THE ASSEMBLY line at the factory where Kenta Kennedy works isn’t operated by the Detroit Three. But it starts and stops on their whim.
Every time a new Buick or Dodge starts down the assembly line at one of the automakers, Kennedy and his co-workers get an order to put together another dashboard: steering column, speedometer and radio. Within five hours, the piece must be delivered to parallel assembly lines at General Motors or Chrysler.
“When they move, we move, and when they stop, we stop,” said Kennedy, 32, a father of three. “Whatever happens them is going to happen us, too.”
Although most government aid to the auto industry has focused so far on GM and Chrysler, the vast majority of the jobs and revenue in the US industry are not with the automakers but their web of suppliers, such as the company Kennedy works for.
Last Thursday, the Obama administration announced that it will offer as much as $5 billion in assistance to support the web of auto parts manufacturers that supply the US car industry.
About 673,000 people worked in parts supplier plants in 2007, according to the Bureau of Labor Statistics. By contrast, the Detroit Three then employed about 239,000.
Now, as the plunge in sales begins to affect the thousands of suppliers, the task of propping up the US auto industry has become much more complex.
Over the past year, stock prices of major suppliers such as American Axle, Lear and Visteon have dropped precipitously. Others, such as Getrag Transmission, Cadence, Contech and Key Plastics, are in bankruptcy proceedings. And, according to a report last week from Grant Thornton, a company that works with troubled suppliers, as many as 500 of approximately 1,700 direct suppliers to auto companies are at “high risk”.
Those companies are seeking help from the Obama administration auto task force, too.
“If you want to save the auto industry, you can’t just save the carmakers,” said Thomas Klier, a Fed economist who has written a book about the suppliers.
Until the late 20th century, according to Klier, US carmakers produced most of their parts. But the automakers chose to focus their energy on designing and engineering cars, and now the task of making parts falls to the thousands of independently owned suppliers. These days, most suppliers are in the Midwest, with some in the South — in Alabama, Georgia, Kentucky, Tennessee and the Carolinas.
Those suppliers provide approximately 70 per cent of the value in a car, according to the US Economic Census.
So saving the US auto industry means keeping alive the suppliers, and it won’t be simple.
By most accounts, some suppliers should be shut down — there are simply too many, given the shrunken size of the US auto industry. But suppliers and carmakers are so intricately connected that the loss of even one makes production difficult.
“It’s not like a restaurant where, if your pickle supplier goes out of business, you find another pickle supplier,” said Sig Huber, Chrysler’s director of supplier relations. “The auto industry doesn’t work that way.”
Before a car can be produced, extensive coordination occurs throughout the supply chain. The carmakers send their moulds and other machinery to the parts suppliers. Dimensions are checked and rechecked. Many parts must undergo weeks of stress analysis, and others must get crash-tested.
Because so much rides on the operations of their suppliers, carmakers and other large companies closely monitor the finances of their parts makers.
If a company appears to be floundering, larger companies often step in with assistance until work can be shifted. The intervention can be costly, but it prevents a supplier’s woes provoking a broader work stoppage.
Those emergency rescue operations have become more common in recent weeks, and many fear the industry could be overwhelmed if more are allowed to fail.
For example, in the past two weeks, the company Kenta Kennedy works for, International Automotive Components (IAC), has stepped in to transfer to more financially stable operations the equipment of seven vendors that were either closing or appeared ready to do so.
“For those outside the industry, it is difficult to truly grasp the interconnectivity,” said James Kamsickas, president and chief executive of IAC. “The failure of one or more key suppliers can shut down entire supply chains.”
Representatives began meeting with the Obama administration auto task force last month. One key request is for the government to guarantee payments owed by the Big Three; another is for the government to backstop their loans.
The Detroit Three have supported the supplier requests, and so has Toyota.
“The biggest challenge that we face is really on the supplier side of the business,” said Jim Lentz, president of Toyota’s US sales, who met with the auto task force on Wednesday.
Whatever the outcome of those negotiations, it is likely that tens of thousands of jobs — at the suppliers and the carmakers — rest on the results.
“When I watch the news at night and I see one of those news alerts coming across the screen, my heart just goes off,” Kennedy said last week during a break. “They’ll say this plant is closing, or that plant is losing a shift. And I know if they go down, I go, too. Thats just how it is.”
– The Washington Post