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A Milestone for the U.S. Automotive Industry and its Supply Ecosystem

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An important milestone for the U.S. automotive industry will occur this month.  The United States Treasury announced that it plans to sell its remaining 31.1 million shares of General Motors stock sometime before the end of the year. The move hopefully represents the final chapter in the 2008-2009 government bailout of General Motors and indeed, the U.S automotive supply chain.

According to business media reporting, the U.S. government initially invested $50 billion in GM, and thus far has recouped $38.4 billion of that investment.  The planned final sale could bring in an additional $1.2 billion, based on the current value of GM stock, making the final net cost to taxpayers of $10.4 billion. In addition, asset sales have helped the U.S. government to recoup over $12 billion of the $16 billion invested in GM’s automotive finance arm.  More importantly, the U.S. automotive industry and its associated supply chains have rebounded from the certain brink of disaster.

In its reporting, the conservative-leaning Wall Street Journal indicates that because of the rescue bailout, companies and communities were saved from possible collapse. The WSJ writes: “The U.S. auto industry has recovered nearly all of jobs lost since the beginning of the financial crisis, is broadly profitable and is expanding again.” A partnership between government and business provided more novel means to expedite restructuring needs and provided .labor with a stake in the end results.  The WSJ echoed analysts and indeed Supply Chain Matters declared beliefs that many auto suppliers that relied on the Big Three U.S. automotive OEM’s would have collapsed if the rescue did not occur. It quotes Bureau of Labor Statistics data that indicates the same numbers of people now work in automotive and parts manufacturing as existed in October 2008. Tier One automotive suppliers have also garnered the opportunity to seize on the move toward more technology-laden auto models and are now growing their revenues and profits based on investments in more innovative and fuel efficient features for new models of automobiles. The expression “a rising tide lifts all boats” is alive and well among U.S. focused automotive supply chains. Not only have U.S. brands garnered the benefits but non-U.S. nameplates as well.  Today, European, Japanese, Korean and even China based manufacturers are investing in U.S. based automotive manufacturing.

In contrast, the Eurozone countries have endured two long years of economic recession with the European auto industry dealing with similar effects of recession, namely declining sales, gross idle and excess capacity in both manufacturing and dealer networks.  Labor unions and indeed individual governments seek to protect jobs and local economies, but decisions seem to linger.  Much can be learned from what occurred in the U.S.

The Thanksgiving holiday celebrated this week in the U.S. and other regions is time to reflect and give thanks for blessings in our lives.

Those that contribute to or are indirectly associated with the U.S. automotive industry for their economic livelihood should give thanks that a partnership among government and business actually accomplished its goal to save an industry and its supply chain ecosystem. From our lens, it was a proper and meaningful investment. It could have well had a far different and negative outcome.

Bob Ferrari

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