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Wednesday, April 1, 2009

Supplier hiccup

Working on another installment of my "core" analysis. In the meantime, see the extended comment by David Ruggles on my second post.

Note too the closure of Chrysler main minivan plant (in Windsor Ontario, just across the river into Canada from Detroit). Automotive News reports that financial difficulties led a supplier of critical parts to stop shipments. Given "just in time" production, the assembly line stops pretty quickly. But if Chrysler isn't assembling vehicles, they aren't ordering parts from other suppliers (or shipping finished vehicles). So no money coming in, no money going out. For other suppliers who need cashflow, this is really bad news. And since suppliers ship to more than one auto company, this potentially could snowball throughout the industry. A couple more suppliers shut their doors temporarily, and more assembly plants shut, and a few more suppliers ... it would be very hard to stop once started, and very hard to get everyone back up producing. Unit sales are down roughly 60% from the 17+ million peak (2006?) to under 9 million. Not many firms can survive a sales drop of that magnitude. And of late banks haven't been eager to provide bankruptcy financing, while the government has only set aside a trivial $5 billion for suppliers. But suppliers employ far more the workers of the OEMs (nearly 3x more).