Bailout Watch 269: Supplier "Run on the Bank" Hits GM and Chrysler

Robert Farago
by Robert Farago

TTAC’s Deep Throat sent us the heads-up: as predicted here, GM and Chrysler suppliers are now asking for cash in advance. “Both GM and Chrysler are responding with form letters denying such requests,” DT reports. “BUT – GM’s letter is full of obfuscation; Chrysler’s is more direct and forthcoming. I was read both letters sent in response to a supplier’s request. Unfortunately, I cannot supply these letters to you due to my source… The problem is that GM & Chrysler’s cash flow vanishes when dealers stop ordering new rigs – like now. Hence, bankruptcy is imminent for both companies and that’s why suppliers are starting to posture for cash on delivery. A bailout changes things. But only for a while…” True dat. Uncle Sugar’s “support” will put an end for cash-on-the-nail demands. But it’s important to keep in mind that both GM and Chrysler need a “float”– estimated at $10b for GM– to keep the parts flowing and the lights on. The instant taxpayer money looks to dry up (i.e. March), they’ll throw both companies into Chapter 11. In Chrysler’s case, maybe sooner.

Robert Farago
Robert Farago

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  • Ronin Ronin on Dec 09, 2008

    So the bailout happens, suppliers ship and get paid another three months. And then the additional cars, so overpriced, add to the glut on lots. Nobody buys them. Is this the Soviet model of supply chain excellence?

  • Npbheights Npbheights on Dec 09, 2008

    I am shocked at how much the automakers buy from outside suppliers. After 100 years, you would think GM would have their own bolt factory or plastcs plant. There would have to be cost savings with some vertical integration. Do they even stamp their own fenders or are they just an assembly company? No wonder cars are so expensive, every part is made by some little shop, marked up, then the auto assembler marks all the assembled parts up, then the dealer marks it up. Seems to me that if they made the parts, built the cars and sold them direct, cars would be 50% cheaper and they would be very profitable. I am interested in what others closer to the situation think.

  • 1996MEdition 1996MEdition on Dec 09, 2008
    npbheights: "I am shocked at how much the automakers buy from outside suppliers. After 100 years, you would think GM would have their own bolt factory or plastcs plant." GM and Ford used to do this.....they are now known as Delphi & Visteon. Having all components inside does not allow for competitive pricing, rather captive contracts. Joe molder can make a widget for $0.30, but GM had it made inside for $0.50 to appease the unions.
  • No_slushbox No_slushbox on Dec 09, 2008
    npbheights: Henry Ford was passionate about vertical integration, he owned the foundries and he owned the rubber trees that the tires came from. There is an optimal amount of outsourcing, but the big-3 outsource much more than than optimal amount, and it is because of UAW. The high UAW wage and benefit costs, and, just as importantly, the UAW forcing the big-3 to pervert optimal production to create over-employment, means that the big-3 need to outsource as much as possible to stay competitive. Only the big-3's non-union suppliers have the ability to make parts using the most efficient production techniques. Toyota's non-UAW US factories are much more vertically integrated than the big-3 UAW factories.
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