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ANALYSIS
March 2, 2009
Downward price spiral will actually boost the cost of capital for most companies. CFOS, take note.
March 2, 2009
The latest bailout at AIG could be a preview of how the president will deal with Wall Street.
March 2, 2009
No corporate defaults. Big debt offerings. Percolating CP issuance. Things may be looking up in the capital markets.
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November 23, 2008 12:01 AM ET
(Automotive News)—If a Detroit automaker collapsed, could it halt production at Asian- or European-owned auto plants in the United States? That scenario suddenly looks painfully plausible. Why? Import-brand automakers rely on many of the same suppliers as General Motors, Ford and Chrysler. If GM halted operations and was unable to pay a big supplier, the damage to the supplier’s cash flow and creditworthiness could force it to shut down, interrupting the flow of parts it makes for Japanese or German plants. All over North America, financially vulnerable GM suppliers also provide critical parts to the transplants. “The number of parts for which there are double- or triple-sourced suppliers is very small,” said Carlos Tavares, executive vice president at Nissan Motor. This month, Standard & Poor’s placed the ratings of a number of big North American suppliers on credit watch, saying the companies may not be able “to withstand the liquidity shock of a sudden bankruptcy filing by one or more” of the Big Three. “We are deeply concerned,” said Mike Goss, a spokesman for Toyota Motor in Erlanger, Ky. “We share many of the same suppliers with the Detroit Three. “We are trying to monitor a fast-changing situation,” he said. “We are vulnerable in a few cases.” A former Toyota U.S. manufacturing executive who asked not to be identified said a supplier’s business failure typically gives a car company the right to step in and continue producing its parts. But in the event of a major supply chain collapse, “not even Toyota would be able to retool suppliers and financially support such a downward spiral,” he said. Bill Diehl, chief executive of consultancy BBK, warned the failure of a major supplier could interrupt production for months. “The notion that an automaker can simply turn over the production tooling to another supplier and keep right on moving is sadly mistaken,” he said. “In some cases, there are proprietary patents. There are regulatory issues, logistics issues, not to mention dealing with the courts.”
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