Ford Has No Plans to Match Rivals’ Scaled-Back Production

I’m glad to hear someone is worrying about the supplier base (stampers amongst them)!

From the Wall Street Journal:

Bill Ford, Jr., the Dearborn, Mich. auto maker’s executive chairman, said that the precarious state of auto parts suppliers remains the company’s greatest concern after Chrysler filed for bankruptcy protection

Let carmakers go bankrupt, say Americans

We seem to be seeing a lot of this recently.

CNN’s Political Ticker web site wrote, a few weeks back The public used to think that the automakers were too big to fail, but not any longer. In December, two-thirds say auto bankruptcies would create major problems or a crisis for the U.S. economy. Now most say that would only cause minor problems or no problems at all.

And Americans don’t see any effect on their own lives if the automakers fail: 55 percent say they would face no problems at all if the auto companies went bankrupt. Only 37 percent say they would buy a car from a bankrupt company. But that number rises to 57 percent if the federal government stands behind the warranty on those cars.

It’s all very well for the average american to “think” there will be only minor problems. But what does the average american know about the automotive industry and its related subindustries?

Here are some numbers. The big 3 directly employ 240,000 people. The supplier network for the big 3 employs another 975,000 people, for a total of 1.2 million. There’s an estimated 1.7 million additional jobs created by those 1.2 million workers, for a total of 3 million jobs.

People assume that, if one of the Detroit 3 went out of business, about 80,000 (1/3 of the direct jobs) would be lost. But that’s not how bankruptcy works.

When a company declares bankruptcy, if a judge grants the bankruptcy, the company is relieved (at least temporarily) from paying its suppliers. Since automotive have long been the poorest payers of any manufacturing customers, most automotive Tier 1 suppliers are owed huge amounts of money by the Detroit 3. Not paying those debts, even if only temporarily during a restructuring, could force many Tier 1 suppliers into bankruptcy. That, in turn, would force Tier 2 suppliers into bankruptcy. What you then have is the beginnings of a cascade failure of significant parts of the automotive supply structure.

But wait! It gets worse. Once you get down below assembly, to the level where actual manufacturing is done, where tools and dies are hefted, when the receiver steps in, he isn’t letting go of the tools and dies so easily. You have red tape to go through to get the dies out of the shop in receivership, and into a shop that also has the equipment to run the die.

Once you’ve got the dies out of the bankrupt shop and into a shop that’s still alive and gasping, does the new shop have the expertise to run the job? Eventually, yes, they’re all smart people. But even smart people need time to work out the kinks in a new job they’ve never seen before. And if 50 new dies landed on your doorstep one day, no matter how diligent and how smart, it would still take a week or so per die to get it set up, run, PPAPed and submitted to the PPAP inspection process. That’s 50 weeks. Holding up an entire supply chain. Replicated over and over again all through the industry. It will be total meyhem.

And it will create a second cascade failure, running backwards up the supply chain this time, as entire car lines are shut down for the lack of a particular valve stem that can’t be made, a particular plating process where the local processor has been closed down and all the parts have to go to the overloaded facility in Kalamazoo, and so on.

I think this has the potential to be very, very disruptive.

GM to cut 21,000 US factory jobs, shed Pontiac

Goodbye, Pontiac: Nostalgic for MTOs, Firebirds and the long-lived Pontiac Bonneville
In 1955, Lucy, Ricky, Fred and Ethel drove a Pontiac Star Chief convertible cross-country to California in a series of episodes on television’s I Love Lucy.

Sad news today, Pontiac being discontinued.

The first family car I drove was a Pontiac. It was a white station wagon, long enough that you could sleep in the back if you folded down the back seats. I did sometimes on long trips, caught a few winks on the side of the road. I even bought, built and painted a model of it in my early teens. It had a truck clutch and no power steering. It was a bitch to park when I proudly drove it to York University to my first summer job, still in high school. Somewhere in a family album somewhere, we still have a picture of the 4 of us, posing in front of that Pontiac. I’m sure I don’t have the plastic model any more.

