There was a lot of uplifting news in financial markets this week regarding hopeful sign among the U.S. and global automotive industry. China’s car market exploded in 2009, to a rate of almost 50%, fueled by highly targeted governmental buying incentives and a more optimistic customer base. Automakers in the U.S. experienced their worst year in almost three decades, but there were hyped-up signs of a potential sales rebound that began in December. In the U.S., Wall Street traders reacted rather positively with a feeling that the worst may be over and consumers will once again be in an auto buying mode. What bunk! Knowledge of the state of health among the automotive supply chain tells a far different story.
This week, The Detroit News ran a story titled Tight credit, sales slump threaten auto suppliers, which should once again heighten awareness to the very precarious state of U.S. based auto suppliers. While a wholesale supply base collapse may have been averted, perceptions remain that there is too much capacity, and too much financial instability among this supplier base, in an industry that the government feels is strategic to long-term prosperity.
Many of the large Tier one suppliers have been financially struggling for many months, if not years, and were saved when the U.S. government allowed the major OEM’s to accelerate trade payments to these suppliers. But among other suppliers, the picture continues to be precarious. The article quotes the Original Equipment Suppliers Association noting that almost 60 suppliers sought bankruptcy protection, and as many as 200 turned off the lights. More troubling however is the perception that the Obama administration, specifically Ron Bloom, the President’s advisor for manufacturing, has made it clear that industry consolidation, by as much as 30 percent, needs to happen.
Since the beginning of the financial meltdown, I have been penning my view that to save a key industry, you need to focus on all the strategic elements of its value-chain. I even advocated for the financial rescue of both Chrysler and General Motors for the sole purpose of saving jobs among the supplier base. Twelve months later, while GM is looking somewhat better from a financial perspective, the industry supply base is not.
In March of 2009 I penned a posting, Prescriptions for Detroit’s Supply Chain Crisis that cited feelings among industry observers that collapse of this industry would be far more harmful if it occurred from the bottom, rather than top-down. In that March posting, I highlighted a quote from Laura Macero of Grant Thornton’s Corporate Advisory and Restructuring Services team: “Without a structured approach of consolidation to the benefit of the entire supply chain, the industry may lose critical partners with the technology, scale and geographic footprint that are linchpins in the viability equation.” That prescription remains just as meaningful, but the industry has lost precious time and confidence.
Automotive industry and government leaders speak to America’s new growth industries including smaller hybrid and electric powered automobiles. They speak to the need to have these newer technologies and supply capabilities sourced within the U.S to insure global competitiveness. In case anyone forgot, the billions of dollars spent to save GM and Chrysler did not obviously help the multitudes of key suppliers to this industry prepare for this new generation of technology. Instead, attrition seems to be the prescription
I repeat my rant on manufacturing just before the close of 2009, namely that Ron Bloom should view his job as not the special advisor for manufacturing but rather an advisor for building and sustaining competitive supply and value-chain networks, including the entire U.S. based automotive value-chain. Mr. Bloom, broaden your horizon and think holistically. Industry leaders, help your suppliers’ position themselves for long-term capabilities as well as financial survival.