On Friday, ThyssenKrupp AG announced that it would sell its troubled but state-of-the art Calvert Alabama steel finishing plant to the 50-50 joint venture of ArcelorMittal and Nippon Steel & Sumitomo Metal Corp. for $1.55 billion. The announcement concluded an 18 month effort to sell two packaged facilities, in essence a vertical integrated supply proposal. The price garnered in this sale was considerably lower than the $5 billion that Germany based Thyssen originally invested in the Alabama steel rolling facility.
Three years ago, the Calvert plant was paired with Thyssen’s other raw steel producing plant in Brazil in an effort to provide auto manufacturers located in the southern region of the United States a more technology laden supply of fabricated rolled steel for product design and supply purposes. It was an effort to benefit from the resurgence of auto manufacturing in the U.S., but ran astray because of the rising production costs involved in the Brazil facility, and lower than expected global steel demand. Thyssen initial attempts for sale involved both the Brazil and Alabama plants as a package, but that resulted in lack of attractive bids. Thyssen later agreed to sell the Alabama facility itself, and managed to garner five different bids for the facility, including U.S. based Nucor.
For the potential new owners is the ability to utilize raw steel supplies from other U.S. or Mexico based steel fabrication facilities. However, the deal reportedly includes a pledge to annually procure a minimum of two million tons of raw steel from Tyson’s Brazil facility over a 6 year horizon. The new owners can further leverage the higher capacity and productivity that the Alabama plant provides along with a shorter logistics chain for manufacturers with plants in the southeast U.S. region.
The deal itself is still subject to regulatory approvals. According to reports published in business media, AccelorMittal currently accounts for roughly 40 percent of the steel supplied to the North American market and that may be a sticking point for regulators. Nippon-Sumitomo currently operates a 2.9 million square foot finishing facility in Indiana that supplies U.S. Midwest auto and appliance manufacturers with rolled steel products.
Because of possible concerns, reports now indicate that the review process is not expected to be completed until at least July of next year. One would hope that regulators would have a strategic sourcing perspective for insuring that the current resurgence of auto, appliance and other steel focused manufacturing in the southeastern United States continues with an Alabama plant that now has other options for vertical integration.
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.
Yesterday, an earthquake measuring 6.3 magnitudes struck eastern Taiwan and it adds more food for thought in terms of having active supply chain risk mitigation plans.
This latest major quake was reported to have struck at a depth of 19.5 kilometers and the epicenter was reported as 52.9 kilometers south of the coastal city of Hualien.
This tremor shook buildings in Taipei and according to a published Bloomberg report, caused the temporary evacuation of one of world’s largest semiconductor fab facilities. Limited damage was reported to the international airport.
Taiwan Semiconductor Manufacturing Company (TSMC) temporarily evacuated three separate fab facilities, but workers returned to their areas shortly thereafter. Another semiconductor producer, United Microelectronics Corp (UMC) temporarily suspended its operations and work was reported to have resumed after a few hours. According to Bloomberg, the administration of Hsinchu Science Park, where many of Taiwan’s high-tech companies reside, reported no reports of damage nor did the island’s 62 industrial parks. However, quite a number of aftershocks have occurred on the island.
This is not the first time that Supply Chain Matters has highlighted severe tremors in this region. Our last was in March of this year. Regarding yesterday’s occurrence, we were interested to read the U.S. Geological Service summary of this latest earthquake incident. The report notes: “This region of Taiwan is familiar with moderate to large earthquake activity, and has hosted over 60 events of M6 or greater within 250 km of the October 31 event in the past 40 years.”
Interesting read when you consider that a considerable amount of the globe’s semiconductor chip fab capacity is located in the region. In August, we highlighted a study from a supply chain risk consulting services provider which identified that within certain automotive and high tech supply chains a vast majority of suppliers are dependent on component supply from just four semiconductor suppliers. Guess where many of their fab facilities are located?
And, if the Taiwan incident is troubling, consider that yesterday, a magnitude 6.6 tremor occurred in Chile. The two countries was the largest reserves and mining capacity for lithium, which is now rather important for automotive and alternative energy related product supply chains, are Bolivia and Chile. Chile was hit by a 8.8 magnitude quake in 2010.
Supply Chain Matters provides an update regarding our previously published supply chain disruption alert involving current flooding conditions in Thailand.
A published report on Bernama, the Official News Agency of the Government of Malaysia, published late last week indicates that the flooding that has affected Thailand for a month now is estimated to cost economic damage of between 10-15 billion baht. It further reports that the damage could have been worse if it had affected Thailand’s industrial areas. However, the flooding did affect the entrances to some of those factory areas causing workers great difficulties in getting to work.
