“Apres Moi, Le Deluge” – you hear it every time.

That’s not my argument. My argument is that the ripple affects are much bigger than people who are outside the industry understand. Pointing at the reactions of Toyota and others is evidence of that point.

I don’t see a scenario where the transplants shut down for a year or more as a result of GM, et. al. going bust.

I do. What people don’t realize is that when you lose a supplier, it’s not like KMart going out of business so you just go to Walmart instead. It takes a considerable amount of time to re-source, tool, and validate components. Or it will take a shitload of cash to prop up suppliers that are on the edge of going out.

Aren’t the underlying custom integrated circuits for these many devices already built at one or more sub-contract wafer fabs in Taiwan, Singapore, etc.?

This is only one factor. When it comes to electronics, you not only have to have the subcomponents, you also have to ensure the robustness and functionality of the assembly under a ton of different conditions. You don’t plug and play this stuff.

can you give a timetable for startup if you had to make a new part, similar to what you’re already making,

It’s too bad this posting is getting old and not many are going to be reading this deep, because this is a great question.

The answer is different for every part.

On some parts, especially complicated castings, tooling alone can take more than a year.

Other parts can be retooled faster. But even if you save the tooling (the purchase of which will take some time, quick estimate – 1 month), move it to another location and install (1-month), start building the parts and work out the kinks in the production process (1 month), you still have to validate the parts. You don’t just look at it, say “Looks good!” and start building production cars with it. That’s suicide. You’ll get away with it sometimes, but not every time, so you’re talking 6 months of validation under accelerated testing.

So that’s 9 months. And no matter how much money you throw at it, it won’t go faster.

The only solution to do things quickly is to keep the supplier in business by throwing money at them. But that is big, big money when you spread it across a number of suppliers.

Either solution is not trivial, and both are very very expensive.

Horner brought up the piston ring earthquake in Japan, which shut down lines in Toyota and Honda. This was a damage issue, and Toyota and Honda sent hundreds of engineers to the supplier to fix things as quickly as possible. They lost tens of thousands of vehicles.

This was one supplier. It took hundreds of engineers from the OEMs to right the ship. And they got the supply chain moving again in a couple weeks through repairs. And they lost well over $1B in revenue.

Spread that across lots of suppliers, some of which will be down for more than a couple weeks, and do the math.

Sounds like expensive court time to me but not unworkable. Those in the industry posting; can you give a timetable for startup if you had to make a new part, similar to what you’re already making, with all the available components available to you, dies, files, molds etc. Surely not a year.

Aren’t the underlying custom integrated circuits for these many devices already built at one or more sub-contract wafer fabs in Taiwan, Singapore, etc.? The days when a Delphi runs it’s own in house wafer fab ended two decades ago.

I don’t see a scenario where the transplants shut down for a year or more as a result of GM, et. al. going bust. Also, GM wouldn’t go bust worldwide, probably just in the US. Since the majority of GM’s sales volume is outside the USA, that means that GM’s purchases of parts wouldn’t go to zero either.

This one falls, everyone falls argument reminds me too much of the Y2K scare which turned out to be much ado about very little.

But manageable? Probably.

And between all the other companies besides GM who need these guys to stay in biz, 31 billion isn’t too bad.

I don’t think your argument is valid that because Toyota thinks a GM bankruptcy might be harmful to them, a bailout is needed.

If you remember, the point of the Death Watch series that started three years ago on TTAC was that going through Chapter 11 would make GM a leaner, competitive company that could finally make profits again. And it was argued early on that Toyota, Nissan, etc. won’t like it.
For them, an ailing American car industry is the best that can happen to them.

GM spends $31B a year on supplied parts. Since suppliers make very low margins, that’s how much it would take to keep them all in business. For a year.

But really, does anyone really think the suppliers haven’t been prepping for this moment too?

How do you prep? Put money away for a rainy day? You have a business that operates on low margins, then a significant part of your business goes away and you’re stuck with an idled plant and all the overhead that goes with it. Your cashflow immediately goes very negative.

Again, if this wasn’t a big deal, why aren’t all the competitors just licking their chops and waiting for their volumes to skyrocket? Because it won’t work that way!

It’s in a company’s best interest to indicate to the press and financial community when their outlook is credibly positive. It helps their stock price. Which automaker is standing up right now and saying that the impending BK by GM and possibly others is a good thing for their outlook?

Anyone? Bueller?

