Toyota, Honda Preparing for Motown C11

by Robert Farago

Published: November 15th, 2008

According to Canada’s Financial Post, Toyota and and Honda are freaking-out about the potential failure of Detroit’s three car companies. “We’re very concerned” about a Detroit meltdown, ToMoCo spokesman Mike Goss told the Post. “In the past couple of days I’ve been asked ‘Wouldn’t it be great for Toyota if others fail?’ We think the opposite is true.” Toyota is concerned about a Motown meltdown’s catastrophic effect on its NA supplier base; “The vehicles Toyota builds in North America contain an average of 75% domestically sourced parts and systems, and Toyota is reliant on many of the same suppliers used by GM, Ford Motor Co. or Chrysler LLC. The Japanese automakers are working to identify which suppliers have the biggest exposure to the Detroit firms. They are also developing emergency plans in the event they need to replace a company providing them with parts. “Everything’s on the table about what we might have to do,” Mr. Goss said. Meanwhile, the industry shills at the Center for Automotive Research seized on the comments to predict, you guessed it, carmageddon…

“Should one or more of the Detroit three go bankrupt next year, all U. S. automotive operations, including those of the so-called new domestic manufacturers like Honda and Nissan MotorCo., will be paralyzed for at least one year because of the high likelihood many suppliers will run out of money, according to an analysis by the Center for Automotive Research, a think-tank based in Michigan.” So no new cars for you for a whole year, you tight-fisted taxpayers!

“We’re very concerned” about maintaining the stability of the supply base, said Edward Miller, spokesman for American Honda Motor Co. “Obviously this is very disruptive.” Disruptive or cataclysmic? Big difference.

Robert Farago

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MichaelJ on Nov 16, 2008
I don’t think your argument is valid that because Toyota thinks a GM bankruptcy might be harmful to them, a bailout is needed. 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.

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Thinx on Nov 17, 2008

Okay, this is a useful discussion. It looks like everyone whose livelihood depends on getting bailed-out is in favor of the bailout. Good to know. "Apres Moi, Le Deluge" - you hear it every time.

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