Monday’s Wall Street Journal featured a front-page article, “Bankruptcy Fears Grip Auto-Parts Companies.^[1]”  The tale: Slumping production by the Big Three has put pressure on the auto industry’s parts makers, some of which may be forced into bankruptcy or out of business altogether.  Either event could generate production problems for other carmakers (Toyota and Volkswagen, in particular, were mentioned), due to delays in supplies or, at worst, the disappearance of suppliers.

One factor that received only a passing mention is the automakers’ continued push for rock-bottom prices, often with special concessions on top of them.  (The Detroit companies have long been particularly noted for this.)  A parts contract with a Big Three company can be extremely tempting: Enormous potential volumes, although at minimal margins.  And once a supplier gains one, it can be sure that the buyer will be back next year, looking for a price cut.

The Big Three’s attitude towards their parts suppliers has traditionally been, “Take it or leave it.  Don’t like our business on our terms, fine.  Somebody else will be happy to get it.”  If you asked industry executives if their suppliers were profitable, the answer would often be, “What do we care?”

But things have changed since the 50s.  The narrow margins (and declining volumes) of the parts business forced the less-astute suppliers out of it:  Some closed, others moved into less cutthroat markets.  Meanwhile cars became more complex.  More sophisticated engineering and the press for improved quality meant fewer commodity parts, and fewer still that could be successfully produced by a run-of-the-mill metal basher.  And the American economy’s shift away from manufacturing left fewer domestic vendors capable of fulfilling an auto maker’s requirements, or interested in doing so.

Many of the parts manufacturers that remain have little financial reserve.  The endless push for lower prices produces an endless cycle of spending the majority of this year’s profit on technology and innovation needed to keep next year’s contract, on which the profit will be less.^[2]  All of which is exacerbated by bad economic conditions: While a healthy company can survice a canceled order or a delayed payment, either can put a fragile company on the ropes.

Beggar-thy-vendor may have been a successful strategy in the past. It may still be one, provided your company is a WalMart, selling commodity consumer goods obtained from a seemingly endless collection of interchangable Asian suppliers.  It’s less wise when the business involves custom-made items for which an alternate supply– or supplier– may not be readily available.

The irony is that, at a time they find themselves in a fight for their existence, the Big Three have to start worrying about the health of their suppliers, and realizing that, in a truly successful business relationship, everybody involved has to make money.


Related, later (090203 01:41):  C.G. Hill explains why car companies can’t be run like Google (and, maybe, why Google doesn’t want to run a car company):

...Almost all decisions, design and otherwise, in the auto industry have to be filtered through the interminable mesh of governmental mandates before coming to any sort of fruition at all...

[Auto manufacturers will never be flexible and nimble]... until Congress gets out of the regulation business — or until Google buys Congress and shuts it down entirely...

Posted by: Old Grouch in In Passing at 23:46:14 GMT | Comments (1) | Add Comment
Post contains 634 words, total size 5 kb.

Two great posts (and a scary graphic) from Suitably Flip:
Stimulus, Illustrated

So how big is the resulting $1.2 trillion [expenditure+interest] [stimulus] spending package? Big enough to dwarf any government program in history, even after adjusting for inflation. It’s bigger than the New Deal and the Iraq War combined. The interest alone will be costlier than the Louisiana Purchase or going to the moon. The $18 billion in bonuses paid legally by private Wall Street firms in 2008 - decried by the President as “shameful” - is vanishingly small in comparison (smaller even than the bill’s incremental food stamps expenditures).

Excusing employers from... [the employer’s share of the payroll] tax would cost an estimated $455 billion per year (ignoring the growth effect of removing hiring disincentives).  With $1.173 trillion to play with, you could fund a payroll tax holiday for more than 2.5 years...
...
Extrapolating from estimates by Heritage’s Center for Data Analysis, a 1-point change in the payroll tax rate ratchets the pace of job creation by 147,000 per year.  Eliminating the employer-side payroll tax completely would be a 7.65-point reduction.  ...Using that as a general guide gets us to 1.12 million incremental jobs per year.

Over 2.5 years, that's good for more than 2.8 million new jobs.

Posted by: Old Grouch in Linkage at 21:38:06 GMT | No Comments | Add Comment
Post contains 214 words, total size 2 kb.

A couple of days R&R (along with the right meds) have restored Roberta X to full capacity. Today she’s after the Democrats (but the Republicans have no cause to feel safe!). Go read:

Posted by: Old Grouch in Linkage at 18:17:18 GMT | No Comments | Add Comment
Post contains 38 words, total size 1 kb.

