By on February 4, 2008

c6thunderclouds_2640.jpgA couple of years ago, I expected the United Auto Workers (UAW) to sink The Big Three (as they were known at the time). Scanning the situation at bankrupt parts supplier Delphi, I thought the union would strike rather than accept pay cuts and kill Detroit. Either that or Detroit would pay them off, burn all their cash and die. I didn't envision the creation of a $37b UAW slush fund (a.k.a. a health care VEBA) that would "convince" the bosses to surrender their members' future without a fight. But I did note that Delphi's bankruptcy was a bad omen. If GM's own former division couldn't make money building parts for Detroit, what hope for other suppliers? And if the suppliers went under… As today's Chrysler factory shutdown proves, a chain is only as strong as its weakest link. For decades, The Big 2.8 (as they are now) have beaten-down their suppliers. Their constant abuse has turned "partners" into adversaries. It's this relentless pursuit of profit — at the expense of human decency– that's poisoned Detroit's relationship with its paying customers. And now, as Chrysler faces the consequences of their sour supplier relations, the situation proves an adage that informs all my analysis of Detroit's inexorable slide into bankruptcy: as you sow, so shall you reap. Or, if you prefer, payback's a bitch.  

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8 Comments on “Daily Podcast: It Was a Dark and Stormy Night...”

  • avatar

    Robert, if you haven’t already, read ‘The End of the Line’ where the squeezing of suppliers is the focus of much discussion. Very illuminating.

  • avatar
    Captain Tungsten

    If Cerberus truly wants Chrysler to keep manufacturing cars, its hard to imagine that this episode of brinksmanship will tip the whole company into bankruptcy. These skirmishes happen from time to time, often resulting from severe testosterone poisoning around the negotiating table (and that malady is not gender-specific…) The last one I could think of off the top of my head is the wheel supplier that held up the launch of the C6 Z06 Corvette, it was resolved relatively quickly (though i don’t remember the details).

    Having said that, purchasing policies at the Big 2.8 (e.g. “price uber alles”, “give us your tech exclusively and for free, and please wait while we figure out if anyone else can undercut your price before we issue the contract, etc.) are a severe weakness, as the best suppliers don’t deliver to them the best products and technology, because they aren’t involved early enough, and/or they refuse to risk the exclusivity of their products to Detroit’s methods.

  • avatar

    In my career spent with a large west coast GM dealership I encountered the bullying and pressure to cowtow to factory programs and requests. It got to be a joke to try and turn down a factory rep pushing the latest ill concieved program of the month. I had permanent footprints on my head from them going to the dealer principle when I would not take more vehicles or buy a dubious and costly program to meet a factory agenda. I know many folks at supplier companys that had to suffer the same treatment. The good feelings I had in my youth for General motors sadly changed slowly to frustration, anger and almost hatred of their dishonest approach to the factory dealer relationship. Even today I spoke with my succesor at the store and sales were horrible in january selling only 32 new Chevrolets less than half of the ninety to a hundred that up to a year or so ago was normal. Even so the rep was pressuring them to take more cars to increase their inventory from 350 to the 400 cap put on them by GMAC. At 350 they have a ten month supply , four times NADA recomended stocking level. Even though sales in the San francisco bay area for GM vehicles has collapsed this factory rep still went over the general managers head to the dealer principle to try and push off more vehicles. Interestingly now that Cerberus controls GMAC dealers who use Gmac to floorplan have to now conform to a limit on the amount of cars they can carry and also must put up a substantial deposit to even get a floorplan line. One large dealer had to put over a million dollars on deposit to secure a floorplan line of credit. Cerberus is smart in trying to protect themselves from the many dealer losses that are comeing as many dealers close up.

  • avatar

    Ironically, you can call me sarcastic, bitchin`, negative, detroit-slappin`, conflagration flirting or whatever. How else would you call the Detroit related headlines with Union Strikes bankruptcy files,overstock, quality issues market slides etc, while japanese toyota and honda hit record profits each year. record quality, record of opening new factories etc. And detroit thinks where is this big secret of car business success? What do they know that we don`t know? They even don`t realize, that there is no miracle, there is no secret, there is no wodoo. just hard honest work and real tangible product. product. Did I mention product? Bliss through blisters.

  • avatar

    Price is about a race to the bottom. When the average Joe goes into a store, like Wal-Mart, is he looking to pay the most or the least?

    RF lays it right out. This is not news and everyone saw it coming. Those people could have (and should have) started on an exit plan years ago and sold their homes during the drunken mortgage binge. Now the music has stopped and there are no chairs.

    All this will fall to the rest of us. Elect certain people in November and we will be paying more for this than Katrina.

  • avatar

    You are up to 4 listeners? Wow, you are growing your audience exponentially! Keep up the good work.


  • avatar

    One more thing.

    The stuff all these workers are going through, and are going to go through, is terrible.

    However, the workers and other people of Michigan voted themselves into this mess by trying to get a free ride for everyone. TINSTAAFL is the single overriding rule that governs the universe. You cannot eliminate risk! The cost of eliminating risk is a slow, but certain failure.

    They milked the industry and the American people for too long. They tried to legislate their way to free stuff. No one has to go without in this country, but it is not because of government, it is because of charity. You cannot legislate charity or it ceases to be charity. TINSTAAFL!

    I really wish someone would go up there and get those people to realize that the ride is over! They need to look at eastern europe and do what those people are doing before it is too late. If they wake up soon enough, they can turn the whole thing around. Take power away from the unions, lower taxes, reduce government power, and just watch the money roll back in!

    Or, keep on the slow boat to a dark and empty state.

    TINSTAAFL = There is no such thing as a free lunch.

  • avatar

    They flipped the governor a few years ago for a socialist that was all in for the UAW. Every problem that came along was to be solved with another tax increase, mostly on business. While every other state enjoyed booming revenue, MI lost ground. It was the only state not to see a bump in real estate prices. Mix in Crime and Crummy weather and you have a recipe for disaster.

    Good hunting and camping up there, I might pick up a vacation home in Troy as a launching pad for trips into the backwoods. I hear it’s great in July.

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