The days of strong Japanese antipathy are pretty well past imo. The 90s were the last hurrah. Even if you don’t like buying imports, its such a common sin that it’d be hard to get excited about it.

Now, if you own a Honda in Michigan… be very afraid. Everywhere else, not so much.

I’m positive that everyone but the D3 has the coin to manage their supply chain. At the very least with critical suppliers they would loan bridge money to help them cope with that gaping hole in their finances.

But really, does anyone really think the suppliers haven’t been prepping for this moment too? I can’t believe they weren’t aware that the domestics were in trouble.

How about those Karmann/Mercedes built $18,000 Crossfires, would they be affected ?.

This is the problem with outsourcing everything these days, one domino falls and it takes the rest of them with it.

This is exactly the argument that scares all the automakers because it sounds plausible enough that some in the press and government believe it. However, it would only be true if the parts were interchangeable. They’re not, and that’s the whole point of why so many suppliers are going to die if you take away a big part of their business.

It’s easy to second-guess the decisions of the domestics’ top management . . . after all, how smart can they be given their current financial straits? I guess I can understand how the average internet pundit might really think they could make better decisions.

But when the rest of the industry — including those that are held up as paragons of management excellence — are saying things and more importantly acting in accordance with the domestics’ views, isn’t it time to re-think your position?

Do the posters here who still insist that a BK by GM would be ‘no big deal’ and have little impact on the industry and economy really think they’re smarter than the management at GM and Ford . . . and the management at Toyota and Honda?

Or maybe Toyota’s and Honda’s PR departments are secretly shills for GM . . .

If you refuse to see the world as it is . . . if you continue to stand by your opinions even as it becomes more and more obvious that you are wrong . . . then aren’t you guilty of the same hubris that you accuse Rick Wagner et al of?

None of the automakers do this, because it’s too expensive and inefficient to do so.

Why would Toyonda be worried? After all, can’t they just buy out these companies with their profits, or hire their laid off workers?

They don’t need the workers, they need the parts. Buying out the companies would be way too expensive. If it was just one or two, they could do it, but not at the level we’re talking about here. GM has 2100 suppliers. You can choose any really low percentage number you want…if only 10% BK’d because GM BK’d…you’re still talking about about 210 suppliers the auto industry would have to figure out how to replace.

Bubba has hit the nail on the head here, and if anyone doubts it, just look at how the other automakers are acting. Think about it, if GM going down simply meant more sales for everyone else, then everyone else would just be conspicuously quiet.

Think about Ford…they have more cash than GM, they’re headed down too, but everyone knows GM will run out of money first. Remember the saying, you don’t have to outrun the bear, you just have to outrun the other guy that’s running from the bear. If this was a simple zero-sum game, Ford would sit back, argue against funding, wait for GM to go out of business, and instantly see their volumes go up, saving the day…right?

Same with Nissan/Toyota/Honda/etc…

But the reality as all the automakers see it, is that GM goes down, drags a number of suppliers with them, and the other automakers have to stop production while they figure out how to re-source parts.

Don’t buy the “there’s been plenty of warning” argument, because many parts take years to tool and validate, even if the specifications already exist.

If half of Ford’s portfolio had to stop production due to lack of a single part, they would be out of business very quickly. I don’t know how quick, but my guess would be less than 2 months (remember how the American Axle strike affected GM?).

Chrysler of course would be gone quicker, and by the time all three companies were out, so many more suppliers would be gone with them.

EVERY automaker sees this scenario coming and NONE of them want it to happen.

Ghosn was on CNN today talking about how precarious the situation is.

Toyota, Honda, et al don’t have enough cash to prop up an industry. And besides, their revenue would come screeching to a halt as their assembly lines stop.

This is not pretty, and industry insiders know it.

Part of this problem has been caused by the government creating laws that made it onerous to own the complete supply chain inhouse.

This inter dependency of the automakers is just a microcosm of the same scenario that has been created between the worlds developed countries. By making each country dependent on all the rest, you can bring the whole developed world down by just disrupting one of them. While international trade is good, being DEPENDENT on another country for ANYTHING is just F___ing stupid. Oil is currently the best example of the result of this stupidity.

But I think you guys have it backwards. If GM and Chrysler go Chapter 11, the issue for transplants won’t be lack of production, but rather over-production.