A syndicated Reuters report featured on the Chicago Tribune web site on Monday reports that 17 factories were temporarily shut on Monday at the Amata Nakorn Industrial Estate, dominated by foreign companies, after flood waters blocked nearby roads. As we pointed out in our earlier posting, this industrial complex houses a number of Japanese based producers within both automotive and high tech supply chains. In the latest Reuters report, a spokesperson for Amata Nakorn is quoted as indicating that the 17 factories were shut after the workers proved to be unable to reach them and the Thailand navy has been asked to help pump out the water. The estate was using more than 100 water pumps to speed drainage and the situation was reported to have improved from the weekend, with levels in many areas dropping 6 inches. Likewise, flood waters in the remainder of the country have eased.
Thus, while it does not appear that the current flooding is in any way taking on the severity to what occurred in 2011, there are temporary interruptions of supply continuing as government agencies and industrial estate owners continue to work on clearing roads and industrial park entrances.
Procurement and supply chain planning teams can obviously breathe easier but should continue to monitor developments and plan for temporary disruption.
Back in 2008-2009, at the inception of Supply Chain Matters, we focused on a number of global supply chain strategy topics. One of those topics was the introduction of the Tata Nano automobile in India, which promised to be revolutionary for the automobile industry, especially in emerging economies. In a posting in March 2009, Lessons of the Tata Nano and Rethinking Big Three Supply Chains, we called attention to a BusinessWeek article at the time that had its theme as to what can Detroit learn from the Nano.
That article made the statement: ”Tata didn’t set the price of the Nano by calculating the cost of production and then adding to margin. Rather it set $2500 as the price that it thought customers could pay and then worked back, with the help of partners willing to take on a challenge, to build a $2500 car that would reward all involved with a small profit“.
A lot has occurred since that time, and Tata Motors has struggled with a number of challenges related to the Nano these past 4 years. Sales of this model have declined to about 2500 per month from a peak of 10,000 per month in April 2012.
This week, the Wall Street Journal published a story, Why the World’s Cheapest Car Flopped? The WSJ observes that India’s consumers had the final say. Younger buyers, climbing into the middle class view their car purchase as a social statement, and they do not want that statement to be perceived as cheap. Just as it is in China, Europe and United States, the peer pressure circling a car purchase is very real, regardless of the economy. The car purchase is identification, at least in perception.
After investing nearly $400 million in product development and additional millions in building a customized factory with capacity to build 15,000-20,000 cars per month, Tata has gone back to the drawing board. The first base model had a Spartan interior with no stereo radio and air conditioning. The new challenge for Tata is described as changing existing perceptions, which is a tough challenge for any auto maker. The new Nanos will have improved sound systems, interiors and other amenities.
New TV ads have the tagline “Celebrate Awesomeness”.
So perhaps Detroit had it right in the beginning. Design a car that consumers, even those of entry-level will buy, calculate the production cost and margin. In turn, Tata’s supply chain ecosystem must adjust to this new awareness.
Of even more interest, Tata now owns Jaguar and Land Rover, each of which caters to status conscious auto buyers.
Tata has obviously acquired important learning.
For the past couple of weeks Supply Chain Matters has been monitoring the Internet on reports of widespread flooding rains occurring throughout Southeast Asia. Today, a Reuter’s published report indicates that flood waters have breached an industrial estate to the east of Bangkok, stirring fears of a repeat of the devastation and industry supply chain disruption that occurred in the area in 2011. Authorities however stress that floodwaters are moving in a different direction than what occurred in the widespread flooding of 2011, but that factories that were sparred in 2011, could be at risk.
According to Reuters, Amata Corporation, Thailand’s biggest industrial estate developer indicated that its Amata Nakorn industrial park in Chonburi province was operating normally despite minor flooding. Water reported to be at a depth of 15 cm (6 inches) has entered the park and accumulated in three areas. The developer indicated a plan to build a temporary floodway if conditions worsen. The report indicates that half the factories in this industrial park hail from Japan and produce automotive components. Reuters further indicates that Toyota is evaluating risk management scenarios for one of its three assembly plants in Thailand.
Based on this news, Supply Chain Matters advises industry supply chain teams with suppliers or value-chain facilities located in Thailand to continue or step-up monitoring of events occurring in that country, and at supplier facilities, particularly current states of flooding, infrastructure and transportation conditions in the region. While reports would seem to indicate this is not at all the conditions that occurred in 2011, caution is always advised.
If any of our readers have first-hand knowledge of conditions please share them by adding a comment to the bottom of this post or if you prefer, email: info <at> supply-chain-matters <dot> com and we will update our readers with any first-hand reports of conditions.