Ford Confuses Me
I don’t really understand Ford’s position on the auto bailout:
Ford said in its plan that it could survive through 2009 with its current cash levels and by tapping its credit line with private banks, and that it could return to profitability by 2011. Even though it is better prepared for the downturn, Ford said it wanted $9 billion in loans to draw upon if necessary.
Ford’s chief executive, Alan R. Mulally, said the prospect of a failure of G.M. would cascade through the entire domestic auto industry and put millions of jobs at risk.
“We are very, very concerned, and that’s why we went with G.M. and Chrysler to Congress even though we think we have sufficient liquidity,” he said in an interview.
Ordinarily, you would think that having two of Ford’s largest competitors go out of business would be good for Ford (and Toyota and Honda and Nissan) since their failure would likely have only a small impact on the aggregate quantity of cars sold, leaving more sales opportunities for non-defunct companies like Ford. What could really drive Ford under, one might think, would be government support for otherwise-bankrupt competitors keeping an excess supply of cars on the market and driving down Ford’s sales and profit margins. Obviously, Ford doesn’t see it that way. But that’s a bit unusual, and I’d be interested in hearing the explanation in more detail than a vague metaphor about GM’s failure “cascad[ing] through the entire domestic auto industry.”
73 Responses to “Ford Confuses Me”
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December 3rd, 2008 at 12:43 am
If GM goes bankrupt, all of their suppliers go bankrupt as well, and then Ford can’t get the parts it needs to make its cars.
December 3rd, 2008 at 12:45 am
Ford must protect the idea that big car companies are an essential part of the American economy and must be prevented from failing at any cost. If GM dies, anyone can die.
December 3rd, 2008 at 12:46 am
Because the auto parts manufacturers make parts for all of the Big Three, and if any one of them goes under, the auto parts manufacturers go under, and Ford can’t make cars.
Come on, Matt.
December 3rd, 2008 at 12:48 am
New slogan: “It’s the suppliers, stupid.”
No offense, Matt, but that’s rather obvious. Ford can’t take over the market share of GM and Chrystler and produce their shares of cars as well as its own, so the suppliers who depended on that business will go under, which means Ford will go under.
December 3rd, 2008 at 12:49 am
What everyone else said. Did you decide to not read about this at all?
December 3rd, 2008 at 12:51 am
The parts manufacturers is the big one, but there’s also the fact that if GM goes chapter 11, they’ll be able to renegotiate their union contracts and ditch their obligations under old contracts. GM being able to cut their labor costs just like that would be a big incentive for Fort to follow suit.
December 3rd, 2008 at 12:53 am
Just keep riding that one chapter your freshman economics textbook that you actually read, Matt. See how far it takes you.
December 3rd, 2008 at 12:54 am
Call me stupid too, but is it then possible that some suppliers would survive based on Ford still being in business while others would fail by virtue of losing GM?
December 3rd, 2008 at 12:56 am
The other thing, in addition to the suppliers issue addressed above, is the possibility that all of the infrastructure of the companies other than Ford will be snapped up, at rock bottom prices, by Ford’s competitors that build cars here in the US (most of them can be included in this list, i.e, Toyota, Nissan, VW, etc.). Ford will not be able to expand or take over production facilities given its financial condition, while Toyota (huge cash reserves) and others would be poised to inherit GM’s and/or Chrysler’s substantial infrastructure at pennies on the dollar. For the big 3, they are all in this together, and absent a merger, one of them kicking the bucket is just the first death in what will ultimately result in all of them going under.
December 3rd, 2008 at 12:56 am
Yep, it’s the parts suppliers, stupid.
Ford is best positioned, because it’s furthest on in the process of bringing in its foreign models and rationalising its US line — it also has fewer marques (and thus dealer franchises) to deal with, especially if it spins off Volvo.
But if GM goes tits-up, the Ford emergency plan would presumably involve an importer/assembler model. drawing on its global ops for whatever parts it can scramble, while still having to make cars to federally-approved emissions/safety specs.
December 3rd, 2008 at 12:58 am
Unlikely, Nathan.