If the Detroit losers get to cut their structural costs by writing down debt and reducing pay to unions and suppliers, then they will have the incentive to INCREASE production. They’ll run all their plants on triple shifts knowing that whatever revenues they get, it will be higher than their costs.

If I led Toyota USA, my fear would be $8,000 Silverados and $7,000 Caravans.

Robert Schwartz- Bullseye!
This is where the “keep the money here” argument falls apart. Just because money doesn’t leave the country does not mean it continues to exist.

America cannot afford companies like GM, as it exists today and indeed this past decade, to be in operation.

Having been through a years layoff (with a wife, newborn and house) I can relate to the pain. But I am glad that I was, well…”liberated”, and an am now with a productive company. With healthy exports!

Any money poured into GM (i’m giving Ford benefit of the doubt on Mulally), whether by the government or through customers is just fuel on the fire. When anyone, individual or company, does not know how to handle finances more money tends to deepen, rather than resolve, the problems. IMHO.

Bunter

Mike Stevens: Roger that. There is enough turmoil in the parts business already. One car maker going under won’t be more disruptive than the purchasing depts. of the D3 that wiped most parts manufacturers from the American earth, drove them to set up manufacture in China, and are now reaching out to the Chinese subcontractors. We both know: There will be no shortage of alternators or brakepads. Different with makers of whole subassemblies. A hiccup with one of them can ruin the whole day.

Bertel: about every part of an automobile needs to undergo a process called homologation, i.e. approval by an OEM that this part may be used for production. The high risks associated with cars require the OEMs to be very strict on this. Accordingly, even an alternator cannot simply be switched. Typically the OEM try to avoid problems by having more than one supplier for specific parts. But if the demise of the D3 would trigger a bigger fallout with parts suppliers, this would easily affect the transplants for a long time.

The patriotic backlash was pretty much a 1970’s phenomenon, it’s over and it’s not coming back. People today are smart enough to realise that Detroit’s problems were created by Detroit, not the Japanese. That’s why you see so many “f*ck ‘em !” replies in the comments section of news articles about Detroit.

You may well be right at least initially – BUT if we really wind up losing jobs in the millions as has been suggested, the backlash could be still be very powerful.

In 1993, the legendary economist Michael Jensen gave his presidential address to the American Finance Association. Mr. Jensen’s presentation included a ranking of which U.S. companies had made the most money-losing investments during the decade of the 1980s. The top two companies on his list were General Motors and Ford, which between them had destroyed $110 billion in capital between 1980 and 1990, according to Mr. Jensen’s calculations.

* * *

Over the past decade, the capital destruction by GM has been breathtaking, on a greater scale than documented by Mr. Jensen for the 1980s. GM has invested $310 billion in its business between 1998 and 2007. The total depreciation of GM’s physical plant during this period was $128 billion, meaning that a net $182 billion of society’s capital has been pumped into GM over the past decade — a waste of about $1.5 billion per month of national savings. The story at Ford has not been as adverse but is still disheartening, as Ford has invested $155 billion and consumed $8 billion net of depreciation since 1998. Yet one can only imagine how the $465 billion could have been used better — for instance, GM and Ford could have closed their own facilities and acquired all of the shares of Honda, Toyota, Nissan and Volkswagen.

* * *

The implications of this story for Washington policy makers are obvious. Investing in the major auto companies today would be throwing good money after bad. Many are suggesting that $25 billion of public money be immediately injected into the auto business in order to buy time for an even larger bailout to be organized. We would do better to set this money on fire rather than using it to keep these dying firms on life support, setting them up for even more money-losing investments in the future.

* * *

If the government diverts our national savings into businesses that have long track records of destroying investment capital, eventually we’ll end up with an economy like France’s — or Zimbabwe’s.

* * *

Just because GM or Cryco craters doesn’t mean that Honda still can’t get their Magna parts. For the OneCorp type parts co.s, like Budd say, if the local viable assembly plant is threatened by another competitors lack of purchasing of chassis to the point that Budd would be shut down then the courts would be called in very quickly. Look at what happened earlier this year with Cryco and Plastitech. Even tho that was headed off at the last minute with a cheque, the seizing of the tooling was well on its way.

I don’t think that any transplant will be shut down for a year just because the terrible twosome go titsup. It won’t be pretty tho. The only bright spot (?) is the fact that this has been going on in slow motion. Everyone has had lots of warning and a ton of prep time. I wager that things will move *very* fast once it starts to disintegrate.