The Globe is asking for your memories of the brand here.

Minority-Owned Suppliers Suffer: Tight Credit, Auto Slump Hurt Firms

There’s a lot more to this article, more about Lapeer and other small and medium sized stampers, but I found this part interesting. They are phrasing it in terms of minority suppliers, but in my experience it’s true of many small suppliers, regardless of their minority status.

HispanicBusiness.com

Dave Bing, CEO of Detroit-based Bing Group, said Lapeer’s problems illustrate the bind facing many minority automotive suppliers as steel prices escalate and customer volumes decline.

Most minority suppliers are small to mid-size companies with weak balance sheets that find it difficult to fund expansions without additional financing, Bing said. But the banking industry is reluctant to invest in the troubled automotive industry.

‘Gerry and I have been friendly competitors for the last 30 years,’ Bing said. ‘I’m sorry to see what he is going through, but it is not different than what all of us are going through.’

McCain revs up auto workers

Washington Times

Suddenly, it’s important to the US elections to think about jobs and the auto sector. Of course, many smaller stampers make parts directly and indirectly for the auto industry.

Sen. John McCain on Friday told auto workers to have faith that alternative technology vehicles will re-energize their sagging industry and help reduce the nation’s dependence on foreign oil.
‘I believe that this new technology – it’s more than an automobile – will create hundreds and thousands of jobs,’ the Republicans’ presumptive presidential nominee said at a town-hall meeting with about 500 General Motors Corp. employees. ‘This breakthrough has every chance of success.’
Mr. McCain toured a facility where the struggling automaker is designing a new battery-powered hybrid vehicle, and spoke to employees while flanked by several models of GM’s emerging fuel-efficient cars and trucks.

Steel costs add to auto woes

Detroit Free Press

Yet another challenge has emerged for the automotive industry: Rapidly rising steel prices.

The price of hot rolled steel has increased from just over $500 a ton in November to $1,080 per ton Thursday.

Prices are soaring because of increasing global demand, a lack of increase in the supply of raw materials used to make the metal, as well as increased energy and transportation costs.

John Hoffecker, managing director of AlixPartners LLC, said Thursday that the cost of steel is rippling through the automotive industry and will likely result in higher vehicle prices because the expense is too large for the industry to absorb by cutting costs and using different materials.

“It’s going to hit suppliers, it is going to hit manufacturers, and my view now is it is going to start hitting consumers,” Hoffecker said.

At the same time, Ford has now said they will not return to profitability, due in part to steel price increases.

Bloomberg.com

Ford Motor Co. abandoned a target of returning to profit next year because of rising costs for steel and gasoline, a month after Chief Executive Officer Alan Mulally said the second-largest U.S. automaker expected to meet its goal.

End to Axle Strike Erases Some Doubts at GM

WSJ.com

Several General Motors Corp. plants are set to ramp up production this week after key supplier American Axle & Manufacturing Holdings Inc. and the United Auto Workers reached a tentative agreement ending an 11-week strike.
The strike had all but crippled GM’s ability to produce large pickup trucks and sport-utility vehicles, which generate hefty margins for the auto maker, and slammed its North American profit in the first quarter

It’s also good news for parts suppliers going into those pickup trucks.

Canada’s Budget promises relief for manufacturing sector

The news today in Canada is yesterday’s budget, and the “headline” that there’s a lot in there to help Canadian manufacturing, the “engine” of Ontario.

Well, is it true?

The federal government is providing $1 billion in tax relief for Canada’s ailing manufacturing and processing sector by extending the accelerated capital cost allowance (CCA) for businesses.

Finance Minister Jim Flaherty said Tuesday that the government will allow businesses to use the accelerated CCA, on a declining basis, until the end of the 2012-13 fiscal year.

The CCA is a non-refundable tax deduction that reduces taxes owed by permitting the cost of business-related assets to be deducted from income over a prescribed number of years.

On occasion, a CCA rate is “accelerated” to increase the incentive for investing in an asset by permitting it to depreciate more quickly.

