I think I have a solution to the
GM and Auto Industry problems!
by Stephen Tetreault, T-Waves | November 18, 2008
PrintIf General Motors runs out of money in the first quarter of 2009 or worse yet by the end of the year, as it now predicts is possible, the impact would be felt far and wide and the cancer would quickly spread to hundreds of suppliers, rival automakers and ultimately dealers across our great nation. As once this huge domino falls, it will rapidly takes out all the other smaller dominoes….Suppliers would be among the first to feel those effects since GM only manufactures the body, the engine and the transmission used in their vehicles for the most part.
In the United States alone, GM spends $31-34 billion on parts from 2,100-2,200 different suppliers. These include the “direct suppliers” involved in producing the vehicles (those firms that provide everything from steering wheels and seatbelts to brakes and airbags as well as “indirect suppliers” those firms that make things such as solvents, oil, replacement parts, protective eyewear, uniforms, and tools.
Although congress especially the republicans appear to be souring on providing a $25 billion bailout to these automakers, the impact of a GM failure on the industry as a whole and therefore the economy as a whole is a Mega Tsunami bearing down on our economy and their decisions or lack thereof will determine whether we make it through this storm or it crushes us!
So far this year, 23 major auto-related companies, most of them parts suppliers, have filed for bankruptcy. They are struggling since auto makers have cut back on production as sales have slowed and raw-material prices have risen dramatically as commodity costs this past year have soared.
With the stress that's already on the supply base, they can't take another hit and any such hit could be a deadly blow and a GM failure would have a ripple effect would likely turn into a mega Tsunami. If we see supplier firms fail, that would have a direct negative impact on Ford and Chrysler, since the three domestic auto manufacturers share about 70% of their supplier-base. Not all those affected would suffer equally, but it is hard to predict which companies would be hit hardest, because the relationships among the various suppliers and automakers are complex.
A GM failure would also affect about 14,000 dealers across the nation almost half of the nation's 29,000 dealerships that specialize in domestic vehicles. But even if many of these 14,000 GM dealers also offer foreign cars, the risk of losing their supply of domestic vehicles would likely force many of them out of business. The overall industry is already expected to lose about 700 dealers by the end of this year, up to 80% of which will be domestic-branded-dealers.
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I say don't give them (the big-3 any money right now) directly! Lets try to stimulate demand instead as I believe this would be a significantly better way to solve the problem and stimulate the economy! This sort of stimulus program aimed at increasing demand for domestic auto production is in my opinion a more prudent way to go than basically injecting tax-payer bailout monies directly into the automakers themselves.
Instead of giving GM $25/50 billion or more I would rather give that money to the consumer instead. $25 billion incentive-rebate at $4,000-$7,500 per auto/truck could stimulate 3.5-5.25-million additional sales of vehicles alone, would this not be a better use for such a bailout?
The giving consumers between $4,000-$7,500 rebate on any U.S. made car/truck they purchase is in my opinion a huge demand driver as the consumer gets a much better deal, the car companies get to sell off all their bloated inventories, suppliers are still in business as are auto-repair shops and the whole supply-chain remains solvent. As the new-auto supply chain players would certainly recover once new-autos/trucks begin to move and then everybody profits from the bailout from the parts supplies through the manufacturer and straight through to the consumer.
$25 billion may be a drop in the proverbial bucket for GM but at $4,000-7,500 per vehicle that could possible cover the purchase of over 5 million vehicles depending on the mix. That would bring auto sales back up to nearly where they were 2-3 years ago before the credit-crisis drought began.
With a $4,000-$7,500 rebate going towards the down payment the banks would not have any trouble writing the loans. For a $20,000 car that would equate to a 20% down payment at least and the banks can't complain about that type of asset-ownership
Copyright © 2008 Stephen Tetreault
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