Monday, April 11, 2005
GM To Suppliers - Push Prices Lower
The first issue is that the vast majority of GM suppliers are already running on razor-thin margins. That's bad in itself, because that leaves suppliers in a precarious short-term situation (which means that a single vendor could put a big hurt on their customers).
But worse yet is that thin or non-existant profits mean that there's no money to roll back into R&D or capital improvements, which means that GM might be getting the same technology now that they were getting years ago - or at the very best, they'll be getting the leftovers of OEMs who actually pay suppliers for hard work and innovation.
The final issue is that GM's somewhat-unspoken requirement that suppliers meet "world-class" prices usually means one thing - moving work to China. That actually presents two problems. First is that work moved to China means fewer people employed in the US - that means fewer jobs for domestic workers, and thus fewer potential customers for GM (while workers in the US may not be able to afford many new-car purchases, I assure you the situation is much worse outside of the US - which is why so many economies are dependant on exports). The second problem with this is that foreign components erode the perception that GM cars are "American", and I've got a strong feeling that many GM sales (and of the Big 3 in general) can be attributed to little beyond where people think they're built. Destroy that, and I think you destroy the Big 3.