I guarantee that if any of the Detroit 3 file bankruptcy, it's game over for auto manufacturing of any kind in North America. And people can stuff the anti union rhetoric. Bottom line is that all the transplants have virtually no retirees and workforces that are on average, ten years younger than Detroit's, giving them a significant cost advantage that runs out for Toyota & company in 2010, if the Detroit 3 last that long. Assuming they last that long, the retire health care cost transfer to the union and GM, Ford & Chrysler's labor rate drops to that of Toyota. With union labor. And last year,
nonunion Toyota workers made more money than the union labor at the Detroit 3,
link here, so much for the anti union rhetoric.
Any of the Detroit 3 file for Chapter 11, two things are going to be certain to happen - first is the accelerated loss of customers. People will not spend $20,000 or more on a car from a manufacturer in bankruptcy and risk losing any warranty coverage or future parts availability. You may feel free to disagree, but you have to be delusional not to understand that.
Second, Toyota, Honda, and Nissan production in North America uses exactly the same suppliers as GM, Ford, & Chrysler. That group of suppliers are running on profit margins that are so thin,all are currently losing money and barely surviving on cash flow and lines of credit. You're forgetting who the expert is here. I live in the middle of this crap. Several of my neighbors work for some of those suppliers. A GM, Ford, or Chrysler Chapter 11 filing immediately means that the bills GM, Ford, or Chrysler owe those suppliers
don't get paid until the bankruptcy court determines when and how much. That means several key auppliers are going to run out of money to pay for raw materials or make payroll or both, within a few weeks, and shut down. When that happens, they stop shipping to everyone. Most of the supplier factories supply more than one automakers, so a GM, Ford, or Chrysler failure means shutting down other automakers assembly lines, which start shutting down other suppliers (you're not going to ship parts to a closed assembly plant) and the dominoes start falling.
Yes, that's a real freaking genius move. Push the Big 3, any one of them, into bankruptcy reorganization. Do it, and you will have plants closing from not only the remaining two Detroit auto makers, but Toyota, Nissan, Honda, Mercedes, BMW, and Suburu, as well as the Suzuki'a joint venture plant in Canada. And you won't just be shutting them down here in the USA. Canada's and Mexico's go down at the same time.
That's what outsourcing of previously in-house made parts to outside suppliers, the Japanese auto maker's business model, has brought us to: American automobile manufacturing is a house of cards, built on a foundation of sand. Pull one, or shift the sand around a little bit, and it all comes down. United States Steel already announced major layoffs today. We're talking Lear, Johnson Controls, Metaldyne, Pilkington Glass, U.S. Steel (USX), Nucor, AK Steel Holding Corp, Goodyear, Cooper-Standard Automotive, Tenneco Inc., Hayes Lemmerz International Inc., Federal-Mogul Corp., Dana Corp, BorgWarner Inc., ArvinMeritor Inc., and about fifty other companies laying people off, for weeks to months while this sorts out. A year or more in some cases. All the companies that support the auto plants and the suppliers - office supplies, janitorial, snow removal in the winter, in the northern states, landscaping, uniform suppliers, safety products suppliers, industrial products supply houses, restaurants, dry cleaners, grocery stores - all "temporarily" laying employees off. Dealers with no cars to sell - same there. Parts for warranty and collision work held up by either bankruptcy courts or supplier shut downs. Mad Money's Jim Cramer's estimate, this past Monday evening, of 3 million layoffs is decidedly low ball.
And absolutely NO supplier gets replaced quickly. Even in an emergency, it takes MONTHS. Tooling is owned by the AUTOMAKER, not the supplier, but a supplier driven into bankruptcy has the bankruptcy court locking down the movement of that tooling until the court sorts it out, as evidenced by last years battle between Chrysler and Plastech Engineered Products, when Chrysler showed up with trucks to remove their tooling after Chrysler refused Plastech's price increase,and Plastech immediately filed for bankruptcy protection, and nearly shut down Gm, Ford and Toyota, along with Chrysler - seems those other automakers parts were being run on the same Chrysler owned tooling. A industry standard practice. Force a GM or Ford or Chrysler bankruptcy filing, you will have fifty suppliers filing for bankruptcy protection as well, and the courts are not set up to handle that. Everything will shut down.
But what do I know - the anti-Detroit people are so much more well informed. Go ahead, speak out against a bailout. 3 million layoffs will be within the first four to five weeks. By the end of the first three months, it will be more like 8 million layoffs and the slow down we saw right after 9-11 will seem like a Charleston garden party. If you think it won't hit your community, just look at the eight to ten closed dealers. Then imagine what happens to your community's economy if half, or more, of them shut down within a month.