’s suppliers also sell parts to Ford or Chrysler, and some may be able to absorb late or reduced payments. ‘It’s a game of chicken,’ one attorney said. ‘How do you figure out which suppliers really will stop supplying tomorrow and which won’t?'”
Talk about unfair. The better run the supplier company, the more likely the are to get stuck. So it goes in bankruptcy reorgs though.
Trusting GM with the money to take care of the supply base is like trusting Charles Manson or Phil Spector to run a retreat for troubled young women.
Nazi = National Socialism. aka Fascism.
This is where the government decides which companies live & die; nationalizes or part-nationalizes many of them, including banks; and by-God says “it’s my way or the highway.”
AKA the Untied Status of Amerika 2009.
In reality, it’s just more of the same “greater fools” game.
http://www.freebuck.com/articles/lwilson/090416lwilson.htm
What happened to morals and the rule of law in this country?
Oh yeah. My bad. Folks who think like me? We’re the enemy of the state. At least we’re in good company:
Only a virtuous people are capable of freedom. As nations become corrupt and vicious, they have more need of masters. – Benjamin Franklin
The only foundation for a useful education in a republic is to be laid in religion. Without this there can be no virtue, and without virtue there can be no liberty, and liberty is the object and life of all republican governments. – Benjamin Rush
Our liberty depends on our education, our laws, and habits … it is founded on morals and religion, whose authority reigns in the heart, and on the influence all these produce on public opinion before that opinion governs rulers. – Fisher Ames
Without morals a republic cannot subsist any length of time…. – Charles Carroll
[W]e have no government armed with power capable of contending with human passions unbridled by morality and religion. … Our constitution was made only for a moral and religious people. It is wholly inadequate to the government of any other. – John Adams
http://www.thereturnofscipio.com/
“Michael (good) and Garth (bad) GM”
Nice Knight Rider reference.
The answer to who will really stop supplying if GM files should be simple. Go to the backup for the study (presented to Congress) that showed which suppliers would go broke if they didn’t have GM to sell to. Those are the ones that can’t afford to stop supplying GM. Oh, yeah, that was a study designed to prove that a GM bankruptcy would result in armageddon so the answer is “all of them”… A judge could use that evidence to deny granting any of them critical status.
Menno-Say it isn’t so!
You can’t mean that as the average American has become increasingly self-centered, greedy and lawless that it would affect our overall quality of life and the economy?
Gasp!
Oh, the shame of it…”Auntie Em, Auntie EM…”
Thanks buddy. Keep calling it straight.
Bunter
F me gently with a chainsaw.
John Horner,
Excellent observation. I would use this point as the exact reason that GM should have been allowed / forced to go C11 without government interference. The role of the government would have then been to provide DIP financing in order to move GM through C11. Any resulting supplier bankruptcies could have then been dealt with on a case-by-case basis by the government as they emerged. Playing this “what if” by the government is a road to failure. As a side note, any company that builds it’s very existence on a single other company is asking for this type trouble. Just saying.
Tex
“menno : Nazi = National Socialism. aka Fascism. ”
So I guess you think modern France is a Nazi country then? What is it with the incendiary name calling which passes for political debate in some circles?
Which suppliers will go bust and which suppliers will continue to operate when GM goes out of business? Lets find out! *cuts all funding to GM*
Roger Smith started this slow decline to obscurity. Michael Moore was right.
The is the ugly side of the unintended consequences of C11 or C7 bankruptcy. Suppliers have been running on very small margins or even losses for years. Each supplier bankruptcy requires a lot of OEM management to keep their plants from shutting down.
Bye! Bye!
I think paris-dakar nailed that one. Couldn’t have put it better myself.
Call me crazy, but I’m just not seeing Hitler’s place in this discussion.
Unless GM is planning on using this cash to invade Poland, let’s try to stay somewhat close to the topic and use metaphors that are appropriate to the subject matter. Thanks.
Unless GM is planning on using this cash to invade Poland, let’s try to stay somewhat close to the topic and use metaphors that are appropriate to the subject matter. Thanks.