It’s very rare that a supplier works exclusively for one company – much better business to spread yourself around. Which means that it wouldn’t be just 1/3 of the suppliers going under because 100% of their contracts go under; it would be closer to 100% of suppliers going under because 1/3 of their contracts went under at a time when credit is really really tight and profits are falling.
December 3rd, 2008 at 1:05 am
Sure some parts suppliers will go under. But will they all go under? I doubt it. Remember Toyota et al. will still need parts, along with Ford. You don’t have to read much further than the first chapter of any econ textbook to realize that if there’s strong demand for parts, someone will supply it.
It’s possible that Ford’s internal analyses look decidedly less cheery than this story that they’re spinning to Congress, and they really do need the money to avoid collapsing. Either that, or they just figure get the free money while the money’s good, since GM and Chrysler figure to get the bailout regardless. But I really think that if Ford is in such good financial shape, they’d survive the bankruptcy of their main two competitors.
December 3rd, 2008 at 1:06 am
The point that everyone makes is the suppliers (and I suppose it’s true that Matt should have mentioned this), but I don’t think it’s really that strong of a reason for Ford to want robust competition. If GM fails, then the suppliers are screwed, but when that happens, they don’t just magically disappear. They’d try to, for example, sell their product at a lower rate to keep sales up in which case Ford would benefit. If they can’t sell their product at a lower rate, they might lay off workers and continue selling to Ford. If they can’t sell to Ford at the same price without the economies of scale that are achieved by selling to GM, they might decide to merge with other suppliers. Maybe the idea is that the suppliers will go bankrupt since they have outstanding debts to GM which won’t get paid, but, much like GM itself, bankruptcy doesn’t mean liquidation – what would happen is that the suppliers would go bankrupt, but their business with Ford would still be viable, so operations would remain the same while a financial reorganization occurred – this sucks for the investors and the holders of junior debt but I don’t see why it’d affect Ford unless Ford is a major creditor of these suppliers (seems unlikely). Some of this stuff creates transaction costs, but I’ve yet to see analysis that says its insuperable or why it would really damage Ford.
Also, I find Ford’s attitude towards its own bailout money bizarre – we don’t really need it to avoid bankruptcy, but, it’d be nice to have 9 billion or so just in case.
December 3rd, 2008 at 1:09 am
I’ve read numbers like 5:1 as far as the number of jobs that each job in a car company like GM supports. Maybe if GM goes into Chapter 11 with government financial backing for the BK period, then maybe the supply chain wouldn’t be destroyed, but I really wouldn’t want to bet on it.
December 3rd, 2008 at 1:13 am
Jamie:
Except that demand is really, really low right now. That’s why the Big 3 are in trouble is that the slump has killed demand – most recent figures is about 40% down from last year. In those circumstances, with the credit market as tight as it is, how do suppliers stay in business?
December 3rd, 2008 at 1:17 am
Many parts suppliers are not even in the US, so I would like more discussion on this from people who work in the auto industry instead on snarky comments.
December 3rd, 2008 at 1:22 am
I’m a free-market type myself, but Econ 101 niceties are not useful right now.
The kind of people who simplistically talk about how the market solves everything forget that there are courses after econ 101, and that things stop being so simple once you loosen models to resemble reality.
Right now, supply is far too high, and it seems that there are too many workers and factories producing cars.
At this level of dysfunction, some sort of government intervention is needed to ensure that the wind-down is orderly.
December 3rd, 2008 at 1:22 am
Well, I’m of two minds about this post. On one hand, I’m glad you’re finally looking into this, because the cascading effects on the industry and its associated support networks are elements that have been neglected in your analysis so far.
On the other hand, I feel ignored, and somewhat disappointed in you. I and other commenters have been trying make this very point about auto suppliers for some time now.
December 3rd, 2008 at 1:23 am
@Steven Attewell
So it seems like either one of two things is the case: either Ford/their suppliers/the car industry is a sustainable business or its not. If its sustainable, then even if current demand is very low, they should be able to take out loans to cover the temporary shortfall. In fairness, the high cost of credit might provide a reason for the government to intervene to provide them with a loan, but in that circumstance, I think that loan should subordinate the other current loans outstanding (as well as equity) since I don’t see why these companies creditors should receive a windfall of government money for failing to predict this circumstance.
