The North American Automotive Supply Chain: &*@T Rolls Downhill

Ever Since GM and Ford decided that they would pay all of their outstanding invoices to supplier at a discount to their face value years ago, the US automotive supply chain has never been the same. As a result, many of the tier one suppliers defaulted to similar appalling treatment of their supply base just to stay alive (or perhaps just to imitate the antics of their much despised customers). And this behavior continues. An Associated Press dispatch from Detroit that I found sheds some light on one particular case involving Dana and its supplier, Citation.

According to the story, "Dana Corp. has resolved a series of long-standing disputes with Citation Corp ... In March of 2006, just days before Dana filed for bankruptcy protection, Citation threatened to halt all shipments to Dana unless the company paid $4.9 million to "clear all open invoices ... To avoid a "devastating shutdown" of its factories, Dana said it made an immediate wire transfer of $3.5 million to Citation." Unfortunately stories like this are not uncommon. After succumbing to extortionist treatment from buyers for years, many of the lower tier suppliers began to force the hands of their customers. Even one tier one supplier that I know of forced GM into a similar position -- based on the advice of a turnaround firm -- after years of being beaten to a pulp. But unfortunately, even these last ditch efforts will not be enough to save many who are lower down the Detroit supply chain.

Jason Busch

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