Ford CEO Alan Mulally, speaking at the Detroit Economic Club’s National Summit, expressed his concerns about the health of the auto industry’s supplier base. “The most important thing that we do now is help them consolidate because we have this overcapacity,” Mulally is quoted as saying in Automotive News [sub]. “Everybody is going to be really careful that we do that and that we don’t topple the supply base.” Too bad the White House doesn’t agree, and suppliers have been screwed over since the bailouts began. Mulally also admitted that US automakers have a long way to go in convincing Americans of the value of their businesses. “Some things have happened, disappointed a lot of people, but we’ve got to really polish the value of what business brings to mankind,” he said. “We’re fighting for the soul of design and manufacturing in the United States.”
Why does it seem that he’s the only one who even partially gets it?
psknapp: yes, unfortunately, it does.
It is because of, or as a result that, he didn’t ask for bailout?
Depending upon who’s numbers you use, the U.S. suppliers employ six employees for every one O.E.M. employee. The Obama Administration, various pundits and even Mulally has called for a consolidation of the supplier base due to overcapacity. That makes sense, and in a capitalist style of economy, should happen. However the fallout will be a significant amount of layoffs, even more than the O.E.M.s had and the O.E.M.s will soon find a much smaller supply base to get quotes from. This means the O.E.M.s will have less chance to play the bidding game of getting low-ball bids from smaller suppliers to shop around to their larger suppliers and soon may find themselves with only a handful of large suppliers unwilling to take any more loss-leader programs.
From my cursory understanding of the issue, I was under the impression that the suppliers were asking for loan guarantees, not cash injections.
psknapp:
Is it because that everything that the government is making GM and Chrysler do, Ford did three years ago by itself?
The main reason why I am opposed to the bailout is that they are punishing Ford by keeping this overcapacity. They should be rewarding Ford for their restructuring efforts by giving them extra room to breathe.
Ah well, GM has such a negative image now as outdated “Government Motors” that all the Malibu buyers are going to buy Fusions, so Ford still wins. The government may reward failure, but the customer never will.
It is because of, or as a result that, he didn’t ask for bailout?
Wrong, wrong, WRONG!
He was in congress…asking for money! He got it too…9 BILLION. He has not used it yet…but the money is there…waiting for Big Al to make the call.
And Volvo, which is Ford owned, took 500 million from the Swedish Government.
And Ford has taken loans from the DOE.
Ford has, and will again, take Government money.
Sigh . . . Money from Uncle has one purpose, and one purpose only – keep the agreements with the UAW whole. Any other spending is, in military terms, a diversionary tactic. A few billion thrown off on DOE loans, distressed supplier support, and such is the cost to maintain the fog that this is all being done to keep the industry alive. Al probably knows that, but isn’t interested in the inevitable knee-capping that would come if he called BS.
The supplier base can be scrapped with little political damage.
Call 10 friends who aren’t car nuts and ask them what Visteon does… Nobody knows the big suppliers let alone the mom and pop shops.
Ford’s suppliers will be fine.. They have been shipping parts and being paid continuously. Those suppliers that focused on GM and Chyrsler won’t have the money to restart quickly.
I predict that GM and Chrysler dealers will have vehicle shortages in the near future that will drive folks to the competition, literally.
Interesting article about SUV shortages in Dallas:
http://www.dallasnews.com/sharedcontent/dws/bus/stories/DN-inventory_17bus.ART.State.Edition2.50fdeae.html
@lw,
There aren’t Ford suppliers. They all supply almost all automakers. A Dana or Lear or TRW or the like CH7 would bring down everybody.
There aren’t Ford suppliers. They all supply almost all automakers. A Dana or Lear or TRW or the like CH7 would bring down everybody.
This continues to be the Siren’s Song, but I believe it dramatically overstates what would happen.
If those supply businesses, or their part lines are profitable, someone would step in to consolidate and restart supply. Downsized and restructed a reborn parts business might emerge. What’s that lost, but favourite Americanism “Creative Destruction”?
Disruption yes, complete cessation of supply not likely.
I believe this is what Toyota and Honda have concluded and why they are near silent on the issue.
@ PeteMoran,
I agree, the profitable parts lines would start up again under some consolidated supply network. However, the likelihood of someone re-organizing that business in the US is slim to nil. Labor and overhead make up a the major cost for parts manufacturers. All of their other costs are basically fixed.
Also, with the supply base consolidation and part commonization that even Detroit has begun to embrace, all major suppliers are deeply intertwined with the automakers. Sure the parts manufacturing will relocate to China, but then everything will have to be re-ppap’ed and proven out. This won’t be a short process. I seriously doubt those with limited piles of cash, aka Ford, would survive the disruption. Toyota & Honda might make it though but they’ll absorb some heavy losses.
I’m seeing lots of newer Fords on the roads around Central Ohio (Columbus area). Gives me some hope that they are getting the quality message through to the general public. The “dead cat bounce” from the ChryCo/Gov. Motors BK has to have helped as well. I’m looking forward to the new models in 2010/11, we’ll be back in the market then.
@ P71_CrownVic
Sorry to be a pedant, but Volvo asked the European Investment Bank for a €500M loan (as almost every other manufacturer with a location in Europe has made similar requests to the EIB, even companies like Nissan….)
The EIB would not give a loan to any car company without a loan guarantee from a government. Volvo asked the Swedish Gov’t to support them. They declined because they believed Volvo would fall into Chinese ownership and would that would undermine Swedish manufacturing and design. So Volvo asked the Flemish regional government in Belgium for a €300M guarantee (Belgium is the biggest producer of Volvos globally).
As yet, Volvo has neither received a loan guarantee, or any loan from the EIB. And anyway, even if they did, they’d only be playing catch up with everyone else. What kind of capitalists would they be to turn down the possibility of cheaper rates of liquidity if it is available?
I don’t think you have grasped how commercial interests are ALWAYS shaped by government industrial policy, in the US, in Europe, in Asia. These are the competitive realitis in a global marketplace and in a low margins business such as car making, you have to take this into account. It DOES NOT invalidate your business credentials.