Does my Charles Manson/Phil Spector metaphor count as appropriate?
Does my Charles Manson/Phil Spector metaphor count as appropriate?
Since it had comedic value and you don’t repeat it out of context in every second post that you make on this website, sure. But if you had a well-established track record of repeating it at every turn, including in many instances when it had no bearing on anything at all, then we’d be sending you back to the Comedy Store for new material, too.
I agree with pch101, could people please stop with the acidic political rhetoric? Either Obama et consorts are going the right wing fascist way, or they are proving to be the worst kind of socialist communists since the five-year plan? Well, it is neither, and this is not the end of the world. It’s just capitalism in motion….
This is where the government decides which companies live & die; nationalizes or part-nationalizes many of them, including banks; and by-God says “it’s my way or the highway.”
Look, here’s how it works: if you go to the public purse, you have to expect certain conditions to apply. Whether it’s for something as innocuous as a tax credit or R&D grant, or as blatant as an outright nationalization, you as the requestor have to expect the other party to ask for something in return.
This is important. The government did not send men in black/grey/brown/plaid in black/grey/brown/rainbow helicopters to assume control of these entities. These entities either went looking for government backing, or accepted government assistance when it was offered.
The banks did not have to accept or request federal offers to shore up their businesses, or help them into an arranged marriage. GM did not have to ask for bridge loans, nor did it have to accept them. I can, perhaps, understand why they thought they could ask for such a loan and not expect to shoulder any responsibility because past government history (think PNGV) was pretty explicit in how much the government didn’t want to get involved.
Personally, I’m glad of this. I’m tired of wealth redistribution from taxpayers to corporations with no strings attached. GM and Chrysler are broken, and if they need help, they better expect that said help might come in a fashion that doesn’t ensure the continuance of they legacy, heritage, management structure or business model. Sucks to be them, but they didn’t have to ask for it, did they have to be so incredibly bad at their jobs.
Is it government interference? Sure, but I place marginally more faith in elected officials of any political stripe keeping up with matters because they’re accountable to someone, rather than a weak and useless board of directors whose responsibility, if you could call it that, is to the people they are supposed to oversee.
Pch101 :
April 17th, 2009 at 1:28 pm
Call me crazy, but I’m just not seeing Hitler’s place in this discussion.
Unless GM is planning on using this cash to invade Poland, let’s try to stay somewhat close to the topic and use metaphors that are appropriate to the subject matter. Thanks.
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According to Wiki:
In 1933, Adolf Hitler gave the order to Ferdinand Porsche to develop a “Volks-Wagen” . The name means “people’s car” in German, in which it is pronounced [ˈfolksvagən]). He required a basic vehicle capable of transporting two adults and three children at 100 km/h (62 mph). The “People’s Car” would be available to citizens of the Third Reich through a savings scheme at 990 Reichsmark, about the price of a small motorcycle (an average income being around 32RM a week).
So, the führer designated a car czar, decided how many people the car should carry, and how fast, and how to finance the good citizens to buy the cars.
I mean, is there anything Obama did differently? Besides dictating how green the car should be instead of how fast it should be?
So, Hitler does deserve a place in this discussion.
Oh, Hitler came to power through an entirely democratic and legal election.
I mean, is there anything Obama did differently?
Yes, it’s exactly the same. I should have paid more attention, and noticed the president’s funny moustache, Austrian accent and how he parts his hair on the wrong side.
I guess that we all have air cooled engines and stamp booklets in our future. Krakow is lovely in the spring, I hope to see you all there.
[/sarcasm]
Can’t speak for the other conservatives here (I know there’s at least a couple), but I’m torn. On one hand bailing out a corporation goes against every capitalist bone in my body. On the other hand if the domestics fail, the only alternative we’ll have to the penalty box wussy-mobiles the government wants to shove down our throats will be uber expensive European brands. Granted, CAFE was going to neuter the domestics anyway, but I still believe there’s enough loopholes in CAFE to squeeze a few muscle cars and powerful trucks out for the occasional unapologetic American. What’s a right leaning libertarian to do?
