An article earlier this month in Forbes.com reinforced what many observers, including this author have been expressing regarding the U.S. automotive supply chain.  “The growing fear is that without help the auto industry may collapse from the bottom, rather than top down”, states Joann Miller, the article’s author.

In essence, funneling more money to bailout General Motors or Chrysler will be a waste unless there is way to insure some integrity in the overall network of key component suppliers that make-up the fabric of the automotive supply chain in the U.S.  If key supplier failures occur in large numbers, it could take many months to shift tooling and re-certify alternative suppliers.  Some of these same suppliers also supply foreign automotive makers for their production facilities located in the U.S.. More importantly, just when the U.S. auto industry needs to step-up its ability to remain competitive in global markets, and insure U.S. based innovation for market attractive vehicles for the next decade, its supply chain capabilities may be the fatal link.  As the article pointed out, the stress on suppliers becomes more evident every day.  Yesterday, the Associated Press reported that Visteon will not be able to file its annual report on time because it expects an upcoming report by its accountants to indicate significant doubt about the company’s ability to continue as a “going concern”.

Voices of reason and rational action need to be a response to this crisis situation. I read a press release from Grant Thornton LLP that attempts to influence a broader set of industry actions into place.  Laura Macero, part of  the Corporate Advisory and Restructuring Services team at Grant Thornton believes that some 500 Tier-One suppliers may be at high risk, and damage could be mitigated if key suppliers form a coalition with automakers, banks, and the government to drive an orderly consolidation of the supply base.  According to Macero: “Without a structured approach of consolidation to the benefit of the entire supply chain, the industry may lose critical partners with the technology, scale and geographic footprint that are linchpins in the viability equation.

Suppliers need to proactively determine whether they are a consolidator or a consolidatee,” she said. “For those that are best suited to operate as consolidators, they need to step forth and provide solutions.”  The release continues with a set of  recommended roles and actions for each of the key players that can resolve this crisis.

President Obama’s special auto industry task force is currently analyzing the options for insuring the future for the U.S. automotive industry.  I trust that task force members will take this more holistic view, that GM and Chrysler alone do not constitute the entire automotive supply chain.  The Grant Thornton proposal and any others that take the full holistic view deserve consideration.

What’s your view?  Should the broader U.S. automotive supply chain be preserved, or should the forces of the market take their toll?

Bob Ferrari