• Jun 25th 2009 at 6:03PM
  • 10
If you think GM and Chrysler are going through financial struggles, it's just a flash in the pan compared to the trial and tribulations of the automotive supply base. Experts say supplier jobs account for nearly three-quarters of all automotive employment, with estimates of 600,000 workers in the US alone. The slipping auto sales in North America have exasperated the situation for the already struggling suppliers, and the bankruptcies of GM and Chrysler haven't helped, either. Parts suppliers did receive $5 billion in loans from the federal government, but some say that figure isn't enough to keep some from going under.

Reuters reports that Ford will add to supplier's woes by halving its supply base down to 850 companies by the end of 2009, making 750 suppliers ineligible for future dealings with the Blue Oval. By shrinking its supply base by nearly half, Ford can cut down the risk of production interruptions caused by the bankruptcy or dissolution of one or more of its suppliers. The healthier 850 suppliers pick up the production (and in some cases, employees) left on the table by the departure of the 750 less financially sound companies.

While this sounds like a big heap of bad news for the supply base, it's more like good news/bad news. It's great if you're among the 850 companies that will remain with Ford, and if you're among the 750 who aren't, the chances of survival are pretty slim, but more work could be right around the bend.

[Source: Reuters | Image Source: Bill Pugliano/Getty]

I'm reporting this comment as:

Reported comments and users are reviewed by Autoblog staff 24 hours a day, seven days a week to determine whether they violate Community Guideline. Accounts are penalized for Community Guidelines violations and serious or repeated violations can lead to account termination.

    • 1 Second Ago
      • 6 Years Ago
      As bad as this sounds it's what needed to happen. Companies like Toyota and Honda buy from a few suppliers that they are more closely aligned with. Don't be surprised if Ford even buys into some of it's suppliers and those suppliers buy Ford stock. That is the model the Japanese automakers have used to great success.
      • 6 Years Ago
      This isn't surprising, nor is it as bad for the employees of the smaller suppliers going out of business as some would think. The investors and executives might not fare as well but they would have probably gone under anyway.

      Most likely a few key suppliers will buy up the tooling and hire some of the personnel at those companies. The fact that the supplier has more business will strengthen it and these ups and downs will not leave them as vulnerable. The supplier base is all going to have to restructure much like Ford and the others have to be able to adjust supply to demand and remain profitable.

      I'd expect the average cost of parts would go up slightly but savings in economies of scale and quality issues will negate that price increase. Plus the suppliers and OEM engineers/purchasers will be happier with eachother if they're not individually trying to squeeze money from one another the entire time they're doing business.

      It's really a shift from the old way of doing business where volume and low price was king. Now it will be volume of part numbers instead of volume of parts and there should be a lot more consistency with quality and delivery.
        • 6 Years Ago
        Don't kid yourself. Price is still king and always will be as long as purchasing is involved.
        • 6 Years Ago
        If what they say is true, then they are going against what you are saying, lots of small companies with low overhead are going to come in under a larger company with more overhead. The difference is the smaller company isn't in a position to sustain losses for any period of time, they are also more likely to go out of business at any time, especially with highly fluctuating demand.

        To be sure, there will still be bidding going on but it will be between a smaller number of suppliers who's prices won't flutuate as much as they did before. But since these suppliers all will purchase more raw materials (or sub-components). The prices will be lower due to scale. They are also more likely to have better quality and be delivered on time which is more important than low price at this point. The OEM doesn't want to sit on pallets of parts it won't use because demand went away, they want to get the parts as they are building cars.

      • 6 Years Ago
      Making less and less of a case for Government Motors every day.

      "But half of GM's suppliers supply Ford as well. If GM goes, Ford goes down with it."

      Perhaps not so much anymore.
        • 6 Years Ago
        Time scale is everything. Not that getting to that state will sever their interconnectedness with GM, it would take years regardless.
      • 6 Years Ago
      My brother worked at a plant where they made some of their own cranks and bought some from outside. They decided to scale back production and stopped making their own cranks. The outside supplier increased his price by 70% on the next round.

      I expect great things from this decision.
        • 6 Years Ago
        I find it hard to cheerlead a maneuver which is designed to scare its suppliers shirtless and give Ford a few cheap years while suppliers undercut themselves and put themselves out of business hoping to be the one. Ultimately leading to an end state with a less competitive and less capable supplier base.

        Ford is going short term. Why not, Mullaly retires in 2 years.
        • 6 Years Ago
        Most, if not all, of their contracts are negotiated years in advance. When Ford designs a new engine line, they determine what parts they'll produce, and what parts they'll put out for bid. When the bids come in, they negotiate with the bidders, and get the best price for the best part they can. Just because the supplier base is whittled down, doesn't mean prices can rise. Also, buying in large quantities allow a company to achieve economies of scale, further reducing the price.

        While a large supplier base is certainly better for competition, a capitalistic society is one in which the strong survive and the weak disappear. Ford is simply weeding out the weaker ones.
    Share This Photo X