Here in Obama Nation you can run your company into the shitter, and if you can prove that thousands of jobs are at stake, you’ll get billions of dollars from taxpayers. You have to promise you’ll pay it back, but you’re not really expected to. What a country.
Pch101 :
April 17th, 2009 at 2:02 pm
I mean, is there anything Obama did differently?
Yes, it’s exactly the same. I should have paid more attention, and noticed the president’s funny moustache, Austrian accent and how he parts his hair on the wrong side.
I guess that we all have air cooled engines and stamp booklets in our future. Krakow is lovely in the spring, I hope to see you all there.
[/sarcasm]
———————————————
Now we are at it, let me be more specific:
1) Both are great speakers of all time.
2) One had hair parted on the wrong side; the other had the wrong skin color.
3) Hitler financed Germans with stamp booklets; Obama financed Americans with cash injections to GMAC.
I mean, that’s close enough for me.
Does someone need to resemble Hitler in appearance to be associated with Fascism? Does a machine need to resemble a Camry to be called a car?
[/it’s real, and no sarcasm intended]
reclusive_in_nature :
April 17th, 2009 at 2:09 pm
On the other hand if the domestics fail, the only alternative we’ll have to the penalty box wussy-mobiles the government wants to shove down our throats will be uber expensive European brands.
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Why not the Asian brands?
I can’t understand why we are even discussing these things. It’s not a left/right thing, its’s a pro or against capitalism thing. Economic downturns are intrinsic in the capitalist way, ups and downs how followed capitalism since the beginning. And the government, any government in any country, have always supported big money in bad times as much as possible, to the point where they are almost risking a revolution or rising of the people. Iceland and Latvia has already seen their governments overthrown. Big money doesn’t like democracy or even free trade. Big money likes monopoly. Society, on the other hand, benefits from free trade, evenly spreaded wealth and consumer choices.
This is a clash between big money and society, and the consequences will be felt for all, left or right, fascist or communist, american or european or asian or whatever. Ultimately, it is a struggle of the spread of wealth, on where the line has to be drawn about who will benefit. Will the government support the interests of its people, or make decisions that will only benefit big money? It is an everlasting struggle that is intrinsic in the capitalist way of doing things. As I said, this is no news, this has been going on for the last hundred and fifty years…
Ingvar, I agree with your analysis, except that it’s been going on forever.
Here in Obama Nation you can run your company into the shitter, and if you can prove that thousands of jobs are at stake, you’ll get billions of dollars from taxpayers. You have to promise you’ll pay it back, but you’re not really expected to. What a country.
But the jobs at stake have to be Union jobs, don’t forget that part. Preferably a Union with a long history of supporting the Democrats.
Obama must be reading from the Reagan manual of handling Savings and Loans . . .
paris-dakar :
April 17th, 2009 at 2:33 pm
But the jobs at stake have to be Union jobs, don’t forget that part. Preferably a Union with a long history of supporting the Democrats.
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Very accurate! You gotta be a thug to get the little guy’s money.
Here in Canada, Canada’s very own domestic Nortel just got bankrupted. They hired about 80k people at the peak in 2000. They still hired 30k just before they go BK.
And no. No bailouts at all.
On the other hand, they have the bailouts ready for Chrysler. A foreign company that hired fewer people than Nortel, and owned $1B tax to the government for several years (and amazingly no tax men knocked on their doors, I guess that’s the CAW group benefit of being thugs).
I’ve lived overseas and visited overseas, Bunter.
It’s not just Americans who have a problem with all of these issues which could commonly be described in one 3 letter word that almost nobody speaks anymore.
S i n
menno :
April 17th, 2009 at 2:54 pm
I’ve lived overseas and visited overseas, Bunter.
It’s not just Americans who have a problem with all of these issues which could commonly be described in one 3 letter word that almost nobody speaks anymore.
S i n
——————————–
That’s true. But what unique to Americans is that they believed that they are superior in that regard.
