The auto meltdown: 'It's all about the parts'

March 31, 2009
By: Tim Heston

"It's all about the parts. It's all about the parts."

That was Jean Jennings, editor-in-chief of Automobile magazine in an interview yesterday with Marketplace host Tess Vigeland. Her comment really hit home with me, particularly after digesting the auto industry news and opinion that have been bursting out of mainstream media this week.

Her five words overshadow all the finger-pointing. Who's to blame for the automakers' woes? Some say it's the unions and the health care packages those unions negotiated, or the unions' work rules. Others say companies like GM have too many nameplates to sell efficiently. Others say the dealer system is broken.

Personally, I'm tired of the blame game. In this economy, even Toyotathe poster child for lean and founder of the Toyota Production Systemis talking of possible layoffs and going hat in hand to the Japanese government.

According to Pascal Dennis, a lean consultant and president of Toronto-based Lean Pathways Inc., "The fact that Toyota is even mentioning the word 'layoff' shows how serious this recession is."

Anyway, finger-pointing doesn't solve the problem, even though it's gotten the most media coverage. Of course, defining the entire problem hasn't gotten so much ink. The problem isn't just that GM and Chrysler might declare bankruptcy. What many are worried about are those part suppliers.

Here's the problem, as Jennings explained it. Ford, because it sold brands and mortgaged a bunch of assets, might have enough cash to weather the economic storm. But if GM or Chrysler were to go bankrupt, this may not be the case. In fact, every carmaker that made cars in the U.S. would be in trouble.

Jennings put it this way: "[A failed GM or Chrysler] would mean that no one would be able to build cars in the United States for at least a year. That means no Japanese, none of the Europeans that are building, and not Ford because of their great dependence on suppliers that would just crash and burn. It takes the loss of one to shut the whole thing down."

This makes the auto industry a little like the finance industry. Complex "instruments" tie all these finance institutions together, so if a large enough player fails, such as AIG, it might just bring the whole system down with it. The same thinking goes for the auto industry, especially GM.

Is bankruptcy at this point unavoidable for either OEM? Maybe. Will a supply-chain shutdown really happen? Will the U.S. car industry literally halt for a year? I have no clue, but doing everything possible to avert a potential disaster is probably a good idea. Failing after trying everything is better than failing after doing nothing at all.

Tim Heston

Tim Heston

Senior Editor
FMA Communications Inc.
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Elgin, IL 60123
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