When US auto sales declined from 17 million in 2005 to a low of 10.5 milliom in 2009 the suppliers whether Tier 1 or Tier 2 got squeezed. The demand for lower costs and market contraction meant that weaker auto suppliers barely stayed alive and certainly could not globalize into low-cost locations. There was neither hope nor cash to expand globally.
The top quartile (25%) of suppliers to auto industry were strong and continued their low-cost global expansion and they are fine as auto recovers in the US. The average age of a car is at an unprecedented 10 years – unthinkable in the US where 4% of the GDP was spent on auto which declined to about 2.5% of GDP . Auto sales are expected to pick up from 10.5 million to between 13-15 million autos in 2011 and auto companies are smiling. Ford has record profits while GM is on course for an IPO that will repay the bailout money. But what happens to the lower 75% suppliers ?
The top 25% suppliers have become stronger with global low-cost operations and the bottom 75% are floundering. If these weaker auto suppliers close – there would be more US job losses and the good news of auto sales pick up will not extend to the auto supply chain jobs.
Is it time to bailout/support the weaker auto suppliers ? Something to look at.