Friday, May 01, 2009

Chrysler's Bankruptcy - The First Domino?

I'm more concerned about Chrysler's bankruptcy than most commentators seem to be. Compare the noise to that made about the Porky-the-Pig Plague, which has killed only a few hundred when all flu combined kill tens of thousands each year.

The Big Three have been in trouble for years, and unfortunately they are not alone. Many of the Tier 1 suppliers (those that supplied finished assemblies to the automakers) have had the screws tightened during the decline leaving them in horrible shape as well. Look at the bankruptcies of Meridian, Tower Automotive...

Even when Chrysler is the smallest manufacturer, it could be enough to set off a whole chain of additional defaults, much like what happened in the insurance and banking industry. Chrysler goes under, one or more suppliers go under, making it difficult/impossible to supply Ford and/or GM, further compounding their problems. Keep in mind that there are also Tier 2 suppliers, mold makers, service providers...that will all be directly affected as well.

People love to beat up on the automakers for being out-of-touch with their massive designs and poor quality - "just let them fail" - but it's more than just the Big Three at issue here. There are hundreds of thousands of additional people supporting this industry. The exodus from Michigan is already estimated at one family every 12 minutes, and this can only increase it, raising the cliche question:

Will the last person leaving Detroit please shut off the lights?

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