This just in!
Nobody likes General Motors!
Extra! Extra! Read all about it!
We're all going to grumble a little (or a lot) when GM comes crawling back for a few more billion dollars in the next couple months. Be prepared for it. And yet, as the cornerstone of American manufacturing, General Motors and the domestic auto companies have to survive. Here's why:
Almost All Manufacturing Will Be Impacted
The collapse of GM will send thousands, perhaps tens of thousands of small manufacturing businesses to their doom, while the more resilient ones will at least be brought to a grinding halt for months or years. And we're not just talking about cars here. We're also talking about cookies, bread, refridgerators, medical supplies, computer parts...whatever. If it's made, it will probably feel the impact.
Why?
Because GM doesn't Make Cars. GM ASSEMBLES cars.
All the parts -- the nylon seats, screws, bolts, rubber seals for windows, electronics, buttons, speedometer needles, and springs -- are made in small, privately owned factories somewhere...a huge percentage of them in the US. In fact, there's a spring manufacturer about a mile from my home. What do they make? Springs.
Now...where do the cookies come in?
Let's pretend YOU own a company that designs machines that makes cookies. Right? You don't need mass production. YOU just need two dozen custom parts made, and it's far cheaper to do that locally. So you come to me.
I own a company(not really) that makes, oh, let's say a certain part for disk breaks for the Chevy Malibu and the Ford Fusion. But my factory ALSO makes custom parts for anybody who asks. About 65% of my business is from GM and Ford. The remaining 35% comes from people like you.
Suddenly GM goes under and my company has lost about 40% of it's business in one day. The Ford account and the custom accounts alone can't sustain my company or the equipment I need to do business, so I fold. WUMP. Not only is Ford out a supplier, but small businesses like yours now need to find a new and more expensive manufacturer for custom parts at exactly the same time everybody else is doing the same thing. You can't build your machine in time and now the cookie manufacturer can't produce cookies without your machine. I know a fellow who is actually an engineer for a company that makes cookie machines in Grand Rapids -- this is a very real scenario.
But it blossoms out from there. It's not just cookies...indeed GM, Ford, Honda, and Toyota often order their parts from the very same foundries or companies. CWC Textron, also about mile from my home, produces parts for GM, Ford, Honda, and Toyota. Losing the GM account would cripple the company's ability to profitably manufacture parts for the other three companies.
If you think you'd be immune to the impact, think about this: My uncle works for a company in Florida that makes electronics that are shipped to California where they are made into components for GM cars.
A collapse of GM would send every manufacturer in the country, domestic and foreign, scrambling for new supply lines at exactly the same time. Some small manufacturers would fold, others would be overburdened with orders they're logistically unable to fill in any reasonable timeframe.
One in ten jobs is related to the auto industry
Once you've gotten an understanding of how all manufacturing is interrelated, it's easy to see the problems that arise from removing a $180 billion purchaser from the US manufacturing chain. It's not a leap to understand why so many American jobs are reliant on this monstrosity.
Here's a neat map about where US auto jobs are located throughout the country:
http://www.mibazaar.com/...
Yeahbut, it's only a GM bankruptcy! They're not going under!
Remember...GM doesn't manufacture cars, GM is a car assembler.
Imagine this scenario: You own a very responsible company that makes car parts for GM. GM orders $500,000 worth of parts from you. You make them and ship them. Then GM declares bankruptcy and their lawyer sends you a note saying you can't collect what GM owes you, so just suck it up. But GM still needs parts, right? So they call you up the next day and say "Hey! We'd like another $500,000 worth of parts there, Champ!"
Right.
How's that gonna work? You've just been stiffed for half a mil. Do you imagine you could afford to make more parts for this company?
But they deserve to go under!
Yeah, yeah. Calm down. Ford, GM, and Chrysler realize that. That's why they spent the past four years, and billions of dollars, to make better, more competitive, more fuel efficient cars.
Back in 2005 GM teetered on the edge of bakruptcy, as did Ford. And that's when they seriously overhauled their operations. Even the Unions, understanding the gravity of the state of the US auto industry, made some very hard concessions allowing some jobs to be non-union.
Ford and GM retooled factories and slashed their labor forces and even began drafting new and exciting, fuel efficient automobiles such as the Chevy Volt, while Ford invested billions into plants that would make their successful, fuel efficient European models like the Fiesta right here in the US.
Meanwhile quality ratings climbed to rival that of imports. The Ford Focus sees ratings comparable to that of the Corolla. And let's not forget the Focus has been one of the best selling automobiles internationally and the Chevy Malibu now gets better highway MPG than the Accord or the Camry and received JD Power and Associates award for best initial quality for a mid-sized car.
Ford and GM and the Unions all pitched in to change the face of the Domestic auto industry, they invested billions into it and predicted a return to competitive products and profit by 2010 (2009 for Ford) and it looked like they were pretty much headed there...it would be an amazing manufacturing success story...
And then some jerks and their credit default swaps took a baseball bat to the kneecaps of the global economy. WHAM!
So the Big 3, after coming so far, had to crawl to Congress to ask for money and what did Congress say?
"You need to overhaul your companies, and Unions need to make concessions."
Shit.
They ALREADY overhauled their companies. They already improved and overhauled their product lines. The Unions ALREADY made huge concessions.
But nobody knew about that.
Oh but the huge cars, the huge huge cars!
Yes. Why do Americans buy larger cars? Let's do another thought experiment.
Average Number of Children Per Family:
In Japan: 1.22
In England: 1.66
In Russia: 1.4
In Germany: 1.41
In Italy: 1.3
In USA: 2.1
(Numbers taken from the CIA world factbook online).
Which nation is going to demand larger cars? I'll give you a moment while the Jeopardy Theme Song plays.
Ready?
Exactly. The one with the larger family size (in number, not just girth). Of course Americans are going to drive larger cars. It's not because we're stupid or greedy or vain, it's because we tend to have larger families. If you know anything about current car seat laws for children, and have tried to fit three child car seats abreast in the back of a compact, you know exactly what I'm talking about. It's not easy. And depending on the car, it's not even POSSIBLE. You can pretty much get two of them in there, tops. Sometimes, if the back seat has too little leg clearance you can only fit ONE in the middle seat. In fact, I'm willing to bet there's a direct correlation between the passing of child seat laws and larger car purchases.
Furthermore, thanks to more liberated family lifestyles, fathers are taking on greater parenting duties. SUVs are mini vans for men. Why on earth would a guy want a pickup truck with an extended cab? Because he has kids. This isn't eh 1970's where the guy goes off in his rusty ol' pick'em up truck and a beer with only a single bench in front while his wife stays home with the gaggle of kids. No...now the macho man has his kids in tow. And that's a good thing.
Yes. Huge, huge cars. Interesting side note...anybody out there notice how Toyota has been trying to edge its way into huge cars? There's a reason for that...there's also more profit margin in large cars. It takes about the same amount of money to make larger cars as it does to make smaller cars. There was no way GM or Ford could make competitively priced smaller cars...but the COULD make competitively priced larger cars.
So...yes. GM and Ford have been silly in the past. And they got wolloped upside the head by foreign automobiles. But they learned from it. They're making better cars and they're making more fuel efficient cars. They're even making ground breaking cars with the Chevy Volt, due out next year. They also hold up the entirety of the American manufacturing chain from cars to cookies. And they employ about 10% of Americans. No, they're not saints. And yes, their CEOs are dicks. But these companies are critical to the prosperity of the middle class. Bankruptcy is not an option for them.
When they belly up to Congress again to stay afloat in the worst economy for 70 years, we all need to be united in support of their survival.