The Future Supply Chain Failure For Auto Makers Could Prevent Stable Recovery

When we look at the massive slow down in the auto industry we note that not only are the Big Three on the edge of bankruptcy, but all are cutting out capacity at an alarming rate. They are also holding their accounts payable checks for their vendors, causing them to also face bankruptcy.
 
The auto dealers are not selling cars and are getting very little support from the manufacturers, now some help is on its way in the form of freeing up financing divisions to make loans to consumers, but that does not seem to be working either since consumer confidence is so low, no one wants to buy a car.
 
Still, in all of this we know that things are tough at the bottom of a recession and that eventually everything will return, but once it does, one has to ask; how on Earth can it ramp up without utter chaos as the entire supply chain is coming apart? It will take a while to get it back up to speed.
 
Meanwhile, this means factories will not run efficiently, adding costs, which is exactly what the Auto Makers need to cut, because as things return to normal, they will still be operating on a shoe string and their credit ratings will have suffered greatly.
 
When I discuss supply chain, I am talking about everything from raw materials, shipping, parts, vendors, financing, money flows and the manufacturing floor itself. Some say foreign auto makers are better suited to take advantage of the climb back up. One article in Wharton’s newsletter stated:
 
“Toyota is better positioned to readjust its product mix than its competitors. Cachon notes that General Motors carries inventory for 70 to 75 days, while Toyota, with better management of its supply chain and production system, typically has 35 to 45 days’ worth of inventory. If General Motors could attain the same efficiencies, Cachon says, the company would save about $4 billion.”If GM had been able to reduce inventories in the past, they wouldn’t be caught in the downwind and would have had more working capital … to ride out the storm.”
 
[Cite: Biggest by Default: Toyota May Be Number One, But It Still Faces Challenges
Published: February 04, 2009 in Knowledge-At-Wharton]
 
This indeed, makes a good point, but it inventories are only 35-45 days Toyota will have a problems as they spool back up to full power, as there is less leeway for problems with vendors and their supply chain, even if their costs are less and their working system is more suited for efficiency. If the supply chain has disruptions then their very advantages can become disadvantages. Think on this.

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