How Suppliers Are Weathering the Automotive Storm

Courtesy of the Buffalo News comes this article describing how different suppliers are attempting to weather the automotive storm. The challenge that they're facing is not only reduced volumes, but also suspension of production as GM temporarily turns out its lights "at a host of its plants this summer, to reduce auto inventory and cut costs". But it's not just parts suppliers who are feeling the brunt of the GM slowdown. It's also local construction companies, services/plant MRO suppliers and others.

Still, if you consider that according to a recent court filing, "75 percent to 85 percent of every GM automobile consists of components made by companies other than GM," the scale of the issue impacting automotive suppliers becomes clear. In addition, the article quotes another GM document noting that for approximately 600 suppliers, "sales to GM represent more than 30 percent of their annual revenues".

What are suppliers doing to weather this storm? The article suggests that some are attempting to shift markets and geographies (e.g., capturing part of the growing Chinese market). Others are moving into different formats such as retail. Still more are pursuing jobs in different but related industries. In this regard, it's no surprise that a number of the industrial directories and marketplaces that I've contacted recently appear to not be seeing the same level of slowdown in advertising or related spend from suppliers. Rather, suppliers are investing in reaching new markets.

Continuing on the contrarian sourcing argument from earlier in the week, the supplier response to the slowdown suggests to me that companies would be wise to consider doubling-down not only on their sourcing efforts, but also their supplier identification efforts. As suppliers are hungry to win the right type of new business -- and are willing to make the investment to do so -- it very well might be a chance to engage industrial suppliers on terms besides just price (e.g., assumption of tooling costs but transfer of ownership, VMI, JIT, etc.) After all, if they're willing to advertise to win new business, you can be sure they'll make the investment in building a relationships, especially if they see that it goes beyond just unit price.

Jason Busch

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