The Asians have a few cars that could fit the bill (Genesis, 370Z, etc), but are more likely to play to more to their strengths (economy cars) if/when the domestics die out. It’s cheaper to build smaller, more underpowered cars, than something more ‘muscular’. If their domestic competition were to disappear, and CAFE finishes castrating anything with four wheels, I’d be willing to bet the asian imports will begin utilizing the same type of engines for every model. Luxury items and suspension tweaks would most likely be the only differentiating factor for trims, as opposed to power.
Granted, CAFE was going to neuter the domestics anyway, but I still believe there’s enough loopholes in CAFE to squeeze a few muscle cars and powerful trucks out for the occasional unapologetic American
CAFE is the only reason the Americans were able to keep going as long as they had. Were it not for CAFE, they likely would have tried to make a decent small car (or failed trying), instead of effectively going “Fuck cars, truck are easier to make and cost us less, plus they’re not remotely as tightly regulated.” Without CAFE, trucks could not have become the New Family Car.
What killed them was the twin dooms of no credit and high fuel prices, which made it really hard to hock the only products they had that still made a profit.
On the other hand, they have the bailouts ready for Chrysler. A foreign company that hired fewer people than Nortel, and owned $1B tax to the government for several years (and amazingly no tax men knocked on their doors, I guess that’s the CAW group benefit of being thugs).
Nortel is being gracefully spun down. Considering this is not the first time Nortel has declared bankruptcy, that their supplier footprint isn’t as big, and that quite a lot of Nortel will live on, it’s not surprising that they’re being handled in the way they are. Nortel going down is on par with Air Canada doing the same: it’s rather expected, if unpleasant.
Chrysler’s termination isn’t going to be a bankruptcy: they will die quickly, hurt more, and they will throw more people out more quickly, and those people are low-skill earners not likely to enter to workforce nearly as quickly. You can bet that if Bombardier took a powder, it would look similar.
The CAW doesn’t come into it, certainly not under a Conservative government. It’s all about pain mitigation. Floating Nortel until the economy turns around doesn’t make sense; doing the same to Chrysler and GM could be argued for.
MikeyDee, GM’s slide started way back in the mid-60s, with GM’s lack of response to demand for a good small car. Roger Smith was just another step along with way.
On the other hand if the domestics fail, the only alternative we’ll have to the penalty box wussy-mobiles the government wants to shove down our throats will be uber expensive European brands.
Perhaps people aren’t getting it: we’ve overspent. If you want there to be a market for cars people can afford, get ready for it to be chock-full of penalty-box wussy-mobiles.
And if GM and Chrysler aren’t prepared to build said wussy-mobiles, well, that’s an issue. Since they employ a lot of people, their going under will affect a wide swath of the economy, and, at best, is going to result in the US having to import it’s wussy-mobiles from other countries, incurring a trade deficit along the way.
The D3 refused to build decent, capable wussy-mobiles in the late seventies and onward, and they suffered for it. I for one am glad to see the government show the strategic wherewithal that’s so utterly lacking at the automakers, because it would be nice to have North America (and the US in particular) as a net exporter of something.
Which is why GM and Chrysler should downsize and play to THEIR strengths: Trucks, SUVs, and performance cars. The profit could easily pay off the fines from the government with plenty left over. (I recall that’s the plan for some european brands.)
reclusive_in_nature :
April 17th, 2009 at 3:09 pm
The Asians have a few cars that could fit the bill (Genesis, 370Z, etc), but are more likely to play to more to their strengths (economy cars) if/when the domestics die out. It’s cheaper to build smaller, more underpowered cars, than something more ‘muscular’.
Aren’t we talking about economy cars? The D3 is all about economy cars (beside pickups).
If it’s Genesis or higher that we are talking about, then be assured that Lexus/Infinity have every base covered. Whatever Cadillac can do, you will find an as good (if not better) alternative in Lexus/Infinity.