If they’re businesses that aren’t sustainable in the long-term, then I don’t see why they should be propped up; instead the money should be distributed to the people who will be rendered unemployed as the result of their (inevitable) collapse.
December 3rd, 2008 at 1:32 am
Ford is in a situation where it’s the strongest of three companies, and it’s likely the government is not going to allow the other two to fail. If I were Ford, I’d want to be sure I got a piece of any assistance the other two got, just so they wouldn’t have an unfair advantage.
I heard someone on NPR say something like, you’re in a situation where one of these companies is likely to fail. What you DON’T want to happen is for the one that fails to be the one that happened to get the least government assistance.
December 3rd, 2008 at 1:38 am
“Many parts suppliers are not even in the US, so I would like more discussion on this from people who work in the auto industry instead on snarky comments.”
By the same token, many of the snarky commenters here aren’t even wearing pajamas, so I would like more discussion on this from people who work in the logic business instead on non-sequiturs.
December 3rd, 2008 at 1:39 am
Josh:
The case is this: Ford/et al. is sustainable, especially after the 2007 contracts negotiated with the UAW. However, the combination of credit crunch and recession is leading to a real strong liquidity preference – no one wants to lend, even to companies that are in decent shape, so companies that are sound-but-in-current-trouble aren’t going to get anywhere. Hence the “should be able” isn’t happening, and isn’t going to happen without the government goosing the system with liquidity and actually following through to make sure the banks lend.
As for failing to predict this situation, well, you have to ask yourself, assuming that the Big Three had not made the same error of prediction that much of Wall Street, the Federal government, and the media made regarding the current downturn – what could they have done? Possibly rush to grab credit while the grabbing was good – but that would have only accelerated the credit crunch. Back in the 50s, of course, the Big Three would have just self-financed their way through the downturn, but they don’t have that capacity.
And as to why you don’t just distribute it: given that we’re talking about 3 million people all told, the $25 billion works out to #8,300 per person – which isn’t enough to keep anybody out of poverty once their jobs go.
December 3rd, 2008 at 1:40 am
Everyone here is wrong about pretty much everything. The parts supplier argument is a non-issue (as anyone who has read ANY economics textbook knows). The parts suppliers will consolidate and Ford will be able to get parts from Honda’s parts supplier or Toyota’s parts supplier (who will buy the liquidated assets of the US suppliers on the cheap).
What everyone’s missed is the symbiotic relationship of the workers at the Big Three. I’m sure Mulally wouldn’t mind having an extra $9 Billion at 5% but it’s more likely that Gettelfinger’s really the one pushing for Ford to take money (perhaps rightly so) and Mulally is obliging.
The Big Three have hammered the UAW in recent years and the UAW has given concessions previously unthinkable. The Big Three CEO’s all know this and respect it and I’m sure the union is scared to death that half a million (or more) jobs are going to be lost. If the American auto industry is going under, the union is damn sure going to do everything it can to try to save at least one job. That’s what good unions do, they try to save jobs. So if there’s a chance two of the auto companies can get money why wouldn’t the union push for the third to also try? I have no doubt that every union worker at Ford wants that safety net for their company.
Finally, the lessons from the Great Depression (and the 1997 Asian Crisis) show that even after the banks have been stabilized, more crises, disasters and collapses arise from varying angles and they come thick and fast. Believing the worst of it is over is foolish. After the TARP bailed out the banks we followed up with a fresh round of billions for AIG, CitiGroup and (possibly) the auto industry. There will be more to come in the next year, from places we’re probably not expecting (although at this point, the credit card industry’s coming troubles are painfully obvious). No matter what company is going through this, they’ll need (and want) access to cash.
December 3rd, 2008 at 1:43 am
Imagine that your biggest customer went out of business and they consumed only 40% of your production capacity. Oh, and since they are in bankruptcy, what they paid you over the last half year or so is up for grabs…you might have to pay some of it back to them.
Foreign car companies import parts and assemblies into the US and get credit for “Made in the USA” while using non-union southern redneck labor.
It is all a Republican scheme to break unions and concentrate power in the south while starving the rust belt.
If there is any contrary evidence, it is well hidden.
