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Just Shoot Me

Bala, 28, Gordon Gekko in the making, pseudo-intellectual, cynic, bibliophile, obsessive compulsive ranter...

The dependents of the American auto industry

December 12, 2008

A few days back, i saw the above table in Paul Kedrosky's blog.

I didn't understand it. A 9x relationship with peripheral jobs seemed too much for a bunch of car makers. I have no experience in the manufacturing sector - spent all my career in service sector : 4 years in IT, 3 in Financial services. So i asked a friend who has worked for an auto ancillary company in Wisconsin to comment on this and he cleared things up for me. I have produced his explanation below:

Let's connect the dots:

a) Ford is an Auto company
b) Cummins is an engine manufacturer - some 30% of their business would be ford (30 as an example..but it would be a 2 digit number for sure)
c) Federal Mogul (FM) supplies piston rings for Cummins - 40% (40 - close to reality) of FM's business is Cummins.
d) FM's supplier foundry is a small business - Treat All Metals Inc. Treat all metal's 50% business is FM.
e) There are a lot of machine shops (mom and pop owned companies set in rural wisconsin) dependent on big companies like FM. I'm talking about 50% plus Nuts, Bolts manufacturers - these will depend on a lot of companies like FM
f) Warehouses that service FM are totally dependent on FM, as FM buys up space in bulk

Lets assume, Ford takes away one line of their vehicle - say, Ford Explorer. Cummins can't make engines for the Ford Explorer, FM can not make piston rings for Cummins, Treat all Metals loses the related foundry orders, the machine shops lose their FM business (which is their bulk of business) and the warehouses lose their sole customer.

Scary huh?. Thats just one of the big 3. Imagine what happens if all three (GM,Chrysler and Ford) go under. Now please excuse whilst i curl up in fetal position and whimper for my mommy..


posted by Bala, 6:59 PM


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