The accelerated CCA plan introduced in the 2007 Budget allowed manufacturing businesses to fully write off investments in machinery and equipment within two years.

This says that, if you have the money to invest in new machinery, you can pay it off sooner, that is, write it down sooner, lowering your tax bill. Hopefully, you’ll take some of the tax refund and use it to actually pay it down faster at the bank, thereby also reducing borrowing costs, another expense.

But let’s think about this a bit. Many Canadian manufacturers are already on the ropes, hanging on by their fingernails. Are investments in new machinery uppermost in their minds? Are new machines even in the picture? I don’t think so. They’re doing everything they can to keep from laying off more people, to hang on to loyal employees.

While I applaud government efforts to reward newer, higher-productivity machinery, that shouldn’t be the whole picture. How about a reduction on Workers Comp premiums for companies with good safety records? How about cost sharing on CPP for a year or two? These are costs every manufacturer, even those on the ropes, has, and so every manufacturer will benefit from them.

So what do other people thing?

Manufacturers say budget comes up short Reuters Canada says:

Canada’s budget offered some financial help for the country’s struggling manufacturing sector on Tuesday, but industry groups said it would not be enough to offset the impact of a strong domestic currency, a slumping U.S. economy and low-cost global competition.

[…]

Industry groups, however, said the one-year extension of the 50 percent rate would not give capital-intensive industries the time and funds needed to plan and execute the big investments they need to compete internationally.

“It’s really a grab bag of goodies, some loose pocket change being thrown to the manufacturers,” Jayson Meyers, president of the Canadian Manufacturers and Exporters Association, told Reuters.

[…]

Jim Stanford, an economist at the Canadian Auto Workers union, said the auto fund would not help workers who are losing their jobs as the industry cuts back.

“We would have preferred to see Mr Flaherty take a billion dollars out of that whopping 2007 surplus and create a real auto investment fund to match Ontario’s billion-dollar fund,” Stanford said.

The Toronto Star called it a show about nothing

GM raises prices 1.5%

This can’t be good for GM. It’s not like they’re otherwise doing well.
USATODAY.com
General Motors (GM) said Tuesday it is raising prices on its 2008 model year vehicles an average of 1.5% to help cover increasing steel and commodity costs.
The increases are effective with vehicles invoiced to dealers starting Wednesday and will not affect vehicles already in dealer inventory, the automaker said.
The price of most cars and trucks will increase by $100 to $500, but the prices of certain vehicles in more competitive segments will not increase at all, said Mark LaNeve, GM North America vice president for vehicle sales, service and marketing.
GM’s U.S. sales dropped 11% in November from one year earlier, hurt by falling demand for trucks as well as cuts in sales to low-profit rental car fleets. GM’s sales were down 6% for the first 11 months of the year.

UAW, GM settle strike with new health care deal

Considering what a long strike everyone was saying this was going to be, it sure was over fast!

Reuters via Yahoo! Canada Finance
DETROIT (Reuters) – The United Auto Workers union on Wednesday agreed a contract with General Motors Corp ending a national strike by 73,000 workers, with a deal that includes a groundbreaking health-care trust fund. Union President Ron Gettelfinger, speaking at a news conference at the union’s Detroit headquarters and surrounded by cheering UAW officials, said production at GM facilities would resume on Wednesday and ratification of the agreement by GM workers would begin this week. ‘We feel very confident it will be ratified,’ Gettelfinger said of the tentative four-year agreement.

GM said the national agreement “paves the way for GM to significantly improve its manufacturing competitiveness” and maintain a strong production presence in the United States.

A GM spokeswoman said the automaker would not provide details of the agreement until it was presented to UAW workers for ratification.

Gettelfinger said he would not disclose details of the agreement at this time. But he did say it includes a landmark health-care deal, under which responsibility for retiree health care would shift to a new UAW-aligned trust fund known as a voluntary employee beneficiary association, or VEBA.

Wall Street analysts have said establishing a VEBA could cut GM’s annual costs by $3 billion in exchange for a one-off payment expected to top $30 billion.