December 3rd, 2008 at 1:47 am
Sprizouse:
You sure about the parts thing? Maybe a eensty bit of caution? These parts, and the machinery used to make them, are incredibly specialized, and specific to the vehicle in production – it’s not that easy just to snap them up and repurpose them to a totally different vehicle line.
And given that the downturn is hitting all the car companies, and that credit is tight all around, how sure can anyone be that they can snap up and consolidate these suppliers?
Totally agree about the UAW, though.
December 3rd, 2008 at 1:50 am
The kind of people who simplistically talk about how the market solves everything
These people remind me of the kind of people who say things like “the planet will survive global warming.” These things are sorta true in a retarded kind of way. Yeah, the planet will survive global warming; yeah, the market will “solve” the problems in the auto industry. The issue is the collateral damage, the wreckage that ensues in the mean time.
December 3rd, 2008 at 2:43 am
The suppliers going under theory is one of the most economically illiterate theories to come out of Our New Depression, and yet people cling to it with such ridiculous arrogance (witness the first 10 comments). It never ceases to amaze me how people can read some theory on a blog somewhere and then parade around the Internet pretending that they’re so incisive for knowing it.
December 3rd, 2008 at 3:31 am
No offense, Matt, but that’s rather obvious but you want to see my home please this one: http://makkale.blogcu.com/hertha-cok-iddiali-hertha-berlin-galatasaray-macinin-golleri-hertha-berlin-galatasaray-uefa-kupasi-macinin-golleri_30222711.html
December 3rd, 2008 at 4:43 am
http://makkale.blogcu.com/3-aralik-2008-galatasaray-hertha-berlin-macini-canl-3-aralik-galatasaray-hertha-berlin-macini-3-aralik-galatasaray-hertha-berlin-macini-online-iz-canli-izle-galatasaray-galatasaray-golleri-galatasaray-herta-berlin-maci-saat-kacta-galatasaray_30301491.html
December 3rd, 2008 at 5:38 am
If GM goes BK and renegotiates it’s contracts and debts, then it can undercut Ford’s prices and drive Ford out of business. This happens all the time in the airline industry.
December 3rd, 2008 at 6:25 am
One additional point is that if Chrysler or (especially) GM goes bankrupt, then you can be sure that the cost of Ford’s debt would increase dramatically, to probably unsupportable levels given the amount of refinancing they have to do. They’ve previously been able to cope with increased unsecured debt costs by increasing the amount of securitisation they did. That’s not exactly possible now.
December 3rd, 2008 at 7:06 am
Economies of scale. There, I said it. I named the relevant economic phenomenon that makes it so difficult for Ford to continue operating efficiently while its two domestic competitors go under. The choice isn’t really, “Do suppliers go under or not.” It’s whether suppliers can efficiently produce the parts. (Kudos to Josh M for bringing it up earlier.)
Ford, GM and Chrysler have evolved this symbiotic relationship where they make their models all relatively similar so that they can create huge economies of scale with parts manufacturers. In theory, we should move to a new equilibrium in which the sick car companies die, the healthy ones design similar models to achieve new economies of scale or expand to meet the previous demand and achieve economies of scale on their own. But that’s an incredibly expensive and painful process, and not possible without functioning credit markets.
Anyway, point is, we don’t need to argue about whether or not suppliers will go under. The simple observation that parts will get much more expensive is enough to understand why Ford doesn’t want this to happen. The big three have all struggled with much higher input prices (labor) than their competitors and we can see what it’s done to them. Ford finally seems to be out from under that mess–it doesn’t want a new one.
December 3rd, 2008 at 7:17 am
Ford is not yet asking for loans. It’s asking for a line of credit that it can draw on, just in case.
Make of the difference what you will, but there you go.
December 3rd, 2008 at 7:41 am
It’s my understanding that Ford, GM and Chrysler don’t own their production facilities.
December 3rd, 2008 at 7:49 am
These suppliers work for the big three and also work for toyota and honda. I think those two need to speak up, they’re not looking so hot right now. Can congress guarantee that the banks won,t fail because that’s what this comes down to. And WTF is Citi doing buying a spanish construction firm about, is their exec’s waving salary?
December 3rd, 2008 at 7:51 am
1- suppliers
2- cascading chapter 11s as competitors get rid of legacy costs, just like the airlines
3- Or, maybe, to buy Chrysler.
