In a previous posting, I expressed my own view that the cost of outright failure would be too severe for the U.S. economy to absorb, but also that any financial assistance needs to come with a complete new thinking in leadership for future competitiveness.

An interesting article published in the International Herald Tribune portal by Chang-Rang Kim, a Reuters business reporter points out that executives of the top automakers in Asia would themselves not welcome the collapse of one, or even all three of their U.S. competitors.  The why is primarily related to potential cascading effects involving the web of a multitiered automotive supply chain. The article points to perceptive financial and industry analysts commentary that reflect that as many as 90 percent of current U.S. auto suppliers supply multiple globally based customers, which implies that a shutdown of any major customer would carry an additional risk of disrupting production for other Asian and European carmakers.  ‘Even as they sold assets and pleaded for a government bailout themselves, GM, Ford and Chrysler recently loaned a combined $60 million to Metaldyne, a maker of metal-based components, because the alternative of letting the Michigan-based supplier fail would have meant certain car models would not be built.”  

I’ve pointed to the above referenced article because it provides further evidence of why outright bankruptcy would only exacerbate the current problems of the big three.  The future of any of the big three U.S. automakers lies both in world-class, competitive products, but also in a vibrant supplier network that can drive higher levels of innovation and time-to-market.  As was pointed out, many of these U.S. based suppliers cater to more than one global brand owner, and thus already have exposure to needs for product innovation, world-class reliability and quality standards.  A rapid collapse would only force Asian and other global competitors to fall back on other foreign suppliers, or find alternative means of production.

Supply Chain Matters U.S. based readers should especially note the quote attributed to Tatsuo Yoshida, an analyst with UBS Securities.  “….. At the end of the day, Japanese, European and Korean carmakers are going to eat away at the Big Three market share, whether it takes three years or five years. A soft landing would make the path to that a much smoother one”.  If the U.S. government and the big three automakers need a motivation for direction, than let this quote serve as that rallying point.  Which one of the big-three can get their act together in three years?  The answer not only lies with Ford, GM, or Chrysler, but also their supply chain partners.

Bob Ferrari

Yesterday, European supermarkets were ordered to remove Irish-based bacon, ham and sausages after an announcement that Irish pork products had been potentially tainted with dioxin. The discovery of dioxins at 80 to 200 times the recognized safety limit had triggered this recall. While reportedly only 10 percent of Ireland’s pig meat was affected, it was apparently processed and mixed in with other meat, resulting in a supply chain compounded contamination.

Similar to previous food recalls in the U.S. and other global regions, Irish farmers and pork producers were extremely concerned with the impacts of this recall, especially in light of the upcoming holiday season in Europe, as well as ongoing consumer perceptions.  Exposure to dioxins at high levels can be linked to increased evidence of cancer, but is not an apparent immediate cause of human sickness.  None the less, previous headlines of tainted milk or drugs from China have sensitized many consumers.

As with other major recalls, producers and consumers will have to monitor the efforts of public-health and regulatory authorities as they continue in their efforts to purge Europe and other pork supply chains of the alleged contaminated pork and pork by-products.  If previous recalls of this type serve as an indicator, this purging could take weeks to complete.  Meanwhile, negative perceptions will have to be overcome.

Bob Ferrari