Monday, February 9, 2009

Behind The Scenes Of The Auto Industry

The news just hit the wires! GM is in talks with Delphi to purchase some of their manufacturing plants. Most people are not aware that Delphi was part of GM until it was spun off as a separate company in 1999.

GM obtained a bridge loan in December to help it survive thru March! Cash is very tight! Why would they be talking about purchasing assets of another company? The answer is that any interruption by their part suppliers could bring the assembly lines to a complete stop. That would have drastic implications to sales that are already down by substantial margins.

GM is trying to hedge their bets! They want insurance that they will have the critical parts for the vehicles that they manufacture. There are thousands of parts in each vehicle that they manufacture. Most plants are set up on a Just In Time system where the parts arrive just as they need to be assembled into the car.

The bottom line is that the car business is a complex web of manufacturers not just the major auto companies. Suppliers supply most of the parts that are used in today's cars. So, any interruptions to the parts supplied would bring the auto makers to their knees!

Many of the companies that supply the auto industry have been burned by the recession and the substantial decrease in the sales of cars. Some of those companies are in just as bad a shape financially as the big three auto manufacturers.


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