Friday, October 03, 2008

Watching the wheels come off...

Not only do I have a BIG love of the American automobile, I also have immense fondness for the Big 3 automakers. I hail from the rust belt and automobile manufacturing is a huge part of our daily lives there. In fact, if the L&M and I hadn't decided to strike out into the larger world and seek our fortunes, we would have ended up on the assembly line of a car plant. So when I heard Kimberley Rodriguez of Grant Thornton speaking about them yesterday, I sat up and paid attention. Ms. Rodriguez is one of the most respected supply chain management and restructuring experts in the automotive field and she knows her stuff, IMO.

Auto sales are now at levels not seen since 1993. And when I heard that Chevrolet's largest dealership, Bill Heard, out of Atlanta was closing it's doors, well, I knew the auto industry was grinding to a halt.

Earlier this year, Grant Thornton forecast 2,700 dealerships would need to shut down in order to maintain 2007 sales levels of about 750 cars and trucks per dealership. Given the steep drop in auto sales, Grant Thornton now puts that number at 3,800 dealerships.

"Significant consolidation is necessary, especially among Ford, General Motors and Chrysler retailers, because U.S. sales already have declined more than 1 million units this year," Grant Thornton analyst Paul Melville said.

What does the loss of 1 million units mean? How many manufacturing facilities would need to be shut down to support such drastically reduced sales levels? Well, according to Ms. Rodriguez (no link - sorry, I was watching her being interviewed on FBC. Update: Finally! I found a link - and more detail):

4 production plants
2 engine plants
2 1/2 transmission plants
50 Tier I just in time assembly/powertrain sites
Over 500 supplier manufacturing locations
With losses cascading down to Tier II, Tier III operations and
the truck and rail companies that ship components

It's not over yet.

"Yesterday's results put the entire industry on alert, as many experts had expected some level of recovery to occur in the second half of this year," said Rodriguez. "Nine months into 2008, sales and economic conditions are worsening. We may not have seen the bottom."

"The full effect of such a 2 million unit decline from 2007 is generally underappreciated and will likely lead to even higher unemployment numbers,"she added. "Potentially, more than 100,000 jobs are at risk."

And this is where the wheels start coming off -and it's right in the middle of Main Street.