If their domestic competition were to disappear, and CAFE finishes castrating anything with four wheels, I’d be willing to bet the asian imports will begin utilizing the same type of engines for every model.
Well, it has already happened. Toyota has a 3.5L V6 in Camry/Avalon/Venza/Highlander/RX/IS/GS… So is the BMW 3.5 found in 135,335,535,735(in certain markets). Nothing wrong with it.
Luxury items and suspension tweaks would most likely be the only differentiating factor for trims, as opposed to power.
As above, it has already happened. It’s not new and everyone is doing it.
psarhjinian :
April 17th, 2009 at 3:45 pm
because it would be nice to have North America (and the US in particular) as a net exporter of something.
——————————————–
Why is it good to export?
Are we all doomed if earth doesn’t export to mars?
As developing countries continue to improve their standard of living and citizens become wealthier the demand for more powerful cars, trucks, and SUV’s will increase. It’s just human nature. When the global recession ends (and it will) other countries’ citizens (at least the ones that still have the right to drive what they want) will want larger, more powerful vehicles. When the smoke clears, and if there’s still a domestic company left, finding buyers to export said vehicles will become easier and more profitable. American companies are already perceived worldwide as making overpowered vehicles. Though the current economic environment makes that a liability, eventually things will change and it’ll be a huge selling point.
reclusive_in_nature, what do you mean by “larger, more powerful vehicles?” Is a Camry V6 a large powerful car?
If you mean something like 370Z, then, no, most Indians and Chinese won’t be buying that kind of cars any time soon.
To be boringly on-topic: What’s the problem?
Obviously GM’s vital suppliers have to be kept going if GM is to survive.
Are the points at issue:
a) Who are the “vital suppliers?”
b) How much government money are they entitled to, bearing in mind that only a fraction of their output might go to gm?
c) Who holds the purse strings — GM or some PTFOA official, bearing in mind that if GM pays out the money they will probably gouge their suppliers by threatening to withhold payments unless prices are reduced to starvation levels?
d) If there are alternative vendors who are in a stronger condition, should the troubled vendors be allowed to go C11?
It’s a fascinating topic: not just how to keep a company alive, but how to keep a whole industry alive, and to do it in a way that is perceived as fair to all concerned.
I’m thinking of the Manhattan Project. They put one competent guy in charge — General Groves — with a clear mandate — build a nuclear weapon fabrication system — gave him lots of money and let him get on with the job.
I think this is the way to go.
Why is it good to export?
You’re kidding, right?
Even a pinko like me realizes that even nomadic hunter-gatherers equipped with stone tools have to, at some point, exchange services/goods for other services/goods because you cannot do everything yourself.
While I’m sure there’s some nation on the planet that could function in total isolation, I’d be pressed to say which one that is. Canada, for example, is resource-rich but poor in population and has to export resources in order to obtain services and goods. Japan, which is rich in people and has a deep manufacturing base, has to import resources it has in scarcity. Every nation (or group within a nation, or group of nations, etc) has some combination of ability and resource that isn’t sustainable on it’s own, but makes sense when exchanged.
The problem occurs when you can’t import anything and/or have nothing anyone else wants.
psarhjinian :
April 17th, 2009 at 4:20 pm
Why is it good to export?
You’re kidding, right?
Even a pinko like me realizes that even nomadic hunter-gatherers equipped with stone tools have to, at some point, exchange services/goods for other services/goods because you cannot do everything yourself.
——————————————
I know it’s good to exchange goods.
But it doesn’t justify the myth that export is better than import.
Right now, Americans import more than they export, because they find the exchange of USD with foreign physical goods to be more rewarding than the exchange of American goods with foreign currency. What’s wrong with that.
For me, if I can print my own paper money and someone is going to accept that and give me goods, I am happy. I will import all the way to the “bank”. So should Americans.
There’s a simple reason why Americans buy (used to anyway) SUVs and muscle cars: Because they can (could). Other countries are almost to the point where they too can buy those type of vehicles if they choose. There’s nothing inherently wrong with Americans for buying those vehicles. When your country is successful the citizens reap the rewards. Other countries are catching up to where we were and will do the exact same thing eventually.
