Will "Critical" Suppliers Please Step Forward?

Over on 1 Procurement Place, Mark Usher has penned an analysis of the situation that all GM and Chrysler suppliers find themselves in. To wit, are they on the bankrupt OEMs' lists of "critical" suppliers that will "get paid most of their outstanding invoices at the originally presented payment terms" or will the debts be forgiven or renegotiated in bankruptcy? Mark suggests that suppliers that don't make the list might have their payment terms "extended 30 days or more beyond their originally presented terms or in many cases will be told their payment is pending". Which is a double whammy because many suppliers are finding that banking "lines of credit will immediately be frozen" given their precarious financial position. But the real issue here for the entire supply chain will ultimately come down, as Mark suggests, to the fact that non-critical suppliers have the direct ability to impact critical suppliers and OEMs should they not survive the overall industry restructuring.

So if we assume that a material percentage -- say 20% to 50% if you believe the management consulting and restructuring firm estimates -- of automotive suppliers will go bankrupt in all of this and if you assume that of this percentage, 25-50% will be forced into liquidation (chapter 7), then it's pretty clear the OEMs and higher tier suppliers are going to have to move fast to implement new sources of supply (let's assume that they've identified this potential supply base already). But the problem, in many cases, is that the train has already left the station and the entire automotive supply chain will be forced through this painful restructuring as they attempt to function in the normal course of business without shutting down facilities -- or at least avoid shutting down the ones they want to keep open.

When OEMs introduce new platforms, they have years -- or at least quarters -- to define the supply chain. The PPAP (production part approval process) is an absolute bear as anyone in automotive knows. But now, they'll be forced to pursue the same type of production-level ramp up that they normally have many months to achieve (sometimes longer) within the normal course of business.

My prediction is an absolute train wreck when it comes to unintended automotive supply risk consequences during this transition period. Not to sound overly dire, but there is nothing about the situation that lends itself to sleeping well at night. All automotive OEMs should be equally concerned

Jason Busch

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