Whether or not talks of a General Motors and Chrysler merger come to fruition, the fact that talks have taken place at all signals a daunting new direction for the US supplier industry, according to UK-based supplier industry analyst SupplierBusiness.
A merger of the two, or an outright acquisition of privately held, Cerberus Capital Management-owned Chrysler by GM, would lead to a swift shake-out of US parts makers as product platforms converge and new vehicle programmes are eliminated.
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GM and Chrysler product programmes have already been delayed, sources have said. A combination of the two companies would also lead to enforced merger talks among key suppliers to these key US OEMs.
The global financial crisis has put the GM–Chrysler talks on hold at least temporarily. But a link between at least two members of the Detroit Three – whether GM, Chrysler or Ford – is now considered inevitable. The three OEMs are bound to be transformed into two, and it will happen soon.
The old, proud reluctance to join sides has been swept away by the greatest industry turmoil in decades. The Detroit Three and their suppliers are desperate to replace the economy of scale lost in recent months as US new vehicle sales have collapsed.
Sources said GM purchasing boss Bo Andersson and Chrysler’s John Campi have not yet met to discuss how purchasing operations would be combined. But they added the idea of a joint purchasing panel, like the Renault-Nissan alliance’s system, is a likely outcome. Also, with news of the merger having leaked last week, supplier executives are expected to be called in to discussions on how the supplier industry would be restructured in tandem with a GM–Chrysler merger or acquisition.
Suppliers have been devastated as automakers have been under assault from all sides in recent weeks and months. For example, since 1 October, GM been giving itself up to 60 days to pay its North American non-production suppliers, compared to about 35 days previously.
Privately, Detroit Three executives say they understand that they need each other to survive. Should one go out of business, the impact on scale economies of North American-made parts would be debilitated. The phenomenal decline in volume in the past six months has already shattered the cost base of Detroit-dependent suppliers.
Indeed, it was a concern for the North American parts infrastructure that helped push Cerberus and GM into discussions. Suppliers are complaining that banks won’t lend to them – even those with strong balance sheets – out of fear that the Detroit automakers are close to filing for bankruptcy.
Industry executives in Detroit said all three companies are now in play. Ford’s role in merger talks is complicated by differences of opinion within the Ford family about whether to merge with General Motors or Chrysler, or sell outright to GM.
But the devastation of the Ford family’s wealth, coupled with the fall in the company’s stock prices last week, has reopened that possibility. Ford is understood to have put its stake in Mazda on the block.
Doubts surround all three Detroit companies but the consensus is that General Motors is in the most trouble. GM’s strategy from a few months ago was to raise $US15bn in cash by selling assets, cutting costs and borrowing. The plan was to get the automaker through to 2009.
Now it is clear that that won’t be enough. The company is understood to have delayed product programmes – the worst possible news for suppliers and their bankers.
However, amidst the gloom, there is a ray of sunlight for suppliers. The sharp decline in fuel prices in the United States could bring relief to the US companies whose product lines are oriented towards larger, and less fuel-efficient, vehicles.
Dodge’s launch of the new Ram pickup could benefit. The decline in steel prices and other commodities will also aid suppliers in difficult times.
SupplierBusiness
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