Any business will take any line of credit it can get when there is a recession. Just in case.
December 3rd, 2008 at 8:20 am
It’s too bad Ford hadn’t released some kind of detailed description of why it was asking for money and why it was concerned about the bankruptcy of its competitors would threaten Ford. Oh wait …
December 3rd, 2008 at 8:50 am
The parts suppliers will consolidate and Ford will be able to get parts from Honda’s parts supplier or Toyota’s parts supplier (who will buy the liquidated assets of the US suppliers on the cheap).
Strictly speaking, Japanese car companies will sell parts to US manufacturers IF the Japanese companies have all already gotten their parts AND at a huge market. The Japanese subsidiaries in the US deliberately buy their parts from the mother companies at massively inflated prices so that most of the money winds up being taxed in Japan. Part of the reason the US manufacturers haven’t made electric hybrids with regenerative breaking is because Toyota owns the patent, and as the only manufacturer of those parts, they barely make enough to meet their own demand. The Prius is a lossleader, not profit center.
Anyways, as far as bailouts and the CW goes, it’s like this. Back in the 20’s (!), Durant built GM via the process of ‘consolidation’ (out of a bunch of different car companies), GM bought market share and Ford was never able to catch, so GM has always had about twice the market share releative to Ford since then. Durant got distracted by the stock market and never really organized GM properly (he had no talent for that anyways, since he had far more in common with Paulson than he did with somebody like Edison). GM did well when the US did well in manufacturing and has done badly since, but it has ALWAYS been an unweidly, schizophrenic car company. Ford has always generally been more even in quality, but this never helped them, and Chrysler has always been the also-ran. All the other companies got bought up by the big three (or rather, the Big One, the Smaller One and the Midget One) during our last bout of republican-supported consolidation during the 70’s.
In the interval, twixt then and now, Wall Street and our swipply overlords have all kinds of useful concern trolls for Detroit. They should offload their parts manufacturing. They should smash the unions. They should get bigger. They should smash the unions. They should get leaner. They should smash the unions. They should research unprofitable cars and then manufacture them. They should cut wages and give health care. They should make better cars, and if they make better cars they should sell them labeled ‘Toyota’. They shoudl smash the unions.
The Detroit execs, being part of the swipply overclass theirownselves, have followed all this idiot cacaphony of advice, and as a result, Detroit is leaner, meaner, pays its employees less, and relies upon the financial services for their cash flow (because that’s outsourcing, see) and as a result, they’re totally screwed in the current enviroment. That’s aside from the fact that the Japanese, notwithstanding endless waves of executive kamikaze resignations, will not let their companies go under, shut down their lines or lose market share. And they certainly will provide their companies with all the government suppor tehy need, since Japan intends to wind the long-term trade war and keep everyone employed regardless. (This hurts them in some respects, but not all respects.) The United States has adopted an incoherent mirror image of the Japanese concept, and shuts down lines, fires workers, and keeps the execs will encouraging the car companies (and other manufacturers) to get out of the business of making things, and into the business of stealing, like the financial companies.
At any rate, the recent situation has been that the manufacturers spun out their parts manufacturers (the theory was that the part units would become more competitive). GM spun out AC-Delco which became Delphi, which became bankrupt, because they had lost their major market, and they weren’t price competitive. Of course, the parts that are price competitive (from Mexico) are lower in quality, but GM (etc.) doesn’t own them, so they don’t get a quality improvements, or increases in profitability because somebody else owns those factories. Spinning out AC-Delco winds up being a net lose-lose across the board AND it means that GM is critically dependent on external suppliers who can’t get credit to operate either.
In Ford’s case, they got Motorcraft back (which helped) but if GM goes under, Ford won’t get GM market share, because our swipply bifactional overlords hate Detroit. (If GM rebadged themselves with psuedo-Japanese or Korean names and made cheaper, crappier cars, they’d probably sell better, but they still wouldn’t be as profitable because of the pensions and the healthcare and the lack of export support from the USG.) Worse, because Ford is #2 some of those parts manufacturers will go under with the collapse of 50% of their market. (The Japanese are not going to buy from American suppliers. Ford won’t get any help there, either.) The takedowns from the failure will drag a bunch of dealerships under and so on and so forth. Not to mention, a lot of the buyers of American vehicles work in and around and next to the manufacturing industries, so they’ll be a lot poorer and prone to buying fewer cars. And of course, it will make it even harder for Ford to get financing.
