Tuesday, October 11, 2005

The Fall of another American Giant. GM.. the Delphi story..

The Fall of another American Giant. GM.. the Delphi story..

Which came first the chicken or the egg?
This may be the question on the minds of analysts all across this great land of ours, as Delphi, a major supplier to GM seeks Ch. 11 Bankruptcy Protection.

As a person who works inside the world of Automotive Sub-Contractors, I have seen on the horizon for the last 18 months, this fall in progress.
Perhaps it will stop with Delphi, but I doubt it.
For the last several months, more so than in the past, auto manufacturers, GM, Ford and to a lesser degree Chrysler, have been squeezing, and squeezing their suppliers for lower and lower prices, to the degree that after money is spent on expensive tooling, one of the big three threatened to pull the contract, if the per part price that they wanted was not met. For this one supplier it meant immediate bankruptcy, vs. a slow bleeding to death supplying parts at less than cost. This supplier elected to bleed a while and hope for a more lucrative contract to make up for his loss. My parts from them were subsequently made more expensive. While my friend would not admit that he did this as a way to stem the bleeding, from his Auto contract gone bad, it still makes me feel like I am the one giving corporate welfare to tone of the Big 3!

So who’s to blame? The Corp. Execs at the Big 3? The Unions? Healthcare costs?

My thinking leads me to believe it is a little of all three and other factors that we cannot see.

The U.S. Auto industry in the states is sick, and perhaps dying. This comes from excessive salaries for both the production employees, as well as the executives. It comes from the Unions, who mandate some very silly and restrictive rules upon the companies that rely on Union labor. (Example, a supervisor cannot jump onto a hi-lo to move a skid, if it is in the way, but rather a union hi-lo operator must be called to move it).
Healthcare costs, are clearly out of control, if you are an employer, you see this every day.
Lack of vision, has made the pension plans, which are very generous, not sustainable, (reminds me of Social Security in many ways when you hear the pros and cons talk about them).
A squeezing of supplier has lead to many going off shore for assembly work, so in effect the unions and the management of these companies together have driven jobs off-shore.
The lack of quality, perceived or real in US made cars, has driven the US consumer to look at foreign made vehicles, more and more. I have news for you, a European Ford, is relatively the same cost to buy, but has much better fit and finish, and appears to be a higher quality vehicle.
The EPA and DOT, have been restrictive enough to increase costs of American Cars again forcing people to look to off-shore manufacturers.
The Unions have come into the smaller supplier and made Union shops out of shops that have been around for years, supplying to the Auto Manufactures. This drives their cost of operation up, while the customers (the Big -3) are squeezing for lower prices / costs. This is making more than a few close up shop. Making the employees that the unions were supposed to protect, now unemployed.

To get a good feel of the U.S. Auto industry health, just look at the employment numbers from the State of Michigan. Pretty dismal, and only bound to get worse if practices do not change and change fast.

My shop is not union, if it is ever made union, it will have to consider closing, or moving south, we currently operate at a 4% net profit. It will not take too many supervisors, or persons who cannot do more than one job, i.e. drive a Hilo, + wrap product for shipping + load trucks + receive parts to eat my 4% up.

How do we fix it?
I do not know. If you listen to the Cons, you fix it by getting rid of unions, tariffs on foreign goods, etc..
If you listen to the Libs, you make every shop union, you tax everyone to pay for pensions for everyone, you put a ceiling on CEO salaries, and you create universal healthcare..

I don’t know about you, but I don’t think either will fix the problem, and both cases not addressing the core issues. I just hope that some economist out there somewhere is making a magic potion to fix this problem, because in the end, it is not just the Auto industry that these effects are being felt in, it is our whole economy out whole industrial complex, it is only starting in the Auto sector, it will be coming to a company near you soon.

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