Should GM Source 100% From LCCS Countries? Nope …

Despite my free trade leanings, I would never advocate that a company source 100% from abroad (unless, of course, global suppliers were willing to own inventory stateside and manage a JIT program at their expense). Wishful thinking. That's why I found this article, and rumored quote from GM’s Chairman, fascinating. According to various sources quoted in the article, a "GM official told an industry gathering last week that GM bought 43% of its tooling for vehicles and parts from "low-cost countries" such as China, Mexico and India. They estimate that the automaker buys between $3 billion and $5 billion in tooling annually. The tooling associations quoted the official as saying "if the Chairman had his way, it would be 100%." Clearly, this is not idle talk. GM would love to lower its cost structure further by looking abroad. But given the risks inherent in sourcing from a global supply base, it would be foolish to ever move 100% of spend in a given category offshore. Better to dual-source or follow a 60/20/20 strategy.

Also of note in the article is that "Tooling firms had asked the Obama administration to set up a payment system allowing them to receive most of their payments within 60 days, saying it can now take up to 18 months for automakers and large suppliers to pay their tooling bills." Wow. 18 months? I've not heard of payment terms like that before. But then again, we've never seen volume declines like we're seeing now. GM's sourcing strategy aside, I've been a proponent of making sure lower tier suppliers get some share of the automotive bailout funds. After all, making Federal loan guarantees or a related strategy would free-up the Feds to let GM restructure itself in bankruptcy without putting the majority of its suppliers out of business.

- Jason Busch

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