The big news this morning, of course, is General Motors (GM) filing for bankruptcy, thus marking a new era for the company and the automotive industry in the United States. How this will all play out in the months and years ahead is unknown, but if your company is at all linked to the automotive industry, the road ahead just got riskier and more uncertain.
It’s not surprising that many of the creditors with unsecured claims are parts suppliers (e.g., Delphi’s claim is $110.9 million), but here are the claims of other companies in different industries:
- Starcom Mediavest Group: $121.5 million
- Hewlett Packard: $17 million
- AT&T: $10.7 million
- Union Pacific: $10.6 million
- CSX: $8.8 million
- Jones Lang LaSalle: $4.7 million
- Cap Gemini America: $4.4 million
The impact on transportation and logistics goes beyond Union Pacific, CSX, and the rail industry. As the Bureau of Transportation and Statistics (BTS) reported last month, “Trade using surface transportation between the United States and its North American Free Trade Agreement (NAFTA) partners Canada and Mexico was 30.9 percent lower in February 2009 than in February 2008, dropping to $47.9 billion, the biggest year-to-year percentage decline on record…[and] February was the fourth consecutive month with a yearly decline of greater than 13 percent.” Truck imports and exports dropped by 32 and 28 percent, respectively, in February compared to the previous year. The sharp decline in automotive shipments to/from Canada and Mexico, where much automotive-related manufacturing and distribution takes place, is a significant contributing factor.
Also, as I highlighted back in January in “Obama and the Logistics Industry,” the automotive industry is a significant source of revenue for many logistics service providers (3PLs). For example, in a study we conducted a few years ago where we profiled twenty logistics service providers, the automotive industry accounted for almost 30 percent of total net revenues for these companies, the highest percentage among all industries. The economic woes of the automotive industry are impacting all types of LSP services: contract transportation management, dedicated fleet, freight forwarding, customs brokerage, etc. Simply stated, as the automotive industry goes, so does the LSP industry, which is why some 3PLs are taking action to diversify their client base (see “Ryder Refocuses Its Strategy“).
Diversify: easier said than done, I know, but if your financial success rests mostly on the turnaround of GM and the automotive industry (particularly in the U.S.), diversifying your client base is the best action you can take today (actually, you should have started a few years ago, but better late than never).
How long will it take for consumer demand for new cars to grow again? Is what’s happening to the U.S. automotive market an example of the “Reset Economy” that my colleague Steve Banker wrote about? What risks and issues are there with the U.S. government owning a controlling stake in the company (“Government Motors”)? Labor has made a lot of concessions to get to this point, but where will they draw the line and what effect (if any) will this have on the Employee Free Choice Act?
Stay tuned.
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2 Comments
June 1st, 2009 at 12:36 pm
Adrian,
I wonder how much the union conceded. From what I have read, it appears bond holders are taking a bigger hit and getting less equity than labor. If so, I say that bodes well for EFCA, and badly for business.
The public for years has been told the benefits to retires is the noose around the automakers neck. If that isn’t adjusted through the bankruptcy, either it was not the noose, or it’s a temporary fix.
Giles Taylor
Trans-solutions, Inc.
June 1st, 2009 at 2:22 pm
I continue to be amazed on how the entire discussion/arguement on the Domestic auto industry is centered around the wages and benefits of the unionized worker. I grew up watching my father work through the first wake-up call to the American automotive industry in the late 70′s and early 80′s. He often came home frustrated with the labor negotiations being centered around how much the cost was per hour. As fellow Logisticians we all understand that success or failure is around production per unit of cost. It doesn’t matter if our hourly costs are 20% higher if our productivity is 25% higher. The real issue is the lack of flexibility and productivity that has historically been driven by the union agreements.