For a counter example, just look at China. It took China 30 years of export to save about $1T USD of reserve ($300B in Freddy Mac Fannie Mae). For that money, China shipped tons after tons of physical goods to the US.
But now, how much does that $1T really worth? Given that Obama & Co is going to print $3T in this one year, $1T isn’t that much, certainly much less than all that resource used to produced all those goods.
In this case, the exporter got screwed. The importer enjoyed many years of inflation-free free products.
Well I’ve got some housework and a grouchy wife to deal with. Be back later.
reclusive_in_nature :
April 17th, 2009 at 4:29 pm
There’s a simple reason why Americans buy (used to anyway) SUVs and muscle cars: Because they can (could). Other countries are almost to the point where they too can buy those type of vehicles if they choose. There’s nothing inherently wrong with Americans for buying those vehicles. When your country is successful the citizens reap the rewards. Other countries are catching up to where we were and will do the exact same thing eventually.
—————————————-
India doesn’t have enough land size to park one billion F-150s. And “your country is successful the citizens reap the rewards” doesn’t help.
Who holds the purse strings — GM or some PTFOA official, bearing in mind that if GM pays out the money they will probably gouge their suppliers by threatening to withhold payments unless prices are reduced to starvation levels?
This is the question. Based on GM’s past history dealing with their supply base, you can bet they would use some sort of strong-arm tactics to squeeze concessions out of their suppliers.
If there are alternative vendors who are in a stronger condition, should the troubled vendors be allowed to go C11?
No healthy automotive supplier will deal with GM at this point. Most wouldn’t before this mess, and they certainly aren’t going to start now. All GM is left with at this point are the bottom feeders.
For a lot of critics who say that China doesn’t buy enough American goods, please consider this:
Americans buy Chinese goods with USD, which the Americans can print as much as they want.
When Americans sell goods to the Chinese, the Americans only accept USD.
But the Chinese really don’t possess much USD, their 30 years of saving is 1/3 of American deficit in one year.
You see the asymmetry here?
If Americans really really want Chinese to buy Americans good, they should be willing to accept Chinese Yuan for American products. Then the Chinese government can print more of CNY and buy more American goods.
To be boringly on-topic: What’s the problem?
If I understand Mr. Farago’s point, he doesn’t like the idea of government choosing winners and losers, plus he sees opportunity for abuse.
Then there are some others who apparently think that Hitler, Karl Marx and possibly Jesus play some role in this. It takes all kinds to make an Internet.
No healthy automotive supplier will deal with GM at this point.
In this industry, “healthy automotive supplier” might well be an oxymoron — they have been squeezed by the domestics for years.
GM has bought enough parts to be able to bully all kinds of suppliers into getting their terms. I wouldn’t assume that only the bottom dwellers are at risk.
OK, here’s a question on topic. Why are so many D3 suppliers in terrible shape and dependent on D3 business for their very survival? Only an idiot would blissfully rely on three or fewer customers. Only an idiot would be unaware that your customer has been shrinking for decades.
So shouldn’t a prudent CEO have started long ago diversifying the product line and expanding the customer base? Shouldn’t a prudent CEO have realized long ago that D3 contracts aren’t profitable enough for long-term viability? Are D3 suppliers like those proverbial frogs that will stay in a pot of gradually-warming water until they’re cooked?
Maybe we’re seeing extinction of the unfittest. It’s nature’s way.
If GM doesn’t pay, none of the suppliers will be in business for long. Even tier 1 suppliers. So it will go like this
GM: “Spot me another 100k brake assemblies”
Tier 1 Supplier: “Pay me for the last two months you owe me and we can talk about it.”
Why are so many D3 suppliers in terrible shape and dependent on D3 business for their very survival? Only an idiot would blissfully rely on three or fewer customers. Only an idiot would be unaware that your customer has been shrinking for decades.
