Sunday, October 09, 2005

The American Auto Industry: Near Collapse?

Delphi is bankrupt and thousands will be out of work soon. Pundits in the auto world are already predicting the death of the entire American auto industry as a result. I think that that is certainly a possibility, but I doubt it will happen. Why?

1. Bankruptcy does not mean the end of Delphi. It just means Delphi will return in a different form with a lot less workers and a new business plan. The results will be disastrous for the Michigan economy, but Delphi will more than likely continue to exist.

2. Car parts are one thing, cars are another. On its face that statement seems ridiculous. After all a car is merely the sum of its parts. But in reality is more than its parts, it also has culture and meaning imbued in its design, size, and use. Take Harley Davidson. There basically are no large American parts suppliers for Harley that make every part of the motorcycle. Much of a Harley Davidson is from Japanese and probably now Chinese parts. Yet the motorcycle company is in no danger of going bankrupt. People don't care about the parts, they care about the end product. Car companies will now more than ever seek to buy parts from cheap foreign lands, but the car, or the design will not change as a result.

So that's my take on it. However if GM continues to make cars that are essentially the sum of their parts, then GM will join Delphi in business purgatory. GM will be watching closely what happens to Delphi, not just because they will pay billions to resurrect it in some form, but also to see the advantages and disadvantages of going bankrupt themselves and alleviating themselves of the costly pensions to UAW workers they have retired over the decades.

It will be a volatile next few years to be sure for the American auto industry.

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