All of that does make sense until analysts start to look inside the industry and see how the supply chain works. If GM falls, so do many of its suppliers. If the suppliers fail, Toyota loses its sources for parts. Toyota factories in the US will have to shut down, and potential car buyers will need to keep their current vehicles or buy a horse.
According to Reuters, “A healthy U.S. auto industry is vital for a sound U.S. economy and by extension for Japanese carmakers.” That is only the tip of the iceberg and it is based on the fact that higher US unemployment will further undermine car sales. But, if the stimulus package works, the consumer’s ability to buy a new vehicle should improve.
The supply chain problem is a harder one to solve. If big part companies like Delphi go away, who replaces them? The auto components industry would have to be rebuilt almost from scratch. There is no guarantee that the federal government will save it. There is no guarantee that bankruptcy courts will allow parts firms to operating in Chapter 11. Without debtor-in-possession financing, many may simply be driven into liquidation.
If GM falls apart as a viable car company, the shock wave to the American vehicle assembly process will be devastating and there will not be a single company building vehicles in the US that will not have to shut down a large part of its production capacity, perhaps for months.
Douglas A. McIntyre
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