...and “tyree” pre-scripts the coverage (just to make sure that all the talking points get covered):

“Today in Alaska the failed Republican Vice Presidential nominee, former beauty contestant Sarah Palin proved impotent to stop the erupting volcano which was caused by global warming...”

Posted by: Old Grouch in Linkage at 15:59:31 GMT | No Comments | Add Comment
Post contains 54 words, total size 1 kb.

And another reporter heard from:

The wife and I were watching The Weather Channel, hoping for some on-the-scene Jim Cantore-brand hyperbolic doomscreaming.  He didn’t disappoint.

He was in Paducah, Kentucky^[*], and when the studio weatherchick chirpily asked him, “So how are things down there, Jim?”, he paused for a couple of beats, put on his “My God, the horror...” face, then said in a grim, low monotone, “This reminds me of the aftermath of Hurricane Katrina.”

Except for the city-destroying flooding, the refugees, the death and the looting… yes, Jim, it’s just like Katrina. - “Dave S.”, in a comment at Blair’s place

The word from utility workers with direct Katrina experience is that ice storm devastation to western Kentucky’s power grid is worse than that inflicted by the infamous Gulf Coast hurricane.

“We’ve got linemen here from southern Mississippi who were there when Katrina hit, who worked the area after the hurricane,” said Kevin Inglish, a spokesman for West Kentucky Rural Electric Cooperative Corp.” - Paducah Sun, February 3, 2009 [requires registration]

Posted by: Old Grouch in In Passing at 00:29:54 GMT | No Comments | Add Comment
Post contains 196 words, total size 2 kb.

Instapundit linked this:

Last week, the East Bay Express published an article regarding the California Air Resources Board’s (CARB) plans for aftermarket, plug-in hybrid conversions.

Proving once again that CARB is a political machine with something more than “clean air” in its agenda, the board is set to deal a punishing, bureaucratic body-blow to startup companies like 3 Prong Power and A123 Systems. - Gas2.0 weblog [links in original]

“And yet they’re supposed to be anti-pollution.”

Posted by: Old Grouch in In Passing at 00:03:15 GMT | No Comments | Add Comment
Post contains 172 words, total size 3 kb.

Dear Tax Guys:
I've had a lot on my mind lately, and when I was going through some old receipt boxes in my filing cabinet I suddenly realized I haven't paid my income taxes for the past 8 years. Am I in trouble? Please help!
Forgetful in Fort Worth

Dear Forgetful:
Here at the IRS, we realize that many well-meaning taxpayers like you can be distracted by various family illnesses, baseball pennant races, political campaigns, and so on. The rules for late filing can be surprisingly flexible if you have the right qualifying circumstances.  According to IRS guidelines, you are eligible for the 306(b)(19) “I Forgot” amnesty if the following applies:

(1) Your total adjusted gross income in the “I Forgot” years was equal to or greater than $8,528,000; and
(2) You are a nominee to head a cabinet-level federal agency...

All U.S. taxpayers would enjoy the same immunity from IRS penalties and interest as House Ways and Means Chairman Charles Rangel (D-NY) and Obama Administration Treasury Secretary Timothy Geithner, if a bill introduced today by Congressman John Carter (R-TX) becomes law.

Carter, a former longtime Texas judge, today introduced the Rangel Rule Act of 2009, HR 735, which would prohibit the Internal Revenue Service from charging penalties and interest on back taxes against U.S. citizens. Under the proposed law, any taxpayer who wrote “Rangel Rule” on their return when paying back taxes would be immune from penalties and interest.

Posted by: Old Grouch in Linkage at 17:54:56 GMT | No Comments | Add Comment
Post contains 353 words, total size 4 kb.

Inches away from the worst January on record for snowfall in Cleveland?

Posted by: Old Grouch in Linkage at 16:17:05 GMT | No Comments | Add Comment
Post contains 14 words, total size 1 kb.

Twelve inches worth.  (Picture in sidebar below the break.)

And I hope you’re satisfied!.

Later:  And somebody needs to ask the mayor which idiot in the traffic division thought today would be a good day for writing parking tickets.  Not to me, but I saw it on teewee, so it must be true.
more...

Posted by: Old Grouch in Dear Diary... at 23:47:27 GMT | No Comments | Add Comment
Post contains 83 words, total size 2 kb.

Every time you use it to take a picture.

Under penalty of law.  (Link fixed 090320.)

(“Camera Phone Predator Alert Act.”  Give me a break!)

Y’know, I’m really glad Congress has time to worry about stuff like this.

Elsewhere:

Posted by: Old Grouch in In Passing at 23:49:21 GMT | No Comments | Add Comment
Post contains 178 words, total size 3 kb.