Supply Chain Blues

Edward Niedermeyer
by Edward Niedermeyer

Consumers have a hard enough time keeping all the brands and nameplates in the US market straight; trying to keep track of the myriad suppliers that make up the bulk of the industry is nearly impossible. Even here on TTAC, our well-informed commentariat often throws up its hands at the first sign of supplier coverage. But the fortunes of suppliers to US auto firms have been fading for years now, as Detroit’s misery slides downhill through the various tiers of suppliers. And despite repeated calls for a supplier bailout (and their use as OEM bailout bait), aid has been either misappropriated or rejected. And the bankruptcies show no signs of slowing.

Lear is the latest auto supply giant to belly up to bankruptcy court. The number two global supplier of automotive seating systems will become the eight major supplier to declare bankruptcy since 2005 (and the 20th supplier this year), reports the Wall Street Journal, despite sales of $14.6 billion in 2008. JP Morgan Chase has approved $500 million in debtor-in-possession (DIP) financing for the folding firm (ironically, good news for the financial services sector), reports Bloomberg. Unlike GM and Chrysler’s bankruptcies, Lear expects to pay the “vast majority of trade creditors in full.” GM makes up 23 percent of Lear’s business, and Ford accounts for 19 percent; between the two, Lear has lost over a billion dollars in the last three quarters due to production slowdowns.

Meanwhile, Ford’s spun-off (spun-out?) supplier, Visteon, isn’t benefiting from the private financing revival that is keeping Lear from the TARP trough. As of yesterday’s AP report, Visteon was still seeking financing to emerge from bankruptcy. GM’s own supplier spin-out, Delphi, is facing a similarly terminal bankruptcy. Its judge recently halted its “sweetheart deal” with “guys in suits” Platinum, reports Automotive News [sub]. Even though (gasp) the deal was being sweetened by the taxpayers ( by way of General Motors) who agreed to kick in an extra $2.5 billion. Judges calling out publicly-funded “sweetheart deals“? Who’d have thunk it?

One thing everyone seems to agree on is that suppliers practically belong in bankruptcy. Detroit’s supply chain drama is the dark and dirty side of the business, where the margins are thin and the battles are cutthroat. From the standard retiree benefit slashing (via the Freep), to tooling battles, to strikes, corruption, and worker occupations (via Socialist Alternative for timeliness . . . deal with it). Detroit’s supply chain has seen it all. And with more bankruptcies to come, as noted by a particularly cynical Seeking Alpha post.

The counterpoint to this sad tale is Toyota’s example of supplier relations. In Evolution of Manufacturing Systems at Toyota

, Fujimoto argued that Toyota’s long-term, routinized approach to supplier management was key to its success relative to competitors. Though Detroit has picked up many of Toyota’s bundled outsourcing and “black-box components” tricks , the resulting dependence has been more of the viper-to-chest version of intimacy. If Detroit is ever going to reverse its fortunes, management isn’t the only place where culture change is going to have to take place. Without a long-term commitment and mutual respect there can’t be trust. And you’d better trust the other guys in the life raft.

Edward Niedermeyer
Edward Niedermeyer

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  • Eric Bryant Eric Bryant on Jul 04, 2009

    Thanks for casting some attention on the supply base - it's a dramatically misunderstood part of the business. Basically, there is way too much capacity in the US (and worldwide, for that matter). Even at a 17M SAAR in the US, the supply base was running on nearly non-existent margins. Knock down the production rate by nearly half, and the huge amount of overhead required to run a modern "full-service supplier" creates a huge drain on the finances. If we knock out about half of the supply base (maybe a bit more), then the remaining suppliers have a chance of surviving and producing healthy margins. If not, then much of the base will go under, and then we'll have a rather interesting crisis on our hands.

  • Kwik_Shift_Pro4X '19 Nissan Frontier @78000 miles has been oil changes ( eng/ diffs/ tranny/ transfer). Still on original brakes and second set of tires.
  • ChristianWimmer I have a 2018 Mercedes A250 with almost 80,000 km on the clock and a vintage ‘89 Mercedes 500SL R129 with almost 300,000 km.The A250 has had zero issues but the yearly servicing costs are typically expensive from this brand - as expected. Basic yearly service costs around 400 Euros whereas a more comprehensive servicing with new brake pads, spark plugs plus TÜV etc. is in the 1000+ Euro region.The 500SL servicing costs were expensive when it was serviced at a Benz dealer, but they won’t touch this classic anymore. I have it serviced by a mechanic from another Benz dealership who also owns an R129 300SL-24 and he’ll do basic maintenance on it for a mere 150 Euros. I only drive the 500SL about 2000 km a year so running costs are low although the fuel costs are insane here. The 500SL has had two previous owners with full service history. It’s been a reliable car according to the records. The roof folding mechanism needs so adjusting and oiling from time to time but that’s normal.
  • Theflyersfan I wonder how many people recalled these after watching EuroCrash. There's someone one street over that has a similar yellow one of these, and you can tell he loves that car. It was just a tough sell - too expensive, way too heavy, zero passenger space, limited cargo bed, but for a chunk of the population, looked awesome. This was always meant to be a one and done car. Hopefully some are still running 20 years from now so we have a "remember when?" moment with them.
  • Lorenzo A friend bought one of these new. Six months later he traded it in for a Chrysler PT Cruiser. He already had a 1998 Corvette, so I thought he just wanted more passenger space. It turned out someone broke into the SSR and stole $1500 of tools, without even breaking the lock. He figured nobody breaks into a PT Cruiser, but he had a custom trunk lock installed.
  • Jeff Not bad just oil changes and tire rotations. Most of the recalls on my Maverick have been fixed with programming. Did have to buy 1 new tire for my Maverick got a nail in the sidewall.
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