If GM goes under, Ford gains basically nothing in this situation, except that of course, USG will probably be happy to let them go under too. (So I agree with DTM lots and lots.) Apparently our swipply overclass doesn’t get that if the auto manufacturers go under, the overclass can kiss at least another 10% of their standard of living goodbye, once the effects of the cascading failures work through the system. So, from my POV, swallowing camels (the financial bailout) and gagging at gnats is probably an epic case of cutting your nose off to spite your face.
max
['You won't like the results any differently than you like the results of the Lehmann Bros. failures.']
December 3rd, 2008 at 9:10 am
I don’t believe that. Do you have any evidence?
This started out true, but then not. After Billy Durant left GM, Al Sloan took over and structured the company under the “Car for every person” mantra that worked for the company until the 1980s. The brands each had their own niche market, that sometimes competed with other GM brands for market share, but also had their own “brand identity”. Al Sloan is really the one that built GM.
Ford has never had a reputation for quality. Even today, GM tends to have higher overall quality than Ford. Ford has, over the last 10 years or so, made great strides in terms of quality, but still has a reputation for junk. What does F.O.R.D. stand for? Found On Road Dead or Fix Or Repair Daily is the old joke.
Chrysler’s quality was so bad that, according to Lee Iaccoca, dealers had to basically rebuild the cars when they arrived on the lot. Chrysler is still the worst in terms of quality.
To answer Matt’s question, if GM goes bust then consumers will stop buying Ford out of the fear that Ford will follow suit. Also, their suppliers will contract.
December 3rd, 2008 at 9:12 am
I don’t think its that complicated. Yes, Ford says it can weather the storm. But, have you ever made projections that didn’t pan out. I think they are in support of the loans and a contingent facility for themselves because, you never know what the future holds.
What if Ford strongly says “I’m ok, the government doesn’t need help the auto industy”. Then six to nine months from now they discover that the assumptions that drove their cash flow models or the lenders cannot lend them the cash they need. Being able to convince congress to lend them some money becomes alot harder.
So, I think Ford looks at this as free insurance.
December 3rd, 2008 at 9:20 am
Everyone here is wrong about pretty much everything. The parts supplier argument is a non-issue (as anyone who has read ANY economics textbook knows). The parts suppliers will consolidate and Ford will be able to get parts from Honda’s parts supplier or Toyota’s parts supplier (who will buy the liquidated assets of the US suppliers on the cheap).
This just isn’t true, and in fact, the parts suppliers have been saying this exact thing, if you bother to look.
December 3rd, 2008 at 9:24 am
First off the bankruptcy of GM will be a chapter 11. They will try to reorganize. Ford even wants to avoid that however. Why? Because the courts will inevitably allow them to break the UAW contract. When that happens then wages and pension liabilities will disappear. At that point GM will have a huge competitive advantage.
That will play out over a long time period however. I am not saying that is Fords only motive but it has to be right up there.
If I were king I would do this. I would do a managed bankruptcy of both GM and Ford. I would stiff all the bond holders and wipe out a good portion of their debt. In bankruptcy bond holders come first. Paying off old debt however does nothing for the real economy going forward. The most important systematic thing is to keep the factories and the suppliers factories intact. So screw the bondholders. Then use Uncle Sam’s bailout cash, if it is needed, to keep the factories running. Every penny must go into the real economy. Paying wages, paying suppliers.
2 trillion has been spent and 6 trillion more have been promised by the Treasury and Fed and not a single dollar has gone into the real economy. They have created a circle jerk where the Treasury is sucking a good portion of free capital out of the system by selling bonds and then buying up crappy paper from banks etc., who then turn around and buy Treasury paper. This is insane and has had a significant part in the market collapse. All in the name of saving the unsaveable.
December 3rd, 2008 at 9:36 am
What’s still astonishing here is the fact that Matt can continue to write about these issues without apparently even doing the minimum research required to understand what the fuck is going on.
