By Jake Kanter
Over the last year SM has written extensively about conditions in the US auto industry. A chronic drop in new car sales has been felt acutely by buyers and equally suppliers in the sector.
The last month has brought with it a flurry of activity and in case you're a little behind, here's a brief update of the main events.
General Motors has filed for Chapter 11 bankruptcy and Chrysler has emerged from bankruptcy protection after signing an alliance with Fiat. Auto supplier groups have requested $10 billion (£6 billion) in government loans to support their operations.
Amid all of this, the revolving door of senior buyers at the two Detroit carmakers has been in full swing. Bo Andersson, GM's chief purchasing officer left last week only to be replaced yesterday, by the internally promoted Bob Socia.
Chrysler's CPO, Scott Garberding remains in charge after replacing John Campi in December, but is joined by new supply chain management director Michael Keegan.
The dust will take some time to settle, if indeed there is no further upheaval.
What has remained consistent during this difficult period is the importance of procurement and supply chain - whether central to cost cutting, or helping to support suppliers.
Its fair to assume that buyers will feature heavily in the auto industry's recovery, but what role will they take? How can procurement help lead these ailing companies out of the darkness?
It surprises me how these companies with the huge wealth they have accrued have managed to get themselves into this position in the first place? In my view the whole business model of the sector would need adaptation, the fact is cars have never been cheaper, considering the options that are fitted as standard these days (power steering, airbags etc) I am then not surprised at their cash position.
Many manufacturers have the base model at almost cost price (to get the headline price for the car) and only start making money on extras. They have also structured their pricing on selling X% of their capacity to breakeven, with the X being far too high to account for economic downturns.
I'm not suggesting everyone copy konnegsegg's business model and make 18 cars per year at £900k each. But rather some lateral thinking, perhaps create platforms that can be recycled to reduce costs, improve the environment, but make the part exchange 3 years later financially viable for the manufacturer rather than send to the crusher/flood an already over flooded second hand car market.
At the end of the day, a car is a Veblen good, people are not buying they are repairing older cars, if the manufacturers had the right foresight to invest in service centres/aftersales, they would still be collecting money rather than the economic left shift that has occurred and local mechanics laughing all the way to the bank.
I'm glad R&D costs are being shared now on platforms e.g. new corsa/punto or ka/500/panda being the same platform.
I suppose this is all just the eye of the storm, as soon as legislation brings in a new form of sole power source/breakthrough in batteries its back to the drawing board for everyone.
Cristian
(Gladly working for the government)
Posted by: Cristian Martin | June 17, 2009 at 04:03 PM