First, it’s nearly impossible to break into the Japanese Transplants based on price alone. You can’t simply buy the business from the current supplier by being 10% cheaper (as opposed to the Big Three who will whore their business out to anyone). The Japanese are very loyal with their established suppliers.
Second, the Japanese like to grow their suppliers gradually, usually with simple lower value components first and gradually increase their business as they gain trust in your capabilities. This is anathema to the typical American Business mentality which wants to book the revenue immediately, not nurture a small account for 5, 7 or 10 years before real growth is seen.
The American v. Japanese model of supply base management is adversarial v. partnership. GM in particular never valued partnership with their suppliers, so it’s ironic to see them waving their arms about over ‘distressed suppliers’.
The whole economy is going down the toilet. GM is just the canary in the coal mine.
The government has the same problems as GM.
Lots of overhead and decreasing revenues. Just on a much larger scale.
Now the government is loaning money to themselves but at some point they are going to set off inflation. And then the big government bubble is going to burst.
This GM stuff is small potatoes.
OK, here’s a question on topic. Why are so many D3 suppliers in terrible shape and dependent on D3 business for their very survival? Only an idiot would blissfully rely on three or fewer customers. Only an idiot would be unaware that your customer has been shrinking for decades.
So shouldn’t a prudent CEO have started long ago diversifying the product line and expanding the customer base? Shouldn’t a prudent CEO have realized long ago that D3 contracts aren’t profitable enough for long-term viability? Are D3 suppliers like those proverbial frogs that will stay in a pot of gradually-warming water until they’re cooked?
All very good questions.
Capital costs to set up an assembly line for an OEM is very expensive, and requires a support system. Much of the parts going into an OEM car can not be used anywhere else, so they become dependent on the OEM’s generosity to pay a less then fair price sometime later then you need it paid. Remember, GM/Chry/Ford ruled the manufacturing world. You were either with them or you were out of business. Kinda like England being the ruler of the world, but their influence became less and less… hmmm something like our own govt. Unfortunately the suppliers are so deep into the OEM’s, both from a production facility and financial sense. A CEO may wake up one day and say “Oh Crap, we’re going broke producing these parts”. But, the OEM would rather let the supplier go under then pay $0.001 more per part, because they will find another supplier to do it for $0.03 less. This is where the stuff really falls apart for the OEM. That new supplier will come into the business and say, yeah we quoted that price, but you failed to tell me the tooling was wore out, the assembly line is junk, and btw, the prior supplier was not producing the product to spec, we need $0.39 more per part. BUT, purchasing takes the credit for the $0.031 savings and reports back to their management the success. Engineering and supplier quality are left fighting with the supplier to get a good part from an organization who is understaffed, underfunded, and likely going to fail themselves. This happens over and over and over again. Contrast with the Japanese Kaizen way of doing business. Pick a supplier and slowly work with them to develop the best product at the best price. Honesty and openness rule the relationship.
The one part of the whole let them all go bankrupt equation, is the impact on the mega suppliers, who do sell to most of the OEM’s around the world, like Delphi, JCI, Magna, etc. Delphi has not been able to get out of C11, and dependent on the GM money just to stay in business. Their product line especially may shut down all the worlds auto producers. They sell to almost everybody, and the product lines are very difficult to move. Take the main wire harness in a vehicle, it is carefully designed to avoid {EE’s please forgive my simplifying :)} interaction between parallel wires. Takes a lot of testing, engineering, and the ass’y lines are fairly complicated due to the OEM’s literally wanting the wire harnesses built in exact sequence to the cars. The complexity issue is a killer, because producing multiple wire harnesses for each line of vehicles is cheaper then producing one for the entire line of vehicles.. or so say the MBA’s. Side note, I don’t necessarily believe that, but it’s been studied to death and the numbers support that process.
As I’ve said a dozen time, the unintended consequences are going to be ugly. this isn’t as simple as just filing bankruptcy and being done with it. As the OEM’s file and stop payments to the suppliers, they will have to file C11/7 because now they can’t pay their bills either. This will cascade through the system for a very long time.