December 3rd, 2008 at 10:15 am
Rapier: that assumes that DPI funding will be available for Chapter 11, and that GM’s customers won’t run from the sinking ship when they see it’s gone bankrupt, etc. etc.
December 3rd, 2008 at 10:50 am
As a lot of people have pointed out, suppliers play a role here. To those who think suppliers aren’t an issue because someone else will step up, I’d argue that in the long-term that is certainly true. However, I don’t think any of these companies can afford the loss of revenue that would occur if they couldn’t sell cars for the weeks or months it would take for that new supplier to tool up to build the parts to the companies specs. So, yes the market will adapt to a loss of suppliers, but it won’t adapt overnight and these companies can’t afford to wait.
December 3rd, 2008 at 12:20 pm
Ford Motor Co., Detroit’s says it’s OK for now. Although it is seeking up to $9 billion in bridge financing, but says it hopes to complete turnaround without accessing the loan should Congress agree to make the funds available. But it wants the ability to access up to $9 billion in government credit. They also said that if GM fails it could take the entire domestic auto industry down with it.
So FORD needs GM?
http://nomedals.blogspot.com
December 3rd, 2008 at 12:33 pm
And yet for the last two years it’s largely been leading all automakers. The reason for the reputation is that many people seem to have made up their minds and refuse to accept any new information.
December 3rd, 2008 at 1:02 pm
“These parts, and the machinery used to make them, are incredibly specialized, and specific to the vehicle in production”
In reality, the only thing specialized is the actual assembly line. All of the parts are made through simple, standard industrial processes such as injection molding, casting, stamping, etc. These operations are easily moved from plant A to plant B with the only issue being whether the die sets will fit in plant B’s machines. Even that problem can be rectified pretty easily – probably for less than $15K in most cases.
December 3rd, 2008 at 2:58 pm
Most commenters have the suppliers issue right, but some addtional information may be of interest:
- Being a part supplier is not very profitable. All automtive OEMs, and especially the big three, have armies of people shaving 1, 5 and 10 cents of every part, all the time. And when your customer is only buying half the parts that you projected when you signed those barely profitable contracts it will not take very much to bring you down.
- Most of a car apart from the steel itself is made up of a number of highly specialized components that have only one supplier. It has a unique mechanical design, it has unique custom electronics and it has unique and complicated software. Also the specs for all of that may be less than perfect.
- Doing a new part – even a replacement part for an existing part – takes time. Most replacement parts would probably take 12 to 24 months. Often just geting the tooling will take months.
- Doing a new part – even a replacement part for an existing part – also cost a lot money to develop. A million dollars would not be unusual and many parts would cost far more than that. Someone would need to pay that and I doubt the remaining part suppliers would stand in line to finance that for Ford.
- You need 100% of the parts to build a car. You can’t build a car with 50%, 75% or 98% of the parts. You need 100%. While some parts have multiple suppliers, other have not. Which means that even one supplier failing could stop one, many or even all of Fords factories.
Given all the above, in the event of a supplier failing Ford would often have no choice to step in and finance part production for months or years until a replacement could be introduced or production move to another supplier. And in the case of a replacement part it would probably have to continue financing the production since the spare parts were still needed.
And while Ford may have the money to survive without federal aid, it does not have the money to help its suppliers survive as well.
Some of this may seem increadible to people outside automotive. All I can say is that it seems fairly increadible to me as well, but that does not make it any less true. Indeed I have often wondered how driveable cars with reasonable quality is possible at all.
December 7th, 2008 at 11:00 pm
Monterey-Salinas Transit has partnered with Google Transit – a feature of the Google Maps online mapping service – to help people ‘ride smarter’ by planning public transportation trips online. Google
December 10th, 2008 at 9:52 pm
The Dow Jones industrial average closed below 8,000 today for the first time since 2003 after poor economic news was compounded by the release of minutes from the Federal Reserve’s last meeting showing its leaders expect economic conditions
December 15th, 2008 at 8:24 am
NEW YORK (Associated Press) – Ford says it will offer employee pricing, zero percent financing and cash incentives on a variety of its vehicles. The Dearborn, Mich.-based company’s move comes amid a continued industry wide drop
January 14th, 2009 at 9:23 am
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