GM's Financial Problems May Actually Trickle Down to Corvette

[Rob]

Given the overwhelming public response with the new C6 Corvette, I thought for sure, that Corvette would most surely be immune to the financial problems that GM is currently dealing with. After reading an article in today's Detroit Auto News, unfortunately, that may not be the case.

While GM's problems may not be directly affecting the Corvette, they are however, indirectly affecting it through the companies that supply various parts for the Corvette.

During the development of a new automobile, parts suppliers are chosen based upon the cost to produce the part, the quality of the part, the ability to produce the parts in quantities necessary to meet production demand, and probably a whole other host of criteria that I'm not aware of.

To add to this, multiple companies that can produce the same part are usually researched and contacted to see which company can produce the lowest cost, highest quality part. This can take a good chunk of time, as parts are tested for quality, placed into "the field" for durability testing, etc. The entire process can take some time depending upon what kind of part we're talking about here.

In order to see how GM's problems could indirectly affect the Corvette, read the article below that appeared in today's Detroit Auto News:

Wednesday, April 27, 2005


Auto supplier files bankruptcy

Meridian blames GM, Ford output cuts, cash flow problems in seeking protection.

By Brett Clanton / The Detroit News

Meridian Automotive Systems Inc., a Dearborn-based supplier of automotive body panels and interior components, filed for Chapter 11 bankruptcy protection Tuesday, citing a litany of industry pressures that have battered parts makers in recent months.

The company, with $1 billion in annual sales, will use bankruptcy protection to restructure debts, which have mounted to $600 million in the face of rising commodity prices, production cuts at General Motors Corp. and Ford Motor Co. and a change in the way automakers pay suppliers for parts.

"Meridian has very strong operations, great relationships with a diversified customer base and high-quality products," Meridian CEO Thomas Divird said.

"However, we need to reduce our debt and simplify our capital structure in order to remain competitive under current market conditions."

The company doesn't plan to close any of its 22 plants or lay off any of its 5,400 employees--including about 2,500 in Michigan -- at this time.

Meridian, which supplies parts for such vehicles as the Ford Expedition and Chevrolet Corvette, is the latest major auto parts supplier to buckle under the pressure of industry headwinds.

It follows Novi-based Tower Automotive Inc. and Troy-based Oxford Automotive Inc. and Intermet Corp., which sought bankruptcy protection in recent months. Other major suppliers are downsizing.

Last week, Lear Corp. said it would have to close plants and move manufacturing to low-cost countries to ensure survival.

Analysts say other suppliers are likely to fall.

"It's really bad," said Jim McTevia, chairman of consulting firm McTevia & Associates in Eastpointe, Michigan. "This is just the start of what the future holds for the supplier industry."

"Right now, anybody that's got a lot of debt is in serious jeopardy," added Jim Gillette, a supplier industry analyst with CSM Worldwide in Grand Rapids.

In its bankruptcy filing in Wilmington, Del., Meridian listed consolidated assets of $530 million and debts of $815 million. It included eight domestic subsidiaries in the filing, but not its operations in Mexico, Canada and Brazil.

The first warning signs about Meridian came two years ago when the privately-held company mounted a failed attempt to make an initial public offering, Gillette said.

The failed IPO signaled that investors had doubts about buying into a company with heavy debts and a dependence on business from Detroit automakers, he said.

Standard & Poor's Rating Services said in downgrading the company's credit rating that "liquidity is believed to be very thin because of poor cash flow generation."

Meridian's recent problems are due in part to first-quarter production cuts at GM and Ford, accounting for more than half of the supplier's business. Steel prices, which have doubled since last year, and a 10 percent year-over-year increase in the cost of plastics - a major ingredient in key Meridian products like bumpers - also had an impact, company spokesman Doug Morris said.

In addition, the recent termination of early-pay programs by several automakers dried up Meridian's cash flow for operations by delaying payment for parts when they are delivered rather than before they are shipped.

Meridian said it has secured $375 million in interim financing from Wall Street firm J.P. Morgan to see it through bankruptcy, but is waiting on court approval for the funds.



You can reach Brett Clanton at (313)222-2612 or [email="bclanton@detnews.com."]bclanton@detnews.com.[/email]

 

[Greenie]

Rob, if Im not mistaken, Lear supplies interior parts for the Corvette. Court protection isnt necessarily a bad thing. The major problem as I see it is that GM has failed to heed the publics demand for innovative design, reliability and quality. It figures that they would blame the workers first!!

 

[B17Crew]

The major problem as I see it is that GM has failed to heed the publics demand for innovative design, reliability and quality.

As much as I support GM, I think you’re right on the money with your statement. GM should’ve put more effort in those categories 5-10 years ago. You reap what you sew.

B17Crew

 

[Greenie]

Thanks B17. I wish I was wrong but I dont think so. Look at the design of the GTO. First of all, its been modified already!! Even with the mod, it still has NO character. Its simply a Pontiac with some guts. Its a corporation run amuck!!!!!

 

[B17Crew]

I think Saturns Ion is in the same boat, as the Goat. Saturn has updated the Ion exterior as well. Large organizations/companies never cease to amaze me.

One of our clients where I work is a mutli-billion dollar corporation. You wouldn’t believe how inefficient and wasteful they are with their resources (not environmental). If all American companies are being run like this — look out.

GM needs to hire someone like Jack Welch, keep Lutz, the Solstice and Sky look promising.

I want to see GM do well and prosper, there are many problems to fix though.

B17Crew

 

[OLDGOAT]

Depends on GM marketing strategy

I agree that GM problems may affect the C6. However, I see it as a question of what it will mean for vette pricing. Come Monday 5/2 I understand we might get some numbers. Will GM , cash strapped as it is, try to milk the vette market more by having significant price increases? Will they bundle even more options like making us take OnStar, XM, nav etc etc if we want a vette? In other words will they squeeze vette buyers more?

Or....will they hold the line on prices and go for more vette volume since other lines are dropping "like a rock"?

I don't know. One other possibility is that they allow quality to slip or cheapen materials etc. And....they could even do this while having price increases.

we'll soon see for the '06, my hunch is they will do an increase of a couple thousand on the base C6. They'll try to plunder with the Z06 but might just find themselves with lots of cars on the lot a la Viper if they get the price too high. ( yes, I know, initially some buyers will pay almost anything for one of them but this can't last forever as there is not a never ending pool of buyers who can /will afford a $75,000 or more vette )

just my opinion