In news today from the Financial Times European businesses that insure the suppliers of parts to GM & Ford factories in Europe have stopped providing the insurance necessary for GM & Ford to obtain parts & services on anything other than a cash basis.
This news is expected to only effect GM & Ford in Europe as there is no requirement for the same insurance product for their suppliers in the US.
The news has been a leading indicator of a businesses demise in Europe previously.
The withdrawal of credit insurance – which covered suppliers against the risk of the car companies’ failing – has previously hastened the demise of a string of European companies, with suppliers to retailers and construction companies finding cover increasingly hard to come by.
Understanding that these cash strapped firms, currently seeking billions in US Federal bailout assistance will either have to pay cash for their materials or cease production in one of their biggest markets cannot help their long term viability plans to return to profitability.
Euler Hermes, Atradius or Coface, which control more than 80 per cent of the world’s credit insurance market, are refusing to write policies for suppliers trading with GM or Ford on credit. GM and Ford are two of the biggest groups ever to be blacklisted. The cut-off of cover will primarily affect the companies’ large operations in Europe, where the insurers do the bulk of their business. US suppliers largely operate without insurance.
The move leaves three possible scenarios: GM and Ford can start paying upfront for goods; they can hope their suppliers will trade uninsured; or they could be unable to buy the parts they need for car production.
According to the article the European insurers have access to company information not available to the public to may have assisted them in making this decision. A decision that will do little to bolster investor confidence.
The insurers have risk assessors working closely with the companies and are party to details not released to the market.
Even if the carmakers can keep the supply chain working, the refusal to provide cover will further weaken investor confidence.
Well, there we have it folks. Once more in this financial emergency it is the failure of a business to be able to obtain proper insurance, either to continue production or to secure its debt that is leading to failure.
http://www.ft.com/...
Links to bailout for GM & Ford.
http://www.bloomberg.com/...
http://www.bloomberg.com/...
http://www.ft.com/...
NOTE:
As the G-20 summit begins in Washington many in Europe have long decried the lax enforcement of and out dated regulatory system in the US as a major reason the world economy is suffering the fallout of US driven toxic waste implosion.
Yesterday, in the face of this criticism President Bush said the following which may well be remembered as his "line in the sand" for his brand of hands off capitalism.
Against this backdrop, US President George W. Bush, host of the summit, delivered an impassioned defence of the free market system, serving warning that his administration would resist efforts to impose heavy-handed regulation on global financial markets.
The outgoing US president vowed to support efforts to bring greater stability and transparency to the troubled financial system but warned it would be a "terrible mistake" to allow "a few months of crisis" to undermine faith in free market capitalism
.
For a long time there has generally been a much more integrated environment between government & business on the continent in Europe. They have listened to the US say for months first that there were no problems and those that existed were contained and then they listened to the US bemoan the lack of purposeful action in addressing the looming crisis.
Well, I suspect that this decision to pull the insurance from GM & Ford's suppliers in Europe may well be a diplomatic response to President Bush's remarks. Stay tuned for more news along these